United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 20-F

(Mark One)
[ ]  Registration  Statement  Pursuant  to  Section  12(b)  or  (g)  of the
     Securities Exchange Act of 1934

                                       or

[X]  Annual  Report  Pursuant  to  Section  13 or 15(d)  of the  Securities
     Exchange Act of 1934

                    FOR THE FISCAL YEAR ENDED MAY 31, 2003

                                       or

[ ]  Transition  Report  Pursuant to Section 13 or 15(d) of the  Securities
     Exchange Act of 1934

              For the transition period from _________ to _________

                        Commission file number: 000-30920

                          CALIFORNIA EXPLORATION LTD.
             (Exact name of Registrant as specified in its charter)

                          CALIFORNIA EXPLORATION LTD.
                 (Translation of Registrant's name into English)

                             YUKON TERRITORY, CANADA
                 (Jurisdiction of incorporation or organization)

     #1305 - 1090 WEST GEORGIA STREET, VANCOUVER, BRITISH COLUMBIA, V6E 3V7
                    (Address of principal executive offices)

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

                                      NONE

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

                           COMMON STOCK, NO PAR VALUE
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

                                 NOT APPLICABLE
                                (Title of Class)

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital  or common  stock as of the close of the  period  covered  by the annual
report.

                   7,646,085 COMMON SHARES AS OF MAY 31, 2003

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes  [ X ]        No  [   ]

Indicate by check mark which financial statement item the registrant has elected
to follow.

Item 17  [ X ]     Item 18  [   ]                                   PAGE 1 of 95


                                       -1-

<PAGE>

General Information:

Unless  otherwise  indicated,  all dollar amounts are expressed in United States
dollars.

                                    GLOSSARY

The following is a glossary of oil and gas terms used in this annual report:

BBL or barrel            34.972 Imperial gallons or 42 U.S. gallons.

farm-out                 Transfer  of all or part of the  operating  rights from
                         the working interest owner to an assignee,  who assumes
                         all or some of the burden of  development in return for
                         an  interest  in the  property.  The  assignor  usually
                         retains an  overriding  royalty but may retain any type
                         of interest.

gross acres              The total number of acres in which the Company  holds a
                         working  interest  or  the  right  to  earn  a  working
                         interest.

gross wells              The total  number of wells in which the  Company  has a
                         working interest.

liquids                  Crude oil and natural gas liquids.

MCF                      One thousand cubic feet.

MCFE                     One thousand cubic feet equivalent.

net acres                The gross acres  multiplied by the  percentage  working
                         interest therein owned or to be owned by the Company.

net reserves             The Company's lessor royalty,  overriding royalty,  and
                         working interest share of reserves from the properties,
                         after   deduction  of  all  freehold,   and  overriding
                         royalties payable to others.

net revenue interest     The  percentage  interest  in which the  lessor has the
                         right to receive a  specified  fractional  share of the
                         mineral produced from the property or value thereof.

net wells                The gross wells  multiplied by the  percentage  working
                         interest therein owned or to be owned by the Company.

present value            The  present  value of  estimated  future net  revenues
                         computed  by  applying  current  prices  of oil and gas
                         reserves to estimated  future  production of proved oil
                         and gas  reserves as of the date of the latest  balance
                         sheet  presented,  less estimated  future  expenditures
                         (based on current  costs) to be incurred in  developing
                         and  producing  the proved  reserves  computed  using a
                         discount   factor   of   ten   percent   and   assuming
                         continuation of existing economic conditions.




                                      -2-

<PAGE>


proved oil and           Proved  oil  and  gas   reserves   are  the   estimated
gas reserves             quantities  of crude oil,  natural gas, and natural gas
                         liquids   which   geological   and   engineering   data
                         demonstrate with reasonable certainty to be recoverable
                         in future years from known  reservoirs  under  existing
                         economic  and  operating  conditions,  i.e.  prices and
                         costs  as of the  date the  estimate  is  made.  Prices
                         include  consideration  of changes in  existing  prices
                         provided only by contractual  arrangements,  but not on
                         escalations based upon future conditions.

                         (i)  Reservoirsare   considered   proved  if   economic
                              producability   is  supported  by  either   actual
                              production or conclusive  formation test. The area
                              of a reservoir considered proved includes:

                              (A)    that  portion  delineated  by drilling  and
                                     defined   by   gas-oil   and/or   oil-water
                                     contacts, if any; and

                              (B)    the immediately  adjoining portions not yet
                                     drilled, but which can be reasonably judged
                                     as economically  productive on the basis of
                                     available  geological and engineering data.
                                     In the  absence  of  information  on  fluid
                                     contacts,   the  lowest  known   structural
                                     occurrence  of  hydrocarbons  controls  the
                                     lower proved limit of the reservoir.

