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**UNITED STATES
   SECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549

FORM 10-KSB

(Mark One)

[X] Annual Report Under Section 13 Or 15(d) Of The
Securities Exchange Act Of 1934

For the fiscal year ended December 31, 2006

[   ] Transition Report Under Section 13 Or 15(d) Of
The Securities Exchange Act Of 1934

For the transition period from __________ to __________

COMMISSION FILE NUMBER **000-32011**

BALSAM VENTURES, INC.(Name of small business issuer in its charter)

|NEVADA                                                               | 52-2219056                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|1480 Gulf Road, Suite 204                                            |                                     
|Point Roberts, WA                                                    | 98281                               
|(Address of principal executive offices)                             | (Zip Code)                          
|                                                                     |                                     
|(360) 306-0230                                                       |                                     
|Issuer's telephone number                                            |                                     

Securities registered under Section 12(b) of the Exchange Act:
NONE.

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

COMMON STOCK, $0.001 PAR VALUE PER SHARE.

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

Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-KSB or any amendment to this Form 10-KSB. [   ]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No
[X]

State issuer's revenues for its most recent fiscal year.
NIL.

State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked price of such
common equity, as of a specified date within the past 60 days. (See
definition of affiliate in Rule 12b-2 of the Exchange Act). $1,674,248 as
of December 29, 2006, based on the average of the closing bid price of $0.07 and
closing ask price of $0.08 as of that day.

State the number of shares outstanding of each of the issuers
classes of common equity, as of the latest practicable date. 36,226,663
shares of common stock as of March 29, 2007.

Transitional Small Business Disclosure Format (check one): Yes
[   ] No [X]

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BALSAM VENTURES, INC.

ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 2006

TABLE OF CONTENTS

|           |                                                                                                                                                   | PAGE
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|           |                                                                                                                                                   |     
|PART I     |                                                                                                                                                   | 3   
|           |                                                                                                                                                   |     
|ITEM 1.    | DESCRIPTION OF BUSINESS.                                                                                                                          | 3   
|           |                                                                                                                                                   |     
|ITEM 2.    | DESCRIPTION OF PROPERTY                                                                                                                           | 6   
|           |                                                                                                                                                   |     
|ITEM 3.    | LEGAL PROCEEDINGS                                                                                                                                 | 6   
|           |                                                                                                                                                   |     
|ITEM 4.    | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.                                                                                              | 6   
|           |                                                                                                                                                   |     
|PART II    |                                                                                                                                                   | 7   
|           |                                                                                                                                                   |     
|ITEM 5.    | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                                                          | 7   
|           |                                                                                                                                                   |     
|ITEM 6.    | MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.                                                                                        | 9   
|           |                                                                                                                                                   |     
|ITEM 7.    | FINANCIAL STATEMENTS.                                                                                                                             | 16  
|           |                                                                                                                                                   |     
|ITEM 8.    | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE                                                        | 17  
|           |                                                                                                                                                   |     
|ITEM 8A.   | CONTROLS AND PROCEDURES                                                                                                                           | 17  
|           |                                                                                                                                                   |     
|ITEM 8B.   | OTHER INFORMATION.                                                                                                                                | 17  
|           |                                                                                                                                                   |     
|PART III   |                                                                                                                                                   | 18  
|           |                                                                                                                                                   |     
|ITEM 9.    | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS
      AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT | 18  
|           |                                                                                                                                                   |     
|ITEM 10.   | EXECUTIVE COMPENSATION.                                                                                                                           | 19  
|           |                                                                                                                                                   |     
|ITEM 11.   | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS.                                             | 20  
|           |                                                                                                                                                   |     
|ITEM 12.   | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE                                                                   | 22  
|           |                                                                                                                                                   |     
|ITEM 13.   | EXHIBITS                                                                                                                                          | 23  
|           |                                                                                                                                                   |     
|ITEM 14.   | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                                                            | 24  
|           |                                                                                                                                                   |     
|SIGNATURES | 25                                                                                                                                               

Page 2 of 25

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PART I

ITEM
1.           
 DESCRIPTION OF BUSINESS.

FORWARD LOOKING STATEMENTS

The information in this discussion contains forward-looking
statements. These forward-looking statements involve risks and uncertainties,
including statements regarding the Company's capital needs, business strategy
and expectations. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks described below, and, from time to time, in other reports the Company
files with the United States Securities and Exchange Commission (the SEC).
These factors may cause the Company's actual results to differ materially from
any forward-looking statement. The Company disclaims any obligation to publicly
update these statements, or disclose any difference between its actual results
and those reflected in these statements.

As used in this Annual Report, the terms we, us, our,
Balsam, and the Company mean Balsam Ventures, Inc., unless otherwise
indicated. All dollar amounts in this Annual Report are expressed in U.S.
dollars, unless otherwise indicated.

OVERVIEW

We were incorporated on August 17, 1999 under the laws of the
State of Nevada. We are in the business of developing and marketing a patented
unique proprietary technology (the Cool Can Technology) that we have licensed
from NorPac Technologies, Inc. (formerly Cool Can Technologies, Inc.)
(NorPac). Our license from NorPac allows us to sublicense and manufacture
self-chilling beverage containers based upon the Cool Can Technology.

RECENT CORPORATE DEVELOPMENTS

Since the last fiscal year ended December 31, 2005, we have
experienced the following developments in our business:

|1. | Effective January 14, 2006, we entered into an agreement
      (the Extension Agreement) with NorPac to extend the date on which we are
      required to commence paying minimum royalty payments of $5,000 per month
      (the Minimum Royalty Payments) under our license agreement with them.
      The date the Minimum Royalty Payments are to commence was extended from
      January 15, 2006 to January 15, 2007 in exchange for the following
      consideration:                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The shares issued to NorPac were issued pursuant to the
      exemption from registration contained in Section 4(2) of the Securities
      Act of 1933.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | From June to August of 2006, we engaged in discussions
      with a German brewery and packaging company to sublicense the Cool Can
      Technology. Samples of some components of the chilling mechanism were sent
      to Germany in August, 2006 to be examined by the brewery company.
      Negotiations with the brewery company have ceased. At this time, we have
      no plans to revisit these discussions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | Effective on October 1, 2006, we issued an
        aggregate of 10,226,663 shares of our common stock to holders of the 10%
        convertible notes (the Convertible Notes) that we issued in
        December, 2003 as payment in full of the principal and interest owing
        thereunder. 8,666,663 shares of our common stock were issued to the Convertible
        Note holders on account of the principal amount owing on the Convertible
        Notes at a conversion price of $0.03 per share. An additional 1,560,000
        shares of our common stock were issued on account of interest owing on
        the Convertible Notes at a conversion price of $0.05 per share. The shares
        issued to the Convertible Note holders were issued in reliance upon the
        provisions of Regulation S promulgated under the Securities Act of 1933
        (the Securities Act).

Page 3 of 25

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LICENSE OF COOL CAN TECHNOLOGY

On November 30, 2003, we entered into an exclusive licensing
agreement with NorPac (the License Agreement) for the Cool Can Technology.

Under the License Agreement, NorPac granted us the license, for
a period of 40 years, to enjoy, commercialize and exploit the Cool Can
Technology in countries comprising the European Union and the Peoples Republic
of China (the Exclusive Region). Under the License Agreement, we have the
right, within the Exclusive Region, to manufacture, use and sell apparatus and
products embodying the Cool Can Technology and to grant sub-licenses of our
right to manufacture, use and sell products embodying the Cool Can Technology.
The License Agreement further provides us with a right of first refusal with
respect to any transfers, sales or assignments of the Cool Can Technology by
NorPac, including patents, trademarks or other intellectual property rights. We
also have a right of first refusal with respect to any licensing rights for
countries which are not a party to the North American Free Trade Agreement and
are outside of the Exclusive Region. In consideration for the rights granted to
us under the License Agreement, we agreed to:

| | (a) | issue to NorPac 5,000,000 shares of our common stock,
      which shares were issued in May, 2004; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | pay ongoing royalties to NorPac equal to 2% of gross
      profits from the sale of products and 5% of gross licensing revenues.
      Notwithstanding that we may not earn gross profits from the sale of
      products or gross licensing revenues, we agreed to pay NorPac minimum
      royalty payments of $5,000 per month (the Minimum Royalty Payments)
      beginning January 15, 2006. The date on which we were required to begin
      making the Minimum Royalty Payments was extended to January 15, 2007 under
      the terms of the Extension Agreement.

As of the date of filing this Annual Report, due to a lack of
sufficient funds, we had not yet begun paying the Minimum Royalty Payments. We
are currently in the process of negotiating a short-term debt financing and
expect to pay the amounts owing to NorPac on account of the Minimum Royalty
Payments within the next 30 days. NorPac has verbally agreed not to exercise its
default rights under the License Agreement at this time.

COOL CAN TECHNOLOGY

NorPac's proposed product is referred to as the "Cool Can"
product and consists of a module for insertion in an aluminum beverage container
that incorporates a cartridge of liquid carbon dioxide ("CO2") that is held in
place by a cartridge holder. The module consists of proprietary technology for
which NorPac has been granted patent protection. The module would be inserted in
an aluminum beverage container during an automated canning process. Containers
incorporating the Cool Can product would be identified and sold as self-chilling
beverage containers. To start the chilling process, a consumer would pull the
tab off the container as with a regular non-chilling beverage container. When
the tab on the lid of the beverage container is pulled by the consumer, a valve
mechanism within the container releases the compressed liquid CO2. The escaping
CO2 forms into small particles of frozen snow at extremely cold temperatures and
rapidly imparts a chilling action to the beverage. The targeted result is that
the consumer may purchase a beverage at room temperature and enjoy it cold
without having to purchase it from a cooler or purchase ice to cool the
beverage.

Page 4 of 25

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MARKETS AND MARKETING STRATEGIES

Under the License Agreement, we have the right, within the
Exclusive Region, to manufacture, use and sell apparatus and products embodying
the Cool Can Technology and grant sub-licenses of our right to manufacture, use
and sell products embodying the Cool Can Technology. We plan to commercialize
and exploit the Cool Can Technology in the Exclusive Region. However, we can
provide no assurances that we will be able to do so.

COMPETITION

We believe the market for a self-chilling beverage container is
an emerging market.

We are aware of three other firms that are currently attempting
to manufacture and market a similar technology to the Cool Can Technology. We
believe the competitors use either a combination of gases to create a chilling
effect or a CO2 based reactant system, and hold one or more U.S. patents on
their designs. As of yet, none of these companies appear to be close to having a
commercially viable product available for purchase. All three of the competitors
are private companies and little is known about their size or financial
capabilities.

We believe that success in marketing a self-chilling beverage
container will be based primarily on price, ease of use, quality, product
awareness, product safety, and ultimately an endorsement by one or more major
beverage companies. There can be no assurance that the Cool Can Technology will
be able to successfully compete against the technology of its competitors.

GOVERNMENT REGULATIONS

The currently projected uses for our self-chilling beverage
container may be subject to government regulations in production, sale, safety,
advertising, and labelling of such products. We are required to comply, and it
is our policy to comply, with applicable laws in the countries in which we do
business. We do not foresee any major legal or regulatory barriers to the use of
the Cool Can Technology as the key element and only substance which mixes with
the beverage is CO2, which has always been present in beverages and is an
accepted substance for the beverage industry.

The materials expected to be used in manufacturing the Cool Can
are similar to those used in present canning materials and we believe that they
will be fully compatible with government requirements in the Exclusive Region.
We expect to comply with the appropriate government standards and
regulations.

Our product may be subject to various environmental laws and
regulations in the countries in which we do business, specifically regarding the
release of CO2 into the atmosphere. We are not aware of any such laws that are
currently applicable to the Cool Can Technology. The US Environmental Protection
Agency ("EPA"), in their efforts to protect the stratospheric ozone, have
determined that a self-chilling beverage can utilizing CO2 as the refrigerant
has a minimal impact on the ozone layer. In the Notice of Acceptability
published in the Federal Register effective February 24, 1998, it was also
determined that self-chilling cans utilizing CO2 either recovered as a
by-product from other industrial activities or taken from the atmosphere will
further reduce the net impact. The EPA has not specifically approved the Cool
Can, but it does meet the standards of the EPA. There have been no costs to date
associated with compliance, nor are any anticipated. As such, we believe that
the Cool Can will also comply with the environmental laws of countries within
the Exclusive Region.

Various safety features are incorporated into the design of the
Cool Can. The primary safety feature becomes important in a situation such as
throwing the can in a fire. The gases in the cylinder are designed to escape
harmlessly at a certain temperature through a safety valve. The use of CO2
capsules in things like seltzer bottles and whipping cream dispensers is not a
new concept and have been used by consumers without incident for some time.

Additionally, the Cool Can is designed to be in full compliance
with all recycling requirements since the component parts are expected to be
manufactured utilizing only recyclable materials.

Page 5 of 25

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SIGNIFICANT EMPLOYEES

We have no significant employees other than our sole executive
officer and director.

RESEARCH AND DEVELOPMENT

We incurred no research and development expenditures to date.

INTELLECTUAL PROPERTY

We do not own, either legally or beneficially, any patents or
trademarks. Subject to the License Agreement, the patents, trademarks and other
intellectual property rights which make up the Cool Can Technology remain the
property of NorPac. However, under the terms of the License Agreement we have a
right of first refusal to acquire those patents, trademarks or other
intellectual property rights should NorPac seek to dispose of the Cool Can
Technology during the term of the License Agreement. Under the License
Agreement, we are required to prosecute, within the Exclusive Region, any
possible infringements upon NorPacs patents or trademarks relating to the Cool
Can Technology.

As discussed above, we are currently in default of our
obligations under the License Agreement as amended by the Extension Agreement.
We are currently in the process of negotiating a short-term debt financing and
expect to pay the amounts owing to NorPac on account of the Minimum Royalty
Payments within the next 30 days. NorPac has verbally agreed not to exercise its
default rights at this time. If we fail to pay the Minimum Royalty Payments due
to NorPac, we may lose our rights under the License Agreement.

ITEM
2.             DESCRIPTION
OF PROPERTY.

We have no real property holdings and, at this time, we have no
agreements to acquire any properties. We do not lease any real property. Because
of our limited operations, our management has determined that it is unnecessary
for us to lease full-time office space at this time. The office space that we
use is currently provided to us on an as needed basis, at a cost of $50 per
month.

ITEM
3.             LEGAL
PROCEEDINGS.

We are not a party to any legal proceedings and, to our
knowledge, no such proceedings are pending, threatened or contemplated.

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

No matters were submitted to our security holders during the
fourth quarter of our fiscal year ended December 31, 2006.

Page 6 of 25

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PART II

ITEM
5.             MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Our common shares are quoted on the Over-The-Counter Bulletin
Board (the OTC Bulletin Board) under the symbol BLSV. The following table
indicates the high and low bid prices of the common shares obtained during the
periods indicated:

2006
      
      2005High
      
      Low
      
      High
      
      LowFirst Quarter ended March 31
      $ 0.180
      
      $ 0.060
      
      $ 0.110
      
      $ 0.035Second Quarter ended June 30
      $ 0.180
      
      $ 0.100
      
      $ 0.100
      
      $ 0.040Third Quarter ended September 30
      $ 0.120
      
      $ 0.060
      
      $ 0.090
      
      $ 0.050Fourth Quarter ended December 31
      $ 0.100
      
      $ 0.070
      
      $ 0.075
      
      $ 0.040


The high and low price quotes of our common stock as set out in
the table above are as quoted on the OTC Bulletin Board. The market quotations
provided reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.

PENNY STOCK RULES

The SEC has adopted rules that regulate broker-dealer practices
in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, to deliver a standardized risk disclosure
document prepared by the SEC, which: (a) contains a description of the nature
and level of risk in the market for penny stocks in both public offerings and
secondary trading; (b) contains a description of the broker's or dealer's duties
to the customer and of the rights and remedies available to the customer with
respect to a violation of such duties or other requirements of securities laws;
(c) contains a brief, clear, narrative description of a dealer market, including
bid and ask prices for penny stocks and significance of the spread between the
bid and ask price; (d) contains a toll-free telephone number for inquiries on
disciplinary actions; (e) defines significant terms in the disclosure document
or in the conduct of trading in penny stocks; and (f) contains such other
information and in such form as the SEC shall require by rule or regulation. The
broker-dealer also must, prior to effecting any transaction in a penny stock,
provide the customer with: (a) bid and offer quotations for the penny stock; (b)
the compensation of the broker-dealer and its salesperson in the transaction;
(c) the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock; and (d) monthly account statements showing the market value of each
penny stock held in the customer's account. In addition, the penny stock rules
require that, prior to a transaction in a penny stock that is not otherwise
exempt from those rules, the broker-dealer must: (a) make a special written
determination that the penny stock is a suitable investment for the purchaser
and (b) receive from the purchaser his or her written acknowledgement of receipt
of the determination and a written agreement to the transaction.

These disclosure requirements may have the effect of reducing
the trading activity in the secondary market for our stock and therefore
stockholders may have difficulty selling those securities.

REGISTERED HOLDERS OF OUR COMMON STOCK

As of March 29, 2007, there were 18 registered holders of
record of our common stock. We believe that a large number of stockholders hold
stock on deposit with their brokers or investment bankers registered in the name
of stock depositories.

Page 7 of 25

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DIVIDENDS

We have neither declared nor paid any cash dividends on our
capital stock since our inception and do not contemplate paying cash dividends
in the foreseeable future. It is anticipated that earnings, if any, will be
retained for the operation of our business. Our board of directors will
determine future dividend declarations and payments, if any, in light of the
then-current conditions they deem relevant and in accordance with the Nevada
Revised Statutes.

There are no restrictions in our articles of incorporation or
in our bylaws which prevent us from declaring dividends. The Nevada Revised
Statutes, however, do prohibit us from declaring dividends where, after giving
effect to the distribution of a dividend:

| | (a) | We would not be able to pay our debts as they become due
      in the usual course of business; or                                                                                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                          
| | (b) | 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
      shareholders who have preferential rights superior to those receiving
      distributions.

RECENT SALES OF UNREGISTERED SECURITIES

Effective January 14, 2006, we agreed to issue 500,000 shares
of our common stock to NorPac in consideration for NorPacs agreement to extend
the date upon which the Minimum Royalty Payments are to commence under the
License Agreement. These shares were sold to NorPac pursuant to the exemption
from registration contained in Section 4(2) of the Securities Act of 1933.
NorPac is a principal stockholder of the Company, beneficially owning greater
than 10% of our common stock and, as such, has (a) the ability to understand the
risks of an investment in our common stock, and (b) access to the type of
information that would normally be contained in a registration statement. In
addition, Bruce Leitch, NorPacs President and sole director at the time the
sale was completed, is a close personal friend and close business associate of
John Boschert, our sole executive officer and sole director, and is a
sophisticated person with extensive experience in investing in similar types of
securities.

Effective on October 1, 2006 we converted the principal and
interest on the Convertible Notes into an aggregate of 10,226,663 shares of our
common stock. In accordance with the terms of the convertible notes, the
principal on the convertible notes was converted at a rate of $0.03 per share
and interest owing on the convertible notes was converted at a rate of $0.05 per
share. The shares issued to the convertible note holders were issued in reliance
upon the provisions of Regulation S promulgated under the Securities Act. We did
not engage in a distribution of this offering in the United States. The
convertible note holders were not US persons as defined in Regulation S and
provided representations indicating that they were acquiring our securities for
investment purposes only and not with a view towards distribution. No
underwriting discounts or commissions were involved.

Page 8 of 25

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ITEM
6.             MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

PLAN OF OPERATION

We were unable to make any significant progress in pursuing our
plan of operation during the last fiscal year as we were unable to secure
sufficient financing. In addition, due to our lack of funding, we have not yet
begun to make the Minimum Royalty Payments to NorPac as required under the terms
of the License Agreement, as amended by the Extension Agreement. NorPac has
verbally agreed not to exercise its default rights at this time. We are
currently in the process of negotiating a short-term debt financing and expect
to pay the Minimum Royalty Payments to NorPac within the next 30 days.