                        (ii)  Reserves   which  can  be  produced   economically
                              through    application   of   improved    recovery
                              techniques  (such as fluid injection) are included
                              in the  "proved"  classification  when  successful
                              testing by a pilot project, or the operation of an
                              installed  program  in  the  reservoir,   provides
                              support for the engineering  analysis on which the
                              project or program was based.

                       (iii)  Estimates  of proved  reserves  do not include the
                              following:

                              (A)    oil that may  become  available  from known
                                     reservoirs but is classified  separately as
                                     "indicated additional reserves",

                              (B)    crude oil,  natural  gas,  and  natural gas
                                     liquids,  the  recovery of which is subject
                                     to reasonable  doubt because of uncertainty
                                     as to geology,  reservoir  characteristics,
                                     or economic factors,

                              (C)    crude oil,  natural  gas,  and  natural gas
                                     liquids,   that  may  occur  in   undrilled
                                     prospects, and

                              (D)    crude oil,  natural  gas,  and  natural gas
                                     liquids,  that  may be  recovered  from oil
                                     shales,  coal,  gilsonite  and  other  such
                                     sources.

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



                                      -3-

<PAGE>

proved undeveloped       Reserves  that are  expected to be  recovered  from new
reserves                 wells on  undrilled  acreage,  or from  existing  wells
                         where a relatively  major  expenditure  is required for
                         recompletion.  Reserves on undrilled  acreage  shall be
                         limited to those drilling units  offsetting  productive
                         units that are  reasonably  certain of production  when
                         drilled.  Proved reserves for other undrilled units are
                         claimed  only  where  it  can  be   demonstrated   with
                         certainty  that there is continuity of production  from
                         the   existing   productive    formation.    Under   no
                         circumstances  are  estimates  for  proved  undeveloped
                         reserves  attributable  to any  acreage  for  which  an
                         application  of  fluid   injection  or  other  improved
                         recovery   technique  is   contemplated,   unless  such
                         techniques  have been proved  effective by actual tests
                         in the area and in the same reservoir.

undeveloped acreage      Lands on which there are no current reserves assigned.

working interest         The interest held by a company in an oil or natural gas
                         property,    which   interest    normally   bears   its
                         proportionate   share  of  the  costs  of  exploration,
                         development,  and operation as well as any royalties or
                         other production burdens.


FORWARD LOOKING STATEMENTS

The Company cautions readers regarding  forward looking  statements found in the
following  discussion  and  elsewhere  in this  annual  report  and in any other
statement  made by, or on the  behalf of the  Company,  whether or not in future
filings with the SEC.  Forward  looking  statements  are statements not based on
historical  information  and  which  relate to  future  operations,  strategies,
financial  results  or  other  developments.   Forward  looking  statements  are
necessarily based upon estimates and assumptions that are inherently  subject to
significant business,  economic and competitive uncertainties and contingencies,
many of which are beyond the Company's  control and many of which,  with respect
to future business  decisions,  are subject to change.  These  uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking  statements made by or on
behalf of the Company.  The Company  disclaims any  obligation to update forward
looking statements.


                                      - 4 -

<PAGE>






                                     PART I

ITEM 1.  DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE.
--------------------------------------------------------------------------------

Not applicable.


ITEM 3.  KEY INFORMATION.
--------------------------------------------------------------------------------

SELECTED FINANCIAL DATA

The  selected  financial  data of the Company for the years ended May 31,  2003,
2002 and 2001 was derived from the  financial  statements  of the Company  which
have been audited by D&H Group, independent Chartered Accountants,  as indicated
in their report which is included  elsewhere in this annual report. The selected
financial  data for the fiscal  period  ended May 31, 2000 are derived  from the
Company's audited financial statements, not included herein.

The  information  in the following  table was  extracted  from the more detailed
financial  statements  and related notes  included  herein and should be read in
conjunction  with such financial  statements and with the information  appearing
under the heading "Item 5. Operating and Financial Review and Prospects."

Reference  is made to Note 13 of the  Company's  financial  statements  included
herein for a discussion of the material  differences  between Canadian generally
accepted  accounting  principles  ("Canadian  GAAP") and United States generally
accepted  accounting  principles ("US GAAP"),  and their effect on the Company's
financial statements.