Our plan of operation for the next twelve months will involve
the following:

|(1) | We plan to continue to seek sub-licensing agreements to
      finance approximately $300,000 for the development of the Cool Can
      Technology. In 2006, we entered into discussions with a German brewery and
      packaging company to sublicense the Cool Can Technology. Negotiations with
      the Germany brewery company have ceased and we intend to seek out other
      sublicensing arrangements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Regardless of whether or not we are able to secure
      sublicensing agreements, we plan to proceed with product development and
      the production of samples of self-chilling beverage container modules.
      This phase of development will include the following elements and will
      take approximately nine months once financing is in place:                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|(2) | We anticipate spending approximately $20,000 on
      professional fees over the next twelve months in complying with our
      reporting obligations under the Securities Exchange Act of 1934.                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                  
|(3) | We anticipate spending approximately $140,000 on general
      overhead expenses, including office expenses and consulting
  fees.                                                                                                                                                                                                                                                                               

Subject to our obtaining adequate financing, we anticipate that
we will be spending approximately $460,000 over the next twelve-month period
pursuing our stated plan of operation. Of these anticipated expenditures, we
anticipate that $230,000 will be spent on our plan of operation over the next
six months. However, our ability to complete the above plan of operation is
dependent upon our obtaining substantial financing as our present cash reserves
are not sufficient for us to carry out the above plan of operation. We are
currently attempting to arrange for financing through sub-licensing arrangements
that would enable us to proceed with our plan of operation.

At the end of our fiscal year ended December 31, 2003, we
reached a verbal agreement with BIG K.G. (BIG), a German company, pursuant to
which BIG agreed to act as our agent for the purpose of locating European
placees for a proposed private placement of 40,000,000 units at a price of
$0.025 per unit for total potential proceeds of $1,000,000 (the Private
Placement). Under the terms of our verbal agreement, each unit to be issued
under the proposed Private Placement will consist of one share in our common
stock and one share purchase warrant entitling the warrant holder to purchase
one additional

Page 9 of 25

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share of our common stock at a price of $0.05 per share. BIG is
to receive a commission of $100,000 for services provided in connection with the
proposed Private Placement. Although the verbal agreement with BIG in respect of
the proposed Private Placement remains in place, there exists a substantial
doubt that the proposed Private Placement will complete, as three years have
passed since we first reached this agreement. We do not have any other financing
arrangements in place and there is no assurance that we will be able to achieve
sufficient financing required to commercialize the Cool Can Technology and to
earn revenues.

Our actual expenditures and business plan may differ from the
one stated above. Our board of directors may decide not to pursue this plan. In
addition, we may modify the plan based on available financing.

RESULTS OF OPERATIONS

Summary of Year End Results

|                  | Year Ended December 31
|----------------- | ----------------------
|                  | 2006                  
|                  |                       
|Revenue           | $ nil                 
|Expenses          | (419,165)             
|Net Income (Loss) | $(419,165)            

Revenues

We did not earn any revenues during the fiscal year ended
December 31, 2006. We do not anticipate earning revenues until we are successful
in completing the development of the Cool Can Technology and commercializing
this technology. We are presently in the development stage and we can provide no
assurance that we will be successful in earning revenues from the Cool Can
Technology even if we achieve the financing to develop this technology.

Expenses

The major components of our expenses for the year are outlined
in the table below:

|                                           | Year Ended December 31
|------------------------------------------ | ----------------------
|                                           | 2006                  
|                                           |                       
|Accretion of discount on convertible notes | $256,960              
|Bank charges and interest                  | 19,781                
|Consulting Services                        | 60,000                
|Foreign exchange (gain) loss               | (67)                  
|License payment                            | 50,000                
|Office and Sundry                          | 2,137                 
|Professional fees                          | 27,553                
|Regulatory                                 | 2,231                 
|Stock transfer services                    | 570                   
|Total Expenses                             | $419,165              

Page 10 of 25

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Consulting fees accrued during the period were incurred with
respect to general administrative and accounting work performed in connection
with our business activities and in connection with meeting our regulatory
filings.

Professional fees for the year ended December 31, 2006
represented fees incurred in respect of legal and audit services provided in
connection with meeting our ongoing reporting obligations under the Securities
Exchange Act of 1934 (the Exchange Act). Professional fees during fiscal 2006
decreased by $31,437 or 53.3% from fiscal 2005. Professional fees during fiscal
2005 were unusually high, primarily because we changed our principal independent
accountants during the 2005 fiscal year. Moving forward, we expect professional
fees associated with meeting our ongoing reporting obligations under the
Exchange Act to be closer to the amounts incurred during fiscal 2006.

We recorded an expense of $256,960, relating to the accretion
of the discount on certain convertible notes issued by us in 2003. See Critical
Accounting Policies: Convertible Notes Payable. The principal and interest on
these convertible notes was converted into an aggregate of 10,226,663 shares of
our common stock on October 1, 2006.

The license payment of $50,000 recorded during fiscal 2006
represents the consideration paid to NorPac under the Extension Agreement. The
consideration paid to NorPac consisted of $20,000 in cash and 500,000 shares of
our common stock at a recorded price of $0.06 per share.

If we are able to proceed with our plan of operation for the
next twelve months, of which there is no assurance, we expect that our overall
expenses will increase significantly.

LIQUIDITY AND FINANCIAL CONDITION

Cash Flows

|                                             | Year Ended December 31
|-------------------------------------------- | ----------------------
|                                             | 2006                  
|Net Cash from (used in) Operating Activities | $(54,274)             
|Net Cash from Investing Activities           | -                     
|Net Cash from Financing Activities           | 55,000                
|Net Increase in Cash During Period           | $726                  

Working Capital

|                        |                      |                      | Percentage           
|----------------------- | -------------------- | -------------------- | ---------------------
|                        | At December 31, 2006 | At December 31, 2005 | Increase / (Decrease)
|Current Assets          | $2,476               | $1,700               | 45.6%                
|Current Liabilities     | (365,930)            | (310,949)            | 17.7%                
|Working Capital Deficit | $(363,454)           | $(309,249)           | 17.5%                

Our working capital deficit increased during the year ended
December 31, 2006 because of the fact that we had no sources of revenue during
the year and the fact that our only financing during the period came from short
term loans.

Financing Requirements

From inception to December 31, 2006, we have suffered
cumulative losses in the amount of $1,329,454. We expect to continue to incur
substantial losses as we continue the development of our business. During our
2006 fiscal year, our only sources of financing were short term loans totaling
$55,000. These loans are unsecured, non-interest bearing and payable on demand.
Since our inception, we have funded operations

Page 11 of 25

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through common stock issuances, related party loans, and the
support of creditors in order to meet our strategic objectives. Our management
believes that sufficient funding will be available to meet our business
objectives, including anticipated cash needs for working capital, and are
currently evaluating several financing options, including a public offering of
securities. However, there can be no assurance that we will be able to obtain
sufficient funds to continue the development of and, if successful, to commence
the sale of, our products. As a result of the foregoing, our independent
auditors believe there exists substantial doubt about our ability to continue as
a going concern.

We will require additional financing if we are not successful
in earning revenues from the Cool Can Technology. There is no assurance that we
will be able to obtain additional financing if and when required. We are
currently in the process of negotiating a short-term debt financing to enable us
to meet some of our current obligations, including the Minimum Royalty Payment
due under the License Agreement with NorPac. However, we do not expect to be
able to secure short-term debt financing in an amount sufficient to enable us to
complete our Plan of Operation. Additional financing may come in the form of
sales of additional shares of our common stock which may result in dilution to
our current shareholders.

At the end of our fiscal year ended December 31, 2003, we
reached a verbal agreement with BIG K.G. (BIG), a German company, pursuant to
which BIG agreed to act as our agent for the purpose of locating European
placees for a proposed private placement of 40,000,000 units at a price of
$0.025 per unit for total potential proceeds of $1,000,000 (the Private
Placement). Under the terms of our verbal agreement, each unit to be issued
under the proposed Private Placement will consist of one share in our common
stock and one share purchase warrant entitling the warrant holder to purchase
one additional share of our common stock at a price of $0.05 per share. BIG is
to receive a commission of $100,000 for services provided in connection with the
proposed Private Placement. Although the verbal agreement with BIG in respect of
the proposed Private Placement remains in place, there exists a substantial
doubt that the proposed Private Placement will complete, as three years have
passed since we first reached this agreement. We do not have any other financing
arrangements in place and there is no assurance that we will be able to achieve
sufficient financing required to commercialize the Cool Can Technology and to
earn revenues.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.

We have identified certain accounting policies, described
below, that are most important to the portrayal of our current financial
condition and results of operation. Our significant accounting policies are
disclosed in Note 2 to the audited financial statements included in this Annual
Report.

Foreign Currency Translation

Our functional currency is the U.S. dollar. Transactions in
foreign currency are translated into U.S. dollars as follows:

****i)      
monetary items at the exchange rate prevailing at the balance sheet
date; ****ii)     
non-monetary items at the historical exchange rate;
and ****iii)    
revenue and expense items at the average rate in effect during the applicable
accounting period.

Page 12 of 25

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Translation adjustments resulting from this process are
recorded in Stockholders Equity as a component of Accumulated Other
Comprehensive Income (Loss).

Gains and losses arising on translation or settlement of
foreign currency denominated transactions or balances are recorded in the
Statement of Operations.

Convertible Notes Payable

During the year ended December 2003, we issued convertible
notes, maturing October 1, 2006, aggregating $260,000 and bearing interest of
10% per annum. The notes were convertible into common shares at the lesser of
$0.03 per share or 50% of the average trading price of our common shares for the
ten trading days prior to conversion.

In applying the provisions of Emerging Issues Task Force
Release No. 98-5 and 00-27, we recorded a discount on the convertible debentures
in the amount of $260,000. This discount was accreted to interest expense using
the interest method over the life of the notes (three years). As the effective
interest rate, which is determined by dividing the actual interest rate on the
convertible debentures by the discounted debt amount, approaches infinity, the
interest expense to be recorded approximates the future cash payments. Interest
expense recorded relating to the accretion of the discount for the year ended
December 31, 2006 was $256,960 (2005 - $3,040). The remaining discount on the
convertible debentures as of December 31, 2006 was $Nil (2005 - $256,960).

During the year ended December 31, 2006, $19,446 (2005 -
$26,018) of interest expense was accrued and charged to the statement of
operations. No cash payments of interest were made during the respective
periods.

During the year ended December 31, 2006, included in accounts
payable and accrued was $Nil (2005 - $58,554) accrued interest payable.