<TABLE>
<CAPTION>

                                                                     YEAR ENDED MAY 31,
                                                      --------------------------------------------------
                                                         2003         2002(1)       2001(1)       2000(2)
                                                         ----          ----          ----          ----
<S>                                                <C>             <C>         <C>           <C>

Oil and Gas Sales                                     $14,466             -             -             -
Interest and Other Income                              $7,599       $72,480       $10,620             -
Total Revenues                                        $22,065       $72,480       $10,620             -
Production Costs                                       $3,193             -             -             -
General and Administrative Expenses                   $65,084      $244,179      $108,249       $85,865
Depreciation, depletion and impairment               $376,689       $39,346             -             -
Write-off of Other Assets                           $(113,503)    $(123,375)    $(100,000)            -
Net Earnings (Loss)                                 $(699,602)    $(408,713)    $(248,035)     $106,130
Total Assets                                          $93,013      $801,156      $912,505    $1,057,049
Net Assets (Deficiency)                             $(140,146)     $552,205      $877,434      $961,149
Capital Stock                                      $1,110,074    $1,102,823    $1,019,339      $855,019
Weighted Average Number of Shares                   7,643,674     6,509,418     3,233,755     2,038,016
Dividends per Share                                       Nil           Nil           Nil           Nil
Basic and Fully Diluted Earnings (Loss) Per Share      $(0.09)       $(0.06)       $(0.08)       $(0.05)

</TABLE>

(1)  On September  27, 2001,  the Company  completed a  reorganization  with the
     shareholders of California Exploration Inc. ("CalEx").  This reorganization
     was treated for accounting purposes as a reverse takeover, whereby CalEx is
     deemed to be the purchaser  and parent  company.  Accordingly,  CalEx's net
     assets are included in the consolidated  balance sheets at their historical
     book  value and the net  assets  and  business  of the  Company,  the legal
     parent,  were  recorded  at their fair values on  September  27,  2001.  In
     addition,  the  consolidated  statements of operations and deficit and cash
     flow for the year ended May 31, 2002 include  CalEx's results of operations
     and cash flow for the year ended May 31, 2002 and the Company's

                                      - 5 -

<PAGE>

     results  of  operations   and  cash  flow  from  September  27,  2001.  The
     comparative  figures for the years ended May 31, 2001 and 2000 are those of
     CalEx.
(2)  CalEx was incorporated on October 6, 1999,  therefore the fiscal year ended
     May 31, 2000, is for the period from October 6, 1999 to May 31, 2000.

Adjustment to United States Generally Accepted Accounting Principles

The  consolidated  financial  statements  of  the  Company  have  been  prepared
according to Canadian  GAAP which differ in certain  material  respects  from US
GAAP. Material  differences between Canadian and US GAAP and their effect on the
Company's consolidated financial statements are summarized in the tables below.

<TABLE>
<CAPTION>

                                                                  2003           2002           2001
                                                                    $              $              $
<S>                                                         <C>             <C>            <C>

Consolidated Statements of Operations and Comprehensive Income

Earnings (loss) for the year
     Canadian GAAP                                              (699,602)       (408,713)      (248,035)
     Write-down of investment (i)                                      -          38,500        100,000
     Other compensation expense (iv)                                   -               -       (160,000)
                                                             -----------     -----------    -----------
                                                                (699,602)       (370,213)      (308,035)
Other Comprehensive Income
     Unrealized holding gain (loss) on
         available-for-sale marketable securities (i)             36,647         (27,317)      (129,576)
                                                             -----------     -----------    -----------
Comprehensive earnings (loss) for the year                      (662,955)       (397,530)      (437,611)
                                                             ===========     ===========    ===========

Earnings (loss) per share basic and fully diluted - US GAAP       $(0.09)         $(0.06)        $(0.14)
                                                             ===========     ===========    ===========
</TABLE>

<TABLE>
<CAPTION>

                                                                 2003            2002
                                                                   $               $
<S>                                                        <C>             <C>

Consolidated Balance Sheets

Total Assets
     Canadian GAAP                                                93,013         801,156
     Available for sale securities (i)                            36,647               -
                                                             -----------     -----------
     US GAAP                                                     129,660         801,156
                                                             ===========     ===========

Total Liabilities
     Canadian GAAP                                               233,159         248,951
                                                             -----------     -----------
     US GAAP                                                     233,159         248,951
                                                             ===========     ===========

Shareholders' Equity (Deficiency)
     Canadian GAAP                                              (140,146)        552,205
     Available for sale securities (i)                            36,647               -
                                                             -----------     -----------
     US GAAP                                                    (103,499)        552,205
                                                             ===========     ===========
</TABLE>

     (i)     Marketable securities

     US GAAP requires  marketable  securities  which are classified as available
     for sale to be carried at fair value,  as  determined  by quoted  published
     market  prices,  with  unrealized  losses and gains on  available  for sale
     securities to be included as a separate component of shareholders'  equity.
     In addition,  net realized gains and losses on security  transactions would
     be determined on the specific identification cost basis and included in the
     determination of earnings for the year.