At October 1, 2006, $260,000 of convertible notes payable were
converted to common stock at $0.03 per common share and $78,000 of accrued
interest payable on these convertible notes was settled by issued common stock
at $0.05 per common share.

RISKS AND UNCERTAINTIES

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

We have suffered recurring losses and net cash outflows since
our inception and we expect to continue to incur substantial losses to complete
the development of our business.

Our ability to continue as a going concern is dependent upon
our ability to obtain additional financing, restructure our debt, streamline our
business and reduce our costs. We are currently in the process of identifying
sources of additional financing, negotiating changes to our debt structure and
evaluating our strategic options. However, there are no assurances that these
plans can be accomplished on satisfactory terms, or at all, or that they will
provide sufficient cash to fund our operations, pay the principal of, and
interest on, our indebtedness, fund our other liquidity needs or permit us to
refinance our indebtedness. Our inability to obtain additional financing,
restructure our indebtedness, streamline our business or reduce our costs would
have a material adverse effect on our financial condition, results of operations
and ability to satisfy our obligations, and may result in our pursuing a
restructuring of our indebtedness either on a consensual basis or under the
provisions of bankruptcy legislation, or liquidating our business and
operations. Further, our inability to obtain additional financing or restructure
our indebtedness, or our pursuing a restructuring of our indebtedness either on
a consensual basis or under the provisions of bankruptcy legislation, may result
in our stockholders losing all or a material portion of their investment in our
securities.

Page 13 of 25

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We require additional financing to continue our plan of
operation.

Our plan of operation calls for significant expenses in
connection with the development of the Cool Can Technology and the Cool Can
product. Our current operating funds are insufficient to complete our plan of
operation which will require an estimated $460,000 to be spent over the next 12
months developing and marketing a prototype of the Cool Can product in order to
accomplish our goals. As of December 31, 2006, we had cash of $2,426. Therefore,
we will need to obtain additional financing in order to complete our prototype
development. We will also require additional financing if the costs of the Cool
Can Technology and Cool Can product development are greater than anticipated.
There is no assurance that actual cash requirements will not exceed our
estimates. In particular, additional capital may be required in the event
that:

| | 1. | we incur unexpected costs in completing the development
      of a prototype or encounter any unexpected technical or other
      difficulties;
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                
| | 2. | we incur delays and additional expenses as a result of
      technology failure;                                                               
| |    |                                                                                                                                                
| | 3. | we are unable to create a substantial market for the Cool
      Can product; or                                                                
| |    |                                                                                                                                                
| | 4. | we incur any significant unanticipated
  expenses.                                                                                             

The occurrence of any of the aforementioned events could
adversely affect our ability to meet our plan of operation.

If we are unable to obtain additional financing in the amounts
and on terms deemed acceptable to us, our business and future success may be
adversely affected.

We are in default of our obligations under our License
Agreement with NorPac.

As of the date of filing this Annual Report, we had not yet
begun paying NorPac the Minimum Royalty Payments required under the License
Agreement as amended by the Extension Agreement. NorPac has verbally agreed not
to exercise its default rights at this time, however there are no assurances
that it will not do so in the future. We are currently negotiating a short-term
debt financing that will enable us to make the Minimum Royalty Payments due and
owing at this time. However, if we are unable to secure financing in an amount
sufficient to allow us to cure our default, we may lose our rights to the Cool
Can Technology.

Risks Related To The Protection Of Intellectual Property
Rights.

Ownership of patents granted for the Cool Can Technology
resides with NorPac, who has licensed worldwide exclusivity to make, use and
sell products based on such patent applications to us in consideration of
license fees and royalties payable to NorPac. We are relying on the patent
applications of NorPac to protect our core technologies and products from
competition. Under the License Agreement, we are required to prosecute, within
the Exclusive Region, any possible infringements upon NorPacs patents relating
to the Cool Can Technology.

A portion of NorPacs proprietary technology depends upon
unpatented trade secrets and know-how. Without the patent protection we would be
vulnerable to competition from third parties who could develop competing
products through reverse engineering. Also, without the patent protection,
competitors may independently develop substantially equivalent technology or
otherwise gain access to our trade secrets, know-how or other proprietary
information.

Our product development program may not be successful.

If we complete development of a prototype of the Cool Can
product there is no assurance that the prototype will work as expected. In the
event we successfully develop a prototype, there is no assurance that we will be
able to manufacture the prototype at a reasonable cost. Even if we are able to
manufacture the prototype at a reasonable cost, there is no assurance that the
price of the Cool Can product will not be excessive, precluding the product from
generating sufficient consumer or market acceptance.

Page 14 of 25

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If we are unable to achieve market acceptance for our
products, we will be unable to build our business.

To date, we have not entered into any sub-licensing or other
agreements with respect to the Cool Can Technology licensed by us. Our success
will depend on the acceptance of the Cool Can Technology by the beverage
industry, as well as by related businesses and the general public. Achieving
such acceptance will require significant research and development investment.
The Cool Can Technology generally, and the proposed Cool Can product
specifically, may not achieve widespread acceptance by businesses in general, or
by major beverage suppliers, beverage manufacturers or agents thereof, which
could limit our ability to develop and expand our business. The market for
self-chilling beverages is relatively new and is evolving. Our ability to
generate revenue in the future depends on the acceptance by both our customers
and beverage manufacturers in general. The adoption of the Cool Can Technology
could be hindered by the perceived costs of this new technology to consumers and
beverage brand owners. Accordingly, in order to achieve commercial acceptance,
we will have to educate prospective customers, including large, established
beverage manufacturers, about the uses and benefits of the Cool Can Technology.
If these efforts fail, or if the Cool Can Technology does not achieve commercial
acceptance, our business could be harmed.

We have a limited operating history.

We have a relatively short operating history and we are
involved in a rapidly evolving and unpredictable industry. As of December 31,
2006, we had a working capital deficit of $363,454. We will need to generate
significant revenues to achieve profitability, which may not occur. We expect
operating expenses to increase as a result of the further implementation of our
business plan. Even if we achieve profitability, we may be unable to sustain or
increase profitability on a quarterly or annual basis in the future. It is
possible that we will never achieve profitability.

We have yet to earn revenues, and, because our ability to
sustain new operations is dependent on our ability to raise financing, our
accountants have expressed a substantial doubt about our ability to continue as
a going concern.

Since our inception, we have suffered recurring losses and net
cash out flows from our activities. To date, we have funded our activities
through issuances of our common stock, related party loans and the support of
creditors. There are no assurances that we will be able to obtain financing
sufficient to support our ongoing activities. As a result, Telford Sadovnick,
PLLC has expressed a substantial doubt about our ability to continue as a going
concern.

Page 15 of 25

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ITEM
7.             FINANCIAL
STATEMENTS.

|   |                                                                                                                                                                           | Page
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|   |                                                                                                                                                                           |     
|1. | Report
      of Independent Registered Public Accounting Firm;                                                                                                            | F-2 
|   |                                                                                                                                                                           |     
|2. | Balance
      Sheets as at December 31, 2006 and December 31, 2005;                                                                                                       | F-3 
|   |                                                                                                                                                                           |     
|3. | Statements
      of Operations for the years ended December 31, 2006, December 31, 2005,
      and for the period from inception on August 17, 1999 to December 31, 2006; | F-4 
|   |                                                                                                                                                                           |     
|4. | Statements
      of Cash Flows for the years ended December 31, 2006, December 31, 2005,
      and for the period from inception on August 17, 1999 to December 31, 2006; | F-5 
|   |                                                                                                                                                                           |     
|5. | Statement
      of Stockholders Equity (Deficiency) for the period from inception on
      August 17, 1999 to December 31, 2006; and                                     | F-6 
|   |                                                                                                                                                                           |     
|6. | Notes
      to Financial Statements.                                                                                                                                      | F-8 

Page 16 of 25

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BALSAM VENTURES, INC.(A Development Stage Company)

FINANCIAL STATEMENTS

DECEMBER 31, 2006 and 2005

(Stated in U.S. Dollars)

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders ofBalsam Ventures, Inc.(A Development Stage Company)

We have audited the accompanying balance sheets of Balsam
  Ventures, Inc. (the Company) (a Development Stage Company) as
  at December 31, 2006 and 2005, the related statements of operations, stockholders
  equity (deficiency) and cash flows for the years then ended and the related
  statements of operations, cash flows and stockholders equity for the period
  from August 17, 1999 (inception) to December 31, 2006. 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 standards of the Public
  Company Accounting Oversight Board (United States). Those standards require
  that we plan and perform an audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. 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 financial statements referred to above present
  fairly, in all material respects, the financial position of Balsam Ventures,
  Inc. (a Development Stage Company) as at December 31, 2006 and 2005 and
  the results of its operations and its cash flows for the years then ended and
  the results of its operations and its cash flows for the period from August
  17, 1999 (inception) to December 31, 2006 in conformity with accounting principles
  generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming
  the Company will continue as a going concern. As discussed in Note 1 to the
  financial statements, the Company has suffered recurring losses and net cash
  outflows from operations since inception. These factors raise substantial doubt
  about the Companys ability to continue as a going concern. Managements
  plans in regard to these matters are also described in Note 1. The financial
  statements do not include any adjustments that might result from the outcome
  of this uncertainty.

TELFORD SADOVNICK, P.L.L.C.