                                                    - 6 -
<PAGE>


     (ii)    Stock option plan for employees and directors

     The  Company  has a stock  option  plan which  reserves  common  shares for
     issuance to employees and directors. The Company has adopted the disclosure
     only  provisions of SFAS No. 123 for stock options granted to employees and
     directors.  Accordingly,  no compensation  cost has been recognized for the
     stock option plan. No options were granted to employees or directors during
     the 2003 fiscal year. Had compensation costs for the Company's stock option
     plan been  determined  based on the fair value at the grant date for awards
     during the 2002 and 2001 fiscal years  consistent  with the  provisions  of
     SFAS No. 123, the Company's  earnings  (loss) and earnings (loss) per share
     would have been increased to the proforma amounts indicated below:


                                                         2002            2001
                                                           $               $

     Loss - as reported under US GAA                  (397,530)        (437,611)
     Loss - proforma                                  (447,800)        (437,611)

     Loss per share - as reported under US GAAP         $(0.06)          $(0.14)
     Loss per share - proforma                          $(0.07)          $(0.14)

     The fair market value of each option  granted to an employee or director is
     estimated  on the date of grant  using the Black - Scholes  Option  Pricing
     Model with the  following  assumptions  used for grants during the 2002 and
     2001fiscal years:

                                                         2002            2001

     Risk-free interest rate                             3.14%            N/A
     Expected volatility                                  125%            N/A
     Expected lives                                     3 years           N/A

     (iii)   Private Placements of Common Stock with Related Parties

     US GAAP requires disclosure of private placements  conducted by the Company
     where  directors and officers of the Company are  participants.  During the
     2001  fiscal year  directors,  officers  and  companies  controlled  by the
     directors or officers acquired 1,600,000 shares of the Company, pursuant to
     private placements conducted by the Company, for cash proceeds of $160,000.

     (iv)    Private Placements of Common Stock

     The Company  conducts  the  majority of its equity  financings  pursuant to
     private  placements.  US GAAP does not permit a discount from the estimated
     fair value,  or the market  price,  as  appropriate.  US GAAP  requires the
     recognition  of the  estimated  fair value or market value of the Company's
     common stock as a credit to share capital,  with a charge to operations for
     the portion of the discount  relating to equity  financings  conducted with
     officers and directors of the Company and a charge to shareholders' equity,
     as a capital  distribution,  for the  discount  relating  to the  remaining
     portion of the equity financings.

     Under US GAAP,  loss and capital  distributions  for 2003 fiscal year would
     increase by $nil (2002 - $nil; 2001 - $160,000) and $nil (2002 - $nil; 2001
     -  $40,000),  respectively,  and share  capital,  as at May 31,  2003 would
     increase by $200,000  (2002 - $200,000;  2001 - $200,000).  There is no net
     change to shareholders' equity.

     (v)     Reverse Take-over Accounting

     At the time the Company  completed  its reverse  take-over,  Canadian  GAAP
     considered such  transactions to be business  combinations.  Under US GAAP,
     such  a  reverse  takeover  of  a  publicly  listed  shell  corporation  is
     considered  to be a capital  transaction  in  substance  and not a business
     combination.  In this particular  transaction there is no difference in the
     underlying accounting for the transaction.


                                      - 7 -

<PAGE>

     (vi)    Income Tax

     Under Canadian GAAP,  deferred tax assets relating to the potential benefit
     of  income  tax  loss  carryforwards  are not  recognized  unless  there is
     reasonable  assurance  of  realization  of the  benefit.  US GAAP  provides
     similar  treatment,  but requires the benefit be recognized and a valuation
     allowance be recognized to fully offset the deferred tax asset.

     As at May 31, 2003, the Company has fully reserved the $140,000 tax benefit
     of  operating  loss  carryforwards,  by a valuation  allowance  of the same
     amount,  because the likelihood of realization of the tax benefit cannot be
     determined.  Of the total tax benefit,  $83,000 is attributable to the 2003
     fiscal year.

     (vii)   Functional Currency

     The Company's functional currency is the U.S. dollar.

     (viii)  Development Stage Company

     During the 2003 fiscal year the Company commenced its principal  operations
     in the  production  of crude oil and  natural  gas  reserves  and  received
     revenues  from  its  operation.  Accordingly,  the  Company  is  no  longer
     considered a development stage company as defined by SFAS 7. The deficit of
     $550,618 was acummulated during the development stage.