CERTIFIED PUBLIC ACCOUNTANTS

Bellingham, Washington
  March 14, 2007

---



BALSAM VENTURES, INC.(A Development Stage Company)

BALANCE SHEETS(Stated in U.S. Dollars)

|                                                             |   | DECEMBER 31 |  
|------------------------------------------------------------ | - | ----------- | -
|                                                             |   | 2006        |  
|                                                             |   |             |  
|ASSETS                                                       |   |             |  
|                                                             |   |             |  
|Current                                                      |   |             |  
|Cash                                                         | $ | 2,426       |  
|Prepaid expenses                                             |   | 50          |  
|                                                             |   | 2,476       |  
|                                                             |   |             |  
|LIABILITIES                                                  |   |             |  
|                                                             |   |             |  
|Current                                                      |   |             |  
|Accounts payable
      and accrued liabilities               | $ | 276,329     |  
|Loans payable (Note 4)                                       |   | 89,601      |  
|                                                             |   | 365,930     |  
|                                                             |   |             |  
|Convertible Notes Payable Net Of Discount
      On Notes     |   |             |  
|Attributable To Beneficial Conversion Feature
      (Note 5) |   | -           |  
|                                                             |   | 365,930     |  
|                                                             |   |             |  
|Commitments And Contractual Obligations(Note 6)              |   |             |  
|                                                             |   |             |  
|STOCKHOLDERS DEFICIENCY                                     |   |             |  
|                                                             |   |             |  
|Share Capital                                                |   |             |  
|Authorized:                                                  |   |             |  
|100,000,000 common voting stock, par value with              |   |             |  
|$0.001
      per share                                       |   |             |  
|                                                             |   |             |  
|Issued and outstanding:                                      |   |             |  
|36,226,663 common stock at December 31, 2006                 |   |             |  
|25,500,000 common stock at December 31, 2005                 |   | 36,227      |  
|                                                             |   |             |  
|Additional paid-in
      capital                             |   | 929,773     |  
|                                                             |   |             |  
|Deficit Accumulated During The Development Stage             |   | (1,329,454  | )
|                                                             |   | (363,454    | )
|                                                             |   |             |  
|                                                             | $ | 2,476       |  

The accompanying notes are an integral part of these financial
  statements.

F-3

---

BALSAM VENTURES, INC.(A Development Stage Company)

STATEMENTS OF OPERATIONS(Stated in U.S. Dollars)

|                                                 |       |             |       |   |             |   |   | INCEPTION | 
|------------------------------------------------ | ----- | ----------- | ----- | - | ----------- | - | - | --------- | 
|                                                 |       |             |       |   |             |   |   | AUGUST 17 | 
|                                                 |       | YEAR ENDED  |       |   | 1999 TO     |  
|                                                 |       | DECEMBER 31 |       |   | DECEMBER 31 |  
|                                                 |       | 2006        |       |   | 2005        |   |   | 2006      | 
|                                                 |       |             |       |   |             |   |   |           | 
|Expenses                                         |       |             |       |   |             |   |   |           | 
|Accretion of discount
      on convertible notes | $     | 256,960     |       | $ | 3,040       |   | $ | 260,000   | 
|Bank charges and interest                        |       | 19,781      |       |   | 26,237      |   |   | 79,473    | 
|Consulting services                              |       | 60,000      |       |   | 60,000      |   |   | 405,947   | 
|Domain registration                              |       | -           |       |   | -           |   |   | 436       | 
|Foreign exchange
      (gain) loss               |       | (67         | )     |   | 1,195       |   |   | 1,128     | 
|License payment                                  |       | 50,000      |       |   | -           |   |   | 313,000   | 
|Office and sundry                                |       | 2,137       |       |   | 2,540       |   |   | 14,083    | 
|Professional fees                                |       | 27,553      |       |   | 58,990      |   |   | 218,444   | 
|Regulatory                                       |       | 2,231       |       |   | 2,243       |   |   | 13,234    | 
|Stock transfer services                          |       | 570         |       |   | (40         | ) |   | 5,935     | 
|Travel                                           |       | -           |       |   | -           |   |   | 9,099     | 
|Write off of developmental costs software        |       | -           |       |   | -           |   |   | 8,675     | 
|                                                 |       |             |       |   |             |   |   |           | 
|Net Loss For The
      Period                    | $     | 419,165     |       | $ | 154,205     |   | $ | 1,329,454 | 
|                                                 |       |             |       |   |             |   |   |           | 
|                                                 |       |             |       |   |             |   |   |           | 
|                                                 |       |             |       |   |             |   |   |           | 
|Net Loss Per Share,
      basic and diluted      | **$** | **(0.00**   | **)** | $ | (0.01       | ) |   |           | 
|                                                 |       |             |       |   |             |   |   |           | 
|                                                 |       |             |       |   |             |   |   |           | 
|Weighted Average Number of Shares Outstanding    |       | 28,559,871  |       |   | 25,500,000  |   |   |           | 

The accompanying notes are an integral part of these financial
  statements.

F-4

---

BALSAM VENTURES, INC.(A Development Stage Company)

STATEMENTS OF CASH FLOWS(Stated in U.S. Dollars)

|                                                           |   |             |   |   |              |   |   | INCEPTION  |  
|---------------------------------------------------------- | - | ----------- | - | - | ------------ | - | - | ---------- | -
|                                                           |   |             |   |   |              |   |   | AUGUST 17  |  
|                                                           |   | YEAR ENDED  |   |   | 1999 TO      |  
|                                                           |   | DECEMBER 31 |   |   | DECEMBER 31, |  
|                                                           |   | 2006        |   |   | 2005         |   |   | 2006       |  
|                                                           |   |             |   |   |              |   |   |            |  
|Cash provided by (used in):                                |   |             |   |   |              |   |   |            |  
|Operating Activities                                       |   |             |   |   |              |   |   |            |  
|Net loss
      for the period                              | $ | (419,165    | ) | $ | (154,205     | ) | $ | (1,329,454 | )
|Items not involving cash:                                  |   |             |   |   |              |   |   |            |  
|Write off of software development costs                    |   | -           |   |   | -            |   |   | 8,675      |  
|Interest accrued on convertible notes payable              |   | 19,446      |   |   | 26,018       |   |   | 78,000     |  
|Shares issued to extend license agreement                  |   | 30,000      |   |   | -            |   |   | 293,000    |  
|Accretion of discount on convertible debentures            |   | 256,960     |   |   | 3,040        |   |   | 260,000    |  
|Changes in
      non-cash operating working capital:       |   |             |   |   |              |   |   |            |  
|Change in prepaid expenses                                 |   | (50         | ) |   |              |   |   | (50        | )
|Change in accounts payable and accrued liabilities         |   | 58,535      |   |   | 125,814      |   |   | 570,930    |  
|                                                           |   | (54,274     | ) |   | 667          |   |   | (118,899   | )
|                                                           |   |             |   |   |              |   |   |            |  
|Investing Activity                                         |   |             |   |   |              |   |   |            |  
|Software development costs                                 |   | -           |   |   | -            |   |   | (8,675     | )
|                                                           |   |             |   |   |              |   |   |            |  
|Financing Activity                                         |   |             |   |   |              |   |   |            |  
|Issuance of common stock                                   |   | -           |   |   | -            |   |   | 75,000     |  
|Proceeds from loans payable                                |   | 55,000      |   |   | -            |   |   | 55,000     |  
|                                                           |   | 55,000      |   |   | -            |   |   | 130,000    |  
|                                                           |   |             |   |   |              |   |   |            |  
|Increase in Cash                                           |   | 726         |   |   | 667          |   |   | 2,426      |  
|                                                           |   |             |   |   |              |   |   |            |  
|Cash, Beginning
      of Period                            |   | 1,700       |   |   | 1,033        |   |   | -          |  
|                                                           |   |             |   |   |              |   |   |            |  
|Cash, End of Period                                        | $ | 2,426       |   | $ | 1,700        |   | $ | 2,426      |  
|                                                           |   |             |   |   |              |   |   |            |  
|                                                           |   |             |   |   |              |   |   |            |  
|                                                           |   |             |   |   |              |   |   |            |  
|Supplemental Disclosure of Cash Flow Information           |   |             |   |   |              |   |   |            |  
|Interest paid                                              | $ | 44          |   | $ | 219          |   | $ | 1,110      |  
|Income taxes paid                                          | $ | -           |   | $ | -            |   | $ | -          |  
|                                                           |   |             |   |   |              |   |   |            |  
|                                                           |   |             |   |   |              |   |   |            |  
|Non-Cash Financing and Investing Activities
      (Note 9) |   |             |   |   |              |   |   |            |  

The accompanying notes are an integral part of these financial
  statements.

F-5

---

BALSAM VENTURES, INC.(A Development Stage Company)

STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY)(Stated in U.S. Dollars)

PERIOD FROM AUGUST 17, 1999 (INCEPTION) TO DECEMBER 31, 2006

|                               |  |            |  |   |              |  |   |            |   |   |              |   |   | DEFICIT     |   |   |          |  
|------------------------------ |  | ---------- |  | - | ------------ |  | - | ---------- | - | - | ------------ | - | - | ----------- | - | - | -------- | -
|                               |  |            |  |   | COMMON STOCK |  |   |            |   |   | ACCUMULATED  |   |   |             |  
|                               |  |            |  |   |              |  |   | ADDITIONAL |   |   | SHARE        |   |   | DURING THE  |   |   |          |  
|                               |  |            |  |   | PAR          |  |   | PAID-IN    |   |   | SUBSCRIPTION |   |   | DEVELOPMENT |   |   |          |  
|                               |  | SHARES     |  |   | VALUE        |  |   | CAPITAL    |   |   | RECEIVABLE   |   |   | STAGE       |   |   | TOTAL    |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Stock issued for cash at       |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|$0.0005                        |  | 10,000,000 |  | $ | 10,000       |  | $ | (5,000     | ) | $ | -            |   | $ | -           |   | $ | 5,000    |  
|Stock issued for cash at       |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|$0.005                         |  | 10,000,000 |  |   | 10,000       |  |   | 40,000     |   |   | -            |   |   | -           |   |   | 50,000   |  
|Stock issued for cash at $0.10 |  | 200,000    |  |   | 200          |  |   | 19,800     |   |   | -            |   |   | -           |   |   | 20,000   |  
|Subscriptions receivable       |  | -          |  |   | -            |  |   | -          |   |   | (2,500       | ) |   | -           |   |   | (2,500   | )
|Net loss for the period        |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (2,926      | ) |   | (2,926   | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 1999     |  | 20,200,000 |  |   | 20,200       |  |   | 54,800     |   |   | (2,500       | ) |   | (2,926      | ) |   | 69,574   |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Subscriptions received         |  | -          |  |   | -            |  |   | -          |   |   | 2,500        |   |   | -           |   |   | 2,500    |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (31,342     | ) |   | (31,342  | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2000     |  | 20,200,000 |  |   | 20,200       |  |   | 54,800     |   |   | -            |   |   | (34,268     | ) |   | 40,732   |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (18,989     | ) |   | (18,989  | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2001     |  | 20,200,000 |  |   | 20,200       |  |   | 54,800     |   |   | -            |   |   | (53,257     | ) |   | 21,743   |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (163,424    | ) |   | (163,424 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2002     |  | 20,200,000 |  |   | 20,200       |  |   | 54,800     |   |   | -            |   |   | (216,681    | ) |   | (141,681 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Beneficial conversion feature  |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|of convertible notes           |  | -          |  |   | -            |  |   | 260,000    |   |   | -            |   |   | -           |   |   | 260,000  |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Stock issued for license       |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|extension payment at $0.21     |  | 300,000    |  |   | 300          |  |   | 62,700     |   |   | -            |   |   | -           |   |   | 63,000   |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (232,416    | ) |   | (232,416 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2003     |  | 20,500,000 |  |   | 20,500       |  |   | 377,500    |   |   | -            |   |   | (449,097    | ) |   | (51,097  | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Stock issued for license at    |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|$0.04                          |  | 5,000,000  |  |   | 5,000        |  |   | 195,000    |   |   | -            |   |   | -           |   |   | 200,000  |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (306,987    | ) |   | (306,987 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2004     |  | 25,500,000 |  |   | 25,500       |  |   | 572,500    |   |   | -            |   |   | (756,084    | ) |   | (158,084 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Net loss for the year          |  | -          |  |   | -            |  |   | -          |   |   | -            |   |   | (154,205    | ) |   | (154,205 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Balance, December 31, 2005     |  | 25,500,000 |  |   | 25,500       |  |   | 572,500    |   |   | -            |   |   | (910,289    | ) |   | (312,289 | )
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Stock issued for license       |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|extension payment at $0.06     |  | 500,000    |  |   | 500          |  |   | 29,500     |   |   | -            |   |   | -           |   |   | 30,000   |  
|                               |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|Stock issued on conversion of  |  |            |  |   |              |  |   |            |   |   |              |   |   |             |   |   |          |  
|convertible notes payable      |  | 8,663,663  |  |   | 8,667        |  |   | 251,333    |   |   | -            |   |   | -           |   |   | 260,000  |  

F-6

---

BALSAM VENTURES, INC.(A Development Stage Company)

STATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY)(Stated in U.S. Dollars)

PERIOD FROM AUGUST 17, 1999 (INCEPTION) TO DECEMBER 31, 2006

|                              |  |            |  |   |              |  |   |            |  |   |              |  |   | DEFICIT     |   |   |          |  
|----------------------------- |  | ---------- |  | - | ------------ |  | - | ---------- |  | - | ------------ |  | - | ----------- | - | - | -------- | -
|                              |  |            |  |   | COMMON STOCK |  |   |            |  |   | ACCUMULATED  |  |   |             |  
|                              |  |            |  |   |              |  |   | ADDITIONAL |  |   | SHARE        |  |   | DURING THE  |   |   |          |  
|                              |  |            |  |   | PAR          |  |   | PAID-IN    |  |   | SUBSCRIPTION |  |   | DEVELOPMENT |   |   |          |  
|                              |  | SHARES     |  |   | VALUE        |  |   | CAPITAL    |  |   | RECEIVABLE   |  |   | STAGE       |   |   | TOTAL    |  
|                              |  |            |  |   |              |  |   |            |  |   |              |  |   |             |   |   |          |  
|Stock issued on settlement of |  |            |  |   |              |  |   |            |  |   |              |  |   |             |   |   |          |  
|accrued interest payable on   |  |            |  |   |              |  |   |            |  |   |              |  |   |             |   |   |          |  
|convertible notes payable     |  | 1,560,000  |  |   | 1,560        |  |   | 76,440     |  |   | -            |  |   | -           |   |   | 78,000   |  
|                              |  |            |  |   |              |  |   |            |  |   |              |  |   |             |   |   |          |  
|Net loss for the year         |  | -          |  |   | -            |  |   | -          |  |   | -            |  |   | (419,165    | ) |   | (416,165 | )
|                              |  |            |  |   |              |  |   |            |  |   |              |  |   |             |   |   |          |  
|Balance, December 31, 2006    |  | 36,223,663 |  | $ | 36,227       |  | $ | 929,773    |  | $ | -            |  | $ | (1,329,454  | ) | $ | (360,454 | )

The accompanying notes are an integral part of these financial
  statements.

F-7

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|1. | NATURE OF BUSINESS AND ABILITY TO CONTINUE
        OPERATIONS
|-- | -------------------------------------------------------------
|   |                                                              
|   | a)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | b)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   | c)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              

F-8

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|2. | SUMMARY OF SIGNFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The financial statements of the Company have
        been prepared in accordance with generally accepted accounting principles
        in the United States. Because a precise determination of many assets and
        liabilities is dependent upon future events, the preparation of financial
        statements for a period necessarily involves the use of estimates which
        have been made using careful judgement.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The financial statements have, in managements
        opinion, been properly prepared within reasonable limits of materiality
        and within the framework of the significant accounting policies summarized
        below:                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | d)                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | e)                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                  

F-9

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|2. | SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
        (continued)
|-- | -------------------------------------------------------------
|   |                                                              
|   | f)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | g)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | h)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | i)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   | j)                                                           
|   |                                                              
|   |                                                              

F-10

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|2. | SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
        (continued)
|-- | -------------------------------------------------------------
|   |                                                              
|   | k)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | l)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | m)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | n)                                                           
|   |                                                              
|   |                                                              

F-11

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|2. | SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
        (continued)
|-- | -------------------------------------------------------------
|   |                                                              
|   | o)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | p)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   | q)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              
|   |                                                              

F-12

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|2. | SUMMARY OF SIGNFICANT ACCOUNTING POLICIES
        (continued)
|-- | -------------------------------------------------------------
|   |                                                              
|   | r)                                                           
|   |                                                              
|   |                                                              
|   |                                                              
|3. | RECENT ACCOUNTING PRONOUNCEMENTS                             
|   |                                                              
|   | a)                                                           
|   |                                                              
|   | b)                                                           
|   |                                                              
|   | c)                                                           

F-13

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|3. | RECENT ACCOUNTING PRONOUNCEMENTS (continued)
|-- | --------------------------------------------
|   |                                             
|   | d)                                          
|   |                                             
|   | e)                                          
|   |                                             
|   | f)                                          
|   |                                             
|   |                                             

F-14

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|4. | LOANS PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | During the year ended December 31, 2006, several loans
        were granted from third party companies totalling $55,000. In addition,
        during the year ended December 31, 2006, the Company reclassified a total
        of $34,601 from accounts payable to loans payable to better reflect the
        nature of the transactions. The loans are non-interesting bearing, unsecured
        and are due on demand.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|5  | CONVERTIBLE NOTES PAYABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | During the year ended December 2003, the Company issued
        convertible notes, maturing October 1, 2006, aggregating $260,000 and
        bearing interest of 10% per annum. The notes are convertible into common
        shares at the lesser of $0.03 per share or 50% of the average trading
        price of the Companys common shares for the ten trading days prior
        to conversion. The Company may, at its option, elect to pay a portion
        of the interest by issuing common stock.                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In applying the provisions of Emerging Issues Task Force
        Release Nos. 98-5 and 00-27, the Company recorded a discount on the convertible
        debentures in the amount of $260,000. This discount is being accreted
        to interest expense using the interest method over the life of the notes
        (three years). As the effective interest rate, which is determined by
        dividing the actual interest rate on the convertible debentures by the
        discounted debt amount, approaches infinity, the interest expense to be
        recorded approximates the future cash payments. Interest expense recorded
        relating to the accretion of the discount for the year ended December
        31, 2006 was $256,960 (2005 - $3,040). The remaining discount on the convertible
        debentures as of December 31, 2006 was $Nil (2005 - $256,960).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | During the year ended December 31, 2006, $19,446 (2005
        - $26,018) of interest expense was accrued and charged to the statement
        of operations. No cash payments of interest were made during the respective
        periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | During the year ended December 31, 2006, included in
        accounts payable and accrued was $Nil (2005 - $58,554) accrued interest
        payable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | At October 1, 2006, $260,000 of convertible notes payable
        were converted to common stock at $0.03 per common share and $78,000 of
        accrued interest payable on these convertible notes was settled by issuing
        common stock at $0.05 per common share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

F-15

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|6. | COMMITMENTS AND CONTRACTUAL OBLIGATIONS
         LICENSE AGREEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Pursuant to an exclusive license agreement
        (the Agreement) with NorPac Technologies, Inc (formerly Cool
        Can Technologies, Inc.) (the Licensor), dated November 30,
        2003, the Company acquired the exclusive right and license (the License),
        for a period of 40 years, to use, commercialize and exploit the Licensors
        proprietary trademarks, patents, process information, technical information,
        designs and drawings associated with the Licensors self-chilling
        beverage containers technology (the Technology), including
        the right to manufacture, use and sell apparatus and products embodying
        the Technology within the countries comprising the European Union and
        the Peoples Republic of China. The Company also has the right to
        sub-license the right to manufacture, use and sell products embodying
        the Technology.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In consideration for the Agreement, the Company
        agreed to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | On January 14, 2006, the Company entered into an
      agreement (the Extension Agreement) with the Licensor, to amend
      the terms of their Agreement. Under the Extension Agreement, the Licensor
      agreed to extend the date on which the Company is required to commence paying
      the Minimum Royalty Payments to January 15, 2007. The Company is currently
      in default of the Minimum Royalty Payments.                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In consideration for the Extension Agreement, the
      Company agreed to:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The Technology and patents and
        trademarks of the Licensor included in the Technology remain the property
        of the Licensor subject to the terms of the License granted under the
        Agreement. However, the Company has a right of first refusal to acquire
        the intellectual property subject to the Agreement should the Licensor
        seek to dispose of the Technology during the Agreement. The Agreement
        supercedes all prior arrangements and agreements between the Company and
        the Licensor in respect of the Technology