The Company's consolidated statements of cash flow comply with US GAAP.

NEW TECHNICAL PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS 143,
"Asset Retirement Obligations." SFAS 143 establishes accounting requirements for
retirement obligations associated with tangible long-lived assets, including (1)
the  timing  of  the  liability  recognition,  (2)  initial  measurement  of the
liability,  (3) allocation of asset retirement costs to expense,  (4) subsequent
measurement of the liability and (5) financial  statement  disclosure.  SFAS 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related  long-lived asset and  subsequently  allocated to expense using a
systematic  and rational  method.  The  provisions of SFAS 143 are effective for
financial  statements issued for fiscal years beginning after June 15, 2002. The
adoption of SFAS 143 is not expected to have a material  effect on the Company's
financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS 145,  "Rescission of FASB  Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." FASB
4 required all gains or losses from  extinguishment  of debt to be classified as
extraordinary items net of income taxes. SFAS 145 requires that gains and losses
from  extinguishment  of debt be evaluated  under the  provisions  of Accounting
Principles Board Opinion No. 30, and be classified as ordinary items unless they
are unusual or  infrequent  or meet the specific  criteria  for  treatment as an
extraordinary  item.  This  statement is effective  January 1, 2003. The Company
does not  anticipate  that the adoption of this  statement  will have a material
effect on its financial position or results of operations.

In July 2002, the FASB issued SFAS 146,  "Accounting  for Costs  Associated with
Exit or Disposal  Activities." This Statement addresses financial accounting and
reporting for costs  associated  with exit or disposal  activities and nullifies
EITF Issue No. 94-3,  "Liability  Recognition for Certain  Employee  Termination
Benefits and Other Costs to Exit an Activity  (including  Certain Costs Incurred
in a Restructuring)."  This Statement requires  recognition of a liability for a
cost  associated  with  an exit or  disposal  activity  when  the  liability  is
incurred,  as opposed to when the entity  commits to an exit plan under EITF No.
94-3.  SFAS 146 is to be applied  prospectively  to exit or disposal  activities
initiated  after  December 31, 2002.  The Company does not  anticipate  that the
adoption of this statement will have a material effect on its financial position
or results of operations.

In December  2002,  the FASB  approved  SFAS 148,  "Accounting  for  Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123." SFAS 148 amends SFAS 123,  "Accounting  for Stock-Based  Compensation"  to
provide  alternative  methods of transition  for a voluntary  change to the fair
value based method of

                                      - 8 -
<PAGE>


accounting for stock-based employee compensation.  In addition,  SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  SFAS 148 is effective for financial statements for fiscal years ending
after  December 15, 2002.  The Company will continue to account for  stock-based
compensation  using  the  methods  detailed  in  the  stock-based   compensation
accounting policy, and has adopted the disclosure requirement of SFAS 148.

In April 2003,  the FASB issued SFAS 149,  "Amendment  of  Statement  No. 133 on
Derivative Instruments and Hedging Activities." SFAS 149 amends certain portions
of SFAS 133 and is effective  for all contracts  entered into or modified  after
June  30,  2003 on a  prospective  basis.  SFAS  149 is not  expected  to have a
material  effect on the  results of  operations  or  financial  position  of the
Company since the Company currently has no derivatives or hedging contracts.

In June 2003,  the FASB approved  SFAS 150,  "Accounting  for Certain  Financial
Instruments  with  Characteristics  of both  Liabilities  and Equity".  SFAS 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
150 is effective for financial  instruments  entered into or modified  after May
31, 2003,  and  otherwise is  effective  at the  beginning of the first  interim
period beginning after June 15, 2003. SFAS 150 is not expected to have an effect
on the Company's financial position.

EXCHANGE RATE HISTORY

The following table sets forth the average exchange rate for one Canadian dollar
expressed  in terms of one U.S.  dollar for the fiscal years ended May 31, 2000,
2001, 2002 and 2003.

                 PERIOD                                       AVERAGE

     June 1, 2002 - May 31, 2003                               0.6574
     June 1, 2001 - May 31, 2002                               0.6377
     June 1, 2000 - May 31, 2001                               0.6596
     October 6, 1999 - May 31, 2000                            0.6834

The following  table sets forth the high and low exchange rates for one Canadian
dollar  expressed  in terms of one U.S.  dollar for the  six-month  period ended
December 31, 2003.


     MONTH                                HIGH                       LOW

     July 2003                           0.7481                     0.7085
     August 2003                         0.7228                     0.7092
     September 2003                      0.7424                     0.7207
     October 2003                        0.7667                     0.7418
     November 2003                       0.7708                     0.7484
     December 2003                       0.7738                     0.7460

Exchange  rates are based upon the noon  buying  rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.