F-16



---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|6. | COMMITMENTS AND CONTRACTUAL OBLIGATIONS
         LICENSE AGREEMENT (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | The Licensor suspended all research and development
        activities on the Technology in November 2002 due to a lack of funds.
        Due to the costs involved in applying for and receiving extensions from
        the U.S. Patent and Trademark Office and the uncertainty relating to the
        successful commercialization of the technology, the Licensor ceased filing
        for trademark extensions in September 2001. It believes that it will be
        able to re-institute ownership of the trademarks, or the equivalent thereof,
        when product development is completed.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|7. | RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Amounts paid to related parties were based
        on exchange amounts which represented the amounts agreed upon by the related
        parties. Amounts paid or payable to related parties not disclosed elsewhere
        include the following:                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | During the year ended December 31, 2006, directors
        compensation totalled $Nil (2005 - $Nil);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | As at December 31, 2006, accounts payable
        includes $7,636 (2005 - $8,901) due to a director and officer and $9,000
        (2005 -$13,504) due to a former director and officer. Convertible notes
        payable includes $Nil (2005 - $3,899) due to a director and officer and
        $Nil (2005 - $20,000) due to a former director and officer.                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|8. | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                                             |   | 2006     |   |   | 2005    |  
| | ------------------------------------------- | - | -------- | - | - | ------- | -
| | Computed expected (benefit of) income taxes | $ | (142,516 | ) | $ | (52,429 | )
| | Increase In valuation
      allowance       |   | 142,516  |   |   | 52,429  |  
| |                                             | $ | -        |   | $ | -       |  

F-17

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|8. | INCOME TAXES (continued)
|-- | ------------------------
|   |                         
|   | a.                      

| |                                               |   | 2006      |   |   | 2005     |  
| | --------------------------------------------- | - | --------- | - | - | -------- | -
| | Total income tax operating loss carry forward | $ | 1,329,454 |   | $ | 910,289  |  
| | Statutory tax rate                            |   | 34%       |   |   | 34%      |  
| | Deferred income tax asset                     |   | 452,014   |   |   | 309,498  |  
| | Valuation allowance                           |   | (452,014  | ) |   | (309,498 | )
| |                                               | $ | -         |   | $ | -        |  

| | b. | The Company has incurred operating losses of approximately
        $1,329,454 which, if unutilized, will expire through 2026. Future tax
        benefits, which may arise as a result of these losses, have not been recognized
        in these financial statements, and have been offset by a valuation allowance.
        The following table lists the fiscal year in which the loss was incurred
        and the expiration date of the operating loss carry forwards:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                     |   |                |  |  | Expiration date of   | 
| | --------------------------------------------------- | - | -------------- |  |  | -------------------- | 
| |                                                     |   |                |  |  | income tax           | 
| |                                                     |   |                |  |  | operating loss carry | 
| |                                                     |   | Net
      Loss |  |  | forwards             | 
| |                                                     |   |                |  |  |                      | 
| | 1999                                                | $ | 2,926          |  |  | 2019                 | 
| | 2000                                                |   | 31,342         |  |  | 2020                 | 
| | 2001                                                |   | 18,989         |  |  | 2021                 | 
| | 2002                                                |   | 163,424        |  |  | 2022                 | 
| | 2003                                                |   | 232,416        |  |  | 2023                 | 
| | 2004                                                |   | 306,987        |  |  | 2024                 | 
| | 2005                                                |   | 154,205        |  |  | 2025                 | 
| | 2006                                                |   | 419,165        |  |  | 2026                 | 
| |                                                     |   |                |  |  |                      | 
| | Total income tax operating
      loss carry forward | $ | 1,329,454      |  |  |                      | 

F-18

---

BALSAM VENTURES, INC.(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2006(Stated in U.S. Dollars)

|9. | NON-CASH FINANCING AND INVESTING ACTIVITIES
|-- | -------------------------------------------

During the year ended December 31, 2006,
  the Company reclassified a total of $34,601 from accounts payable to loans payable
  to better reflect the nature of the transactions.

During the year ended December 31, 2006,
  the Company issued 8,666,663 common shares, with a value of $260,000 on conversion
  of convertible notes payable

During the year ended December 31, 2006,
  the Company issued 1,560,000 common shares, with a value of $78,000 for settlement
  of accrued interest payable on $260,000 convertible notes payable.

During the year ended December 31, 2006,
  the Company issued 500,000 common shares, with a value of $30,000, as consideration
  for the extension of a license.

During the year ended December 31, 2004,
  the Company issued 5,000,000 common shares, with a value of $200,000, as consideration
  for a license.

During the year ended December 31, 2003,
  the Company issued 300,000 common shares, with a value of $63,000 to initiate
  and extend the arrangement for a chilling beverage container technology.

In October 2003, the Company settled
  $260,000 of accounts payable by the issue of convertible notes.

F-19

---

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

On April 6, 2005, we engaged Telford Sadovnick, PLLC as our
principal independent accountants. On the same date, we advised Morgan &
Company, Chartered Accountants, that it was dismissed as our independent
accountant. Our board of directors approved the engagement of Telford Sadovnick
and the dismissal of Morgan & Company by written resolutions.

Morgan & Companys reports on the financial statements of
the Company for the past two fiscal years did not contain an adverse opinion or
disclaimer of opinion, nor was it modified or qualified as to uncertainty, audit
scope or accounting principles with the exception of a statement regarding the
uncertainty of our ability to continue as a going concern.

There have been no disagreements during the Companys two most
recent fiscal years and the subsequent interim period preceding the dismissal of
Morgan & Company between the Company and Morgan & Company on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to the satisfaction of
Morgan & Company, would have caused them to make reference to the subject
matter of the disagreement in connection with their report for the financial
statements for those years.

We filed an amended report on Form 8-K/A regarding the change
in principal independent accountants with the SEC on May 2, 2005 and provided
Morgan & Company with a copy of that report. We requested in writing that
Morgan & Company provide a letter addressed to the Securities and Exchange
Commission stating whether or not they agree with the disclosures contained in
that report. A copy of the requested letter from Morgan & Company was filed
as an exhibit to our report on Form 8-K/A.

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

Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we have evaluated the effectiveness of our disclosure controls and procedures as
required by Exchange Act Rule 13a-15(b) as of the end of the period covered by
this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer has concluded that these disclosure controls and procedures
are effective.

There were no changes in our internal control over financial
reporting during the quarter ended December 31, 2006 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

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

None.

Page 17 of 25

---

PART III

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

The following table sets forth the names and positions of our
officers and directors as of the date hereof.

Name
    Age
    PositionsJohn Boschert
    37
    President, Chief Executive Officer,
      Secretary, Treasurer, Chief Financial Officer, Director


Set forth below is a brief description of the background and
business experience of our executive officers and directors:

Mr. John Boschert is our President, Chief Executive
Officer, Secretary, Treasurer, and Chief Financial Officer and our sole
director.

Mr. Boschert is a self-employed business consultant. From July
2003 to June 2005, he was the president and owner of a food and beverage company
based in Port Alberni, British Columbia, Canada. From 1999 to 2003, he served as
a business consultant and officer of Qincom Networks Inc., a telecommunications
services provider. From 1998 to 2002, he served as a business consultant and
director of Universal Domains, Inc., a food services and domain name provider.

Since June 28, 2005, Mr. Boschert has been the Secretary of
Clyvia Inc., a company that, through its German subsidiary, Clyvia Technology,
is developing a proprietary technology that utilizes a process known as
fractional depolymerization to produce diesel fuel and heating oil from various
forms of recyclable waste materials, including vegetable oils, plastics and
organic solids.

Since March 20, 2006, Mr. Boschert has been the Secretary of
Exploration Drilling International Inc., a company engaged in the exploration
and development of water well drilling. Mr. Boschert was a director of
Exploration Drilling International Inc. for the period from March 13, 2006 to
December 27, 2006.

Since April 19, 2006, Mr. Boschert has been the Secretary and
Treasurer of Skyflyer Inc., a development stage company engaged in the business
of developing a recreational flying device and facility in which the flying
device is to operate.

Since November 13, 2006, Mr. Boschert has been the Chief
Financial Officer, Treasurer and Secretary and, since May 30, 2006, he has been
a member of the board of directors, of Vitavea Inc., a company engaged in the
marketing and distribution of nutritional supplement.

COMMITTEES OF THE BOARD OF DIRECTORS

Mr. Boschert is our sole director. As a result, we do not
maintain a separately-designated standing audit committee. As a result, our sole
director acts as our audit committee. Mr. Boschert does not meet the definition
of an audit committee financial expert. We believe that the cost related to
appointing a financial expert to our board of directors at this time is
prohibitive.

We presently do not have a compensation committee, nominating
committee, an executive committee of our board of directors, stock plan
committee or any other committees.

Page 18 of 25

---

TERMS OF OFFICE

Our directors are elected to hold office until the next annual
meeting of the shareholders and until their respective successors have been
elected and qualified. Our executive officers are appointed by our board of
directors and hold office until removed by our board of directors or until their
successors are appointed.

CODE OF ETHICS

We adopted a Code of Ethics applicable to our executive
officers and directors, which is a code of ethics as defined by applicable
rules of the SEC. Our Code of Ethics is attached as an exhibit to our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2004, filed on May
17, 2005. If we make any amendments to our Code of Ethics other than technical,
administrative, or other non-substantive amendments, or grant any waivers,
including implicit waivers, from a provision of our Code of Ethics to our Chief
Executive Officer, Chief Financial Officer or certain other finance executives,
we will disclose the nature of the amendment or waiver, its effective date and
to whom it applies in a Current Report on Form 8-K filed with the SEC.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires
our executive officers and directors, and persons who own more than 10% of a
registered class of our securities (Reporting Persons), to file reports of
ownership and changes in ownership with the SEC. Reporting Persons are required
by SEC regulations to furnish us with copies of all forms they file pursuant to
Section 16(a). Based solely on our review of such reports received by the
Company, and written representations from certain Reporting Persons that, other
than as described below, no other reports were required for those persons, we
believe that, during the year ended December 31, 2006, all Reporting Persons
complied with all Section 16(a) filing requirements applicable to them.

The following persons have failed to file, on a timely basis,
the identified reports required by Section 16(a) of the Securities Exchange Act
of 1934:

|Name and Principal Position     | Number of Late 
      Reports | Transactions Not 
      Timely Reported | Known Failures to File 
      a Required Form
|------------------------------- | ----------------------------- | --------------------------------------- | ---------------------------------------------
|                                |                               |                                         |                                              
|John Boschert, President,       |                               |                                         |                                              
|Chief Executive Officer,        | None                          | None                                    | None                                         
|Director, Secretary,            |                               |                                         |                                              
|Treasurer and Chief             |                               |                                         |                                              
|Financial
      Officer         |                               |                                         |                                              
|                                |                               |                                         |                                              
|NorPac Technologies, Inc.,      |                               |                                         |                                              
|Beneficial owner of greater     | One                           | One                                     | None                                         
|than 10% of our issued and      |                               |                                         |                                              
|outstanding
      common stock. |                               |                                         |                                              

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

SUMMARY COMPENSATION TABLE

The following table sets forth total compensation paid to or
earned by our named executive officers, as that term is defined in Item
402(a)(2) of Regulation S-B during the fiscal year ended December 31, 2006.

Page 19 of 25

---

SUMMARY COMPENSATION
      TABLEName & Principal Position
    Year
    Salary ($)
    Bonus ($)
    Stock 
        Awards
        ($)
    Option 
        Awards
        ($)
    Non-Equity Incentive Plan Compen-
      sation ($)
      Nonqualified 
        Deferred Compen-
      sation Earnings ($)
      All Other 
        Compen- sation ($)
    Total ($)John Boschert, 
        CEO, President, CFO
      Secretary, Treasurer 
        Director(1)
      2006
      $0
      $0
      $0
      $0
      $0
      $0
      $0
      $0


| | (1) | We did not pay Mr. Boschert any consideration in exchange
      for his services as our sole executive officer and sole
  director.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

From our inception on August 17, 1999 to the end of our fiscal
year-ended December 31, 2006, we did not grant any stock options awards, stock
awards or any other equity incentive plan awards to any of our named executive
officers, as that term is defined under Item 402(a)(2) of Regulation S-B, or to
our sole director. As such, there were no outstanding equity awards as at
December 31, 2006.

EMPLOYMENT CONTRACTS

We do not have an employment contract with our sole executive
officer and sole director. We also do not have any termination of employment or
change-in-control arrangements with our sole executive officer and sole
director.

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

EQUITY COMPENSATION PLANS

We have no equity compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for
issuance.

Equity Compensation Plan Information

|Plan Category             | Number of Securities to be
      Issued Upon Exercise of Outstanding Options, Warrants and
      Rights (a) | Weighted-Average Exercise
      Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available
      for Future Issuance Under Equity Compensation Plans
      (Excluding Securities Reflected in column (a)) (c)
|------------------------- | ----------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|Equity Compensation       |                                                                                                             |                                                                                       |                                                                                                                                                            
|Plans Approved By         | Not Applicable                                                                                              | Not Applicable                                                                        | Not Applicable                                                                                                                                             
|Security Holders          |                                                                                                             |                                                                                       |                                                                                                                                                            
|Equity Compensation Plans |                                                                                                             |                                                                                       |                                                                                                                                                            
|Not Approved By Security  | Not Applicable                                                                                              | Not Applicable                                                                        | Not Applicable                                                                                                                                             
|Holders                   |                                                                                                             |                                                                                       |                                                                                                                                                            

Page 20 of 25

---

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain information concerning
the number of shares of our common stock owned beneficially as of March 29,
2007by: (i) each person (including any group) known to us to own more
than five percent (5%) of any class of our voting securities, (ii) each of our
directors and each of our named executive officers (as defined under Item
402(a)(2) of Regulation S-B), and (iii) officers and directors as a group.
Unless otherwise indicated, the shareholders listed possess sole voting and
investment power with respect to the shares shown.

Title of Class
      Name and Address of Beneficial
        Owner
      Number of Shares of Common Stock(1)
      Percentage of Common Stock(1)DIRECTORS AND OFFICERSCommon Stock
      John Boschert, 
        Director, President, Chief Executive 
        Officer, Secretary, Treasurer and Chief 
        Financial Officer 
        1480 Gulf Road, Suite 204 
        Point Roberts, WA 98281
      8,403,360
      23.2%5% SHAREHOLDERSCommon Stock
      John Boschert, 
        Director, President, Chief Executive 
        Officer, Secretary, Treasurer and Chief 
        Financial Officer 
        1480 Gulf Road, Suite 204 
        Point Roberts, WA 98281
      8,403,360
      23.2%Common Stock
      NorPac Technologies, Inc., 
        a Nevada corporation 
        Suite 311, 698 Seymour Street 
        Vancouver, BC V6B 3K6
      5,500,000
      15.2%


|(1) | Under Rule 13d-3, a beneficial owner of a security
      includes any person who, directly or indirectly, through any contract,
      arrangement, understanding, relationship, or otherwise has or shares: (i)
      voting power, which includes the power to vote, or to direct the voting of
      shares; and (ii) investment power, which includes the power to dispose or
      direct the disposition of shares. Certain shares may be deemed to be
      beneficially owned by more than one person (if, for example, persons share
      the power to vote or the power to dispose of the shares). In addition,
      shares are deemed to be beneficially owned by a person if the person has
      the right to acquire the shares (for example, upon exercise of an option)
      within 60 days of the date as of which the information is provided. In
      computing the percentage ownership of any person, the amount of shares
      outstanding is deemed to include the amount of shares beneficially owned
      by such person (and only such person) by reason of these acquisition
      rights. As a result, the percentage of outstanding shares of any person as
      shown in this table does not necessarily reflect the persons actual
      ownership or voting power with respect to the number of shares of common
      stock actually outstanding on March 29, 2007. As of March 29, 2007, there
      were 36,226,663 shares of our common stock issued and
  outstanding.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CHANGES IN CONTROL

We are not aware of any arrangement which may result in a
change in control in the future.

Page 21 of 25

---

**ITEM
12.**         **CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDPENDENCE**

RELATED TRANSACTIONS

Except as described below, none of the following persons has
any direct or indirect material interest in any transaction to which we were or
are a party during the past two years, or in any proposed transaction to which
we propose to be a party:

|(A) | any director or officer;                                                                                                                                
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                         
|(B) | any person who beneficially owns, directly or indirectly,
      shares carrying more than 5% of the voting rights attached to our common
      stock; or
|    |                                                                                                                                                         
|(C) | any immediate family member, including any spouse, child,
      parent, step-child, step-parent, sibling or in-law, of any of the
      foregoing.      

During the year ended December 31, 2003, we issued convertible
notes with principal amounts totaling $260,000, maturing on October 1, 2006 and
bearing interest at a rate of 10% per annum. Effective on October 1, 2006 we
converted the principal and interest on the convertible notes into an aggregate
of 10,226,663 shares of our common stock. As a holder of convertible notes, John
Boschert, our sole director and executive officer, received an aggregate of
153,360 shares of our common stock on conversion of the convertible notes.

DIRECTOR INDEPENDENCE

Our common stock is quoted on the OTC Bulletin Board
inter-dealer quotation system, which does not have director independence
requirements. Under NASDAQ Rule 4200(a)(15), a director is not considered to be
independent if he or she is also an executive officer or employee of the
corporation. Our sole director, John Boschert, is also our sole executive
officer. As a result, we do not have any independent directors.

As a result of our limited operating history and minimal
resources, our management believes that it will have difficulty in attracting
independent directors. In addition, we would likely be required to obtain
directors and officers insurance coverage in order to attract and retain
independent directors. Our management believes that the costs associated with
maintaining such insurance is prohibitive at this time.

Page 22 of 25

---

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

|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                       
|3.1            |  | Articles of
        Incorporation.(1)                                                                                                                                                                 
|               |  |                                                                                                                                                                                                       
|3.2            |  | Bylaws.(1)                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                       
|10.1           |  | Exclusive License
        Agreement dated November 30, 2003 with Cool Can Technologies, Inc.(2)                                                                                                       
|               |  |                                                                                                                                                                                                       
|10.2           |  | Extension Agreement
        dated January 16, 2006 with NorPac Technologies, Inc.(4)                                                                                                                  
|               |  |                                                                                                                                                                                                       
|14.1           |  | Code of Ethics.(3)                                                                                                                                                                                    
|               |  |                                                                                                                                                                                                       
|31.1           |  | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                       
|               |  |                                                                                                                                                                                                       
|32.1           |  | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to 18
        U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.

|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | Previously Filed as an Exhibit to our Form SB-2
      Registration Statement originally filed with the SEC on March 30,
    2000.
|(2) | Previously Filed as an Exhibit to our Current Report on
      Form 8-K filed on January 9, 2004.                                 
|(3) | Previously Filed as an Exhibit to our Annual Report on
      Form 10-KSB on May 17, 2005.                                        
|(4) | Previously Filed as an Exhibit to our Current Report on
      Form 8-K filed on January 19, 2006                                 
|    |                                                                                                                                  

Page 23 of 25

---

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

The aggregate fees billed for the fiscal years ended December
31, 2006 and December 31, 2005 for professional services rendered by the
principal accountant for the audit of the Corporations annual financial
statements and review of the financial statements included in our Quarterly
Reports on Form 10-QSB and services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for these
fiscal periods were as follows:

|                   | Year Ended December 31, 2006 | Year Ended December 31, 2005
|------------------ | ---------------------------- | ----------------------------
|                   |                              |                             
|Audit Fees         | $10,080.00                   | $35,819.80                  
|Audit-Related Fees | $NIL                         | $NIL                        
|Tax Fees           | $NIL                         | $NIL                        
|All Other Fees     | $NIL                         | $NIL                        
|                   |                              |                             
|Total              | $10,080.00                   | $35,819.80                  

Page 24 of 25

---

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|      | BALSAM VENTURES, INC.                                               
|----- | --------------------------------------------------------------------
|      |                                                                     
|      |                                                                     
|By:   | */s/
      John Boschert*                                           
|      | JOHN BOSCHERT                                                       
|      | Chief Executive Officer, Chief Financial
      Officer ,            
|      | President, Secretary, Treasurer                                     
|      | (Principal Executive Officer and Principal
      Accounting Officer)
|      |                                                                     
|Date: | April
      16, 2007                                                

In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|By:   | */s/
      John Boschert*                                           
|----- | --------------------------------------------------------------------
|      | JOHN BOSCHERT                                                       
|      | Chief Executive Officer, Chief Financial
      Officer ,            
|      | President, Secretary, Treasurer                                     
|      | Director                                                            
|      | (Principal Executive Officer and Principal
      Accounting Officer)
|      |                                                                     
|      |                                                                     
|Date: | April
      16, 2007                                                

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