The noon rate of  exchange  on January 2, 2004,  reported  by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.2900 (US$0.7752 = CDN$1.00).

RISK FACTORS

BUSINESS OF THE COMPANY. The Company's initial business was the exploration for,
development and exploitation of oil and gas prospects  principally in the United
States. In an attempt to diversify the Company's operations, management reviewed
other business  opportunities.  In December  2001,  the Company  entered into an
agreement to acquire a private company in the software development industry. The
agreement was  ultimately not proceeded with and was terminated in January 2003.
As of the  date of this  annual  report  the  Company  retains  an  interest  in
producing oil and gas leases

                                      - 9 -
<PAGE>


in Texas. It is continuing its review of other business and asset  acquisitions,
which may or may not be in the oil and gas industry. Any significant business or
asset  acquisition  or change of  business  may  require  TSX  Venture  Exchange
("TSXV") and Company  shareholder  approvals.  There are no assurances  that the
Company may identify suitable  acquisitions,  be able to finance these purchases
if negotiated, or receive the requisite approvals.

The  historical  results of the  Company's  operations  discussed in this annual
report are not necessarily  indicative of the future  operations of the Company.
In particular, if the Company acquires another business or assets, the Company's
operations  may change  significantly  from  those in which it has  historically
engaged.  Therefore,  the  discussion  of the  Company's  historical  operations
contained  in this  report may not  provide an  adequate  representation  of the
Company's future performance and results of its operations.

FINANCING RISKS.  The Company has limited  financial  resources,  no significant
revenues,  and has no assurance that additional  funding will be available to it
for  exploration  and  development  of the  Company's  projects or to fulfil its
obligations  under any  applicable  agreements.  During the 2003 fiscal year the
Company  recorded a loss of $699,602 and as at May 31, 2003,  the Company had an
accumulated deficit of $1,250,220.

As of May 31, 2003,  the Company had a working  capital  deficiency of $126,489,
which includes  $136,296 owed to Hilton Petroleum Inc.  ("Hilton").  Mr. DeMare,
the interim President,  Corporate Secretary and a Director of the Company, is an
officer and director of Hilton. In addition,  Harvey Lim and Andrew Carter,  who
are both  directors of the Company are the  Corporate  Secretary and a director,
respectively  of Hilton.  In  addition,  as of May 31,  2003,  the Company  owed
$72,620 to Boone Petroleum Inc.  ("Boone"),  a private  corporation owned by Mr.
Donald W. Busby, a former  director and officer of the Company and a significant
shareholder. Boone has agreed not to demand repayment of the advances during the
fiscal  year ending May 31,  2004.  As of the date of this  annual  report,  the
Company  is not  generating  sufficient  cash flow from its  operations  to meet
ongoing corporate overhead and to repay its outstanding  liabilities,  including
the amounts owed to Hilton and the shareholder.

The only significant  source of funds presently  available to the Company is the
sale of its equity  capital.  There can be no assurance that the Company will be
able to  obtain  adequate  financing  in the  future  or that the  terms of such
financing will be favorable.  Failure to obtain such additional  financing could
result  in  delay  or  indefinite   postponement  of  further   exploration  and
development  of its projects with the possible loss of such  properties.  If the
Company is not able to raise  additional  capital,  or generate  additional cash
flow, the Company may have to cease operations,  in which case any investment in
the Company's shares would become worthless.

In recent years, the securities  markets in Canada have experienced a high level
of price and volume  volatility,  and the  market  price of  securities  of many
companies,  particularly junior natural resources  exploration  companies,  have
experienced  wide  fluctuations in price which have not necessarily been related
to the  operating  performance,  underlying  asset  values or  prospects of such
companies.  In  particular,  the per share price of the Company's  common shares
fluctuated on the TSXV,  from a high of CDN $0.16 to a low of CDN $0.02,  and on
the OTC-BB,  from a high of $0.15 to a low of $0.01,  during the 12-month period
ending December 31, 2003.  Continued price  fluctuations will have a significant
impact on the Company's ability to complete equity financings.

If the  Company  issues  additional  shares  to fund its  operations  or for the
acquisition  of  additional  businesses,  the  shareholders  of the Company will
experience dilution of their ownership interests.

The Company's consolidated financial statements were prepared on a going concern
basis  which  assumes  that the  Company  will be able to realize its assets and
discharge its liabilities in the normal course of business.

LACK OF LIQUIDITY.  To date,  there has been  extremely  limited  trading of the
Company's shares of common stock on the  Over-the-Counter  Bulletin Board system
and the TSXV. Therefore, persons purchasing shares of the Company's common stock
may not be  able  to  resell  the  shares  and  may  have  to  hold  the  shares
indefinitely.  In addition,  purchasers  may not be able to use their shares for
collateral or loans and may not be able to liquidate at a suitable  price in the
event of an emergency.

EXPLORATION  AND PRODUCTION  RISKS.  The business of exploring for and producing
oil and  gas  involves  a  substantial  risk of  investment  loss  which  even a
combination of experience, knowledge and careful evaluation may not be able to

                                     - 10 -

<PAGE>



overcome.  Drilling  oil and gas wells  involves the risk that the wells will be
unproductive or that, although  productive,  the wells do not produce oil and/or
gas in  economic  quantities.  Other  hazards,  such as  unusual  or  unexpected
geological  formations,  pressures,  fires,  blowouts,  loss of  circulation  of
drilling  fluids  or  other  conditions  may  substantially   delay  or  prevent
completion of any well.  Adverse  weather  conditions  can also hinder  drilling
operations.  A productive  well may be  unmarketable  if it is impregnated  with
water or other deleterious substances. As with any petroleum property, there can
be no assurance  that oil and gas will be produced from the  properties in which
the Company has interests.  In addition,  the marketability of oil and gas which
may be acquired or discovered,  will be affected by numerous  factors beyond the
control of the Company.  These factors include the proximity and capacity of oil
and gas pipelines  and  processing  equipment,  market  fluctuations  of prices,
taxes,   royalties,   land  tenure,   allowable   production  and  environmental
protection.  The extent of these factors cannot be accurately predicted, but the
combination of these factors may result in the Company not receiving an adequate
return on invested  capital.  There is no assurance that additional crude oil or
natural gas in commercial quantities will be discovered by the Company.

UNINSURABLE RISKS.  Although the Company will maintain appropriate insurance for
liability  and property  damage in connection  with its business,  it may suffer
losses from uninsurable hazards or from hazards which the Company may choose not
to insure against  because of high premium costs or other  reasons.  The Company
may engage in  participating in the drilling of both exploratory and development
wells. Exploratory wells have much greater dry hole risk than do wells which are
drilled,  offsetting established  production.  The Company may become subject to
liability for pollution,  fire, explosion,  blow-outs,  cratering and oil spills
against which it cannot insure or against which it may elect not to insure. Such
events  could  result  in  substantial  damage to oil and gas  wells,  producing
facilities and other property,  personal injury and loss of life. The payment of
such liabilities may have a material,  adverse effect on the Company's financial
condition.

NO ASSURANCE OF TITLES.  It is the  Company's  practice in acquiring oil and gas
leases or  undivided  interests in oil and gas leases not to undergo the expense
of retaining  lawyers to examine the title to the mineral  interest to be placed
under lease or already  placed under lease.  Rather,  the Company will rely upon
the judgment of oil and gas lease  brokers or landmen who perform the field work
in examining records in the appropriate governmental office before attempting to
place under lease a specific mineral interest.  This practice is widely followed
in the oil and gas  industry.  Prior  to the  drilling  of an oil and gas  well,
however, it is the normal practice in the oil and gas industry for the person or
company acting as the operator of the well to hire a lawyer to examine the title
to the spacing  unit within which the proposed oil and gas well is to be drilled
to  ensure  there are no  obvious  deficiencies  in title to the well,  however,
neither  the  Company  nor the person or company  acting as operator of the well
will  obtain  counsel to examine  title to such  spacing  unit until the well is
about  to go  into  production.  It  frequently  happens,  as a  result  of such
examinations, that certain curative work must be done to correct deficiencies in
the marketability of the title, and the curative work entails expense.  The work
might  include  obtaining  affidavits  of  heirship  or  causing an estate to be
administered.  It does happen,  from time to time, that the examination  made by
the title  lawyers  reveals that the oil and gas lease or leases are  worthless,
having been purchased in error from a person who is not the owner of the mineral
interest desired. In such instances,  the amount paid for such oil and gas lease
or leases is generally lost.

ENVIRONMENTAL REGULATIONS.  In general, the Company's exploration and production
activities are subject to certain federal,  state and local laws and regulations
relating  to  environmental   quality  and  pollution  control.  Such  laws  and
regulations  increase the costs of these activities and may prevent or delay the
commencement or continuance of a given operation. Compliance with these laws and
regulations  has  not had a  material  effect  on the  Company's  operations  or
financial condition to date. Generally, environmental requirements do not appear
to affect the Company any  differently  or to any greater or lesser  extent than
other companies in the industry.

The Company believes that its operations comply, in all material respects,  with
all applicable environmental regulations.

The Company maintains insurance coverage customary to the industry,  however, it
is not fully insured against all environmental risks.

GOVERNMENTAL  REGULATIONS.  Oil and gas exploration,  development and production
are subject to various types of regulation by local, state and federal agencies.
Legislation  affecting  the oil and gas  industry is under  constant  review for
amendment and expansion.  Also, numerous departments and agencies,  both federal
and  state,  are  authorized  by  statute  to issue  and have  issued  rules and
regulations binding on the oil and gas industry and its individual members,

                                     - 11 -


<PAGE>



some of which carry substantial  penalties for failure to comply. The regulatory
burden  on the  oil and gas  industry  increases  the  Company's  cost of  doing
business and,  consequently,  effects its  profitability.  However,  since these
regulations  generally  apply to all oil and gas  producers,  management  of the
Company believes that these regulations should not put the Company at a material
disadvantage to other oil and gas producers.

OIL AND NATURAL GAS PRICES.  In recent decades,  there have been periods of both
worldwide overproduction and underproduction of hydrocarbons and periods of both
increased and relaxed energy conservation efforts. Such conditions have resulted
in periods of excess supply of, and reduced demand for, crude oil on a worldwide
basis and for natural gas on a domestic basis.  These periods have been followed
by periods of short  supply of, and  increased  demand for,  crude oil and, to a
lesser  extent,  natural gas. The excess or short supply of crude oil has placed
pressures on prices and has resulted in dramatic price  fluctuations even during
relatively short periods of seasonal market demand. The price of natural gas has
also exhibited similar market demand fluctuations.

The Company's financial results can be significantly affected by prices received
from production of oil and gas as commodity  prices fluctuate widely in response
to changing market forces.  Specifically,  a decrease in the price of oil or gas
may reduce the  revenue  the Company  receives  from its oil and gas  operations
and/or may increase the Company's  impairment or depletion  expenses for a given
period.  In  addition,  a decrease  in price may cause a decrease in the present
value of the Company's estimated oil and gas reserves.  Conversely,  an increase
in the price of oil or gas may increase the revenue  received from the Company's
oil and gas operations and/or may decrease the Company's impairment or depletion
expenses for a given  period.  An increase in price may cause an increase in the
present value of the Company's estimated oil and gas reserves.

COMPETITION.  The oil and gas industry is intensely  competitive and the Company
competes  with  other  companies  which  have  greater  resources.  Many of such
companies  not only  explore for and produce  crude oil and natural gas but also
carry on  refining  operations  and market  petroleum  and other  products  on a
worldwide basis. There is also competition  between the oil and gas industry and
other  industries  with respect to the supply of energy and fuel to  industrial,
commercial and individual consumers.

AVAILABILITY.  The timing of oil and gas exploration and development  activities
is  dependent  on the  availability  of drilling  and related  equipment  in the
particular  areas where such  activities  are to be  conducted.  Demand for such
limited equipment by the Company's competitors or access restrictions imposed by
an  area's  surface   and/or  weather   conditions  may  affect  such  equipment
availability   to  the  Company  and  may  delay   exploration  and  development
activities.

CONFLICTS OF  INTEREST.  All  directors  and officers of the Company will not be
devoting all their time to the affairs of the Company, but will be devoting such
time as required to  effectively  manage the Company.  Some of the directors and
officers  of the  Company  are  engaged  and will  continue to be engaged in the
search for  property or assets or business  prospects  on their own behalf or on
behalf of others.  Such associations may give rise to conflicts of interest from
time to time.  The  directors of the Company are required by law to act honestly
and in good  faith  with a view to the  best  interests  of the  Company  and to
disclose any interest  which they may have in any project or  opportunity of the
Company.  If a  conflict  of  interest  arises  at a  meeting  of the  board  of
directors,  any  director in a conflict  will  disclose his interest and abstain
from voting on such matter. The Company does not currently have a right of first
refusal pertaining to opportunities that come to management's  attention insofar
as such opportunities may relate to the Company's proposed business  operations.
The officers and directors are, so long as they are officers or directors of the
Company,  subject to the restriction that all opportunities  contemplated by the
Company's  plan of  operation  which  come to  their  attention,  either  in the
performance  of  their  duties  or in  any  other  manner,  will  be  considered
opportunities  of, and be made  available to the Company and the companies  that
they are affiliated  with on an equal basis.  If the Company or the companies in
which the  officers  and  directors  are  affiliated  with  both  desire to take
advantage of an opportunity, then said officers and directors would abstain from
negotiating and voting upon the  opportunity.  However,  all directors may still
individually  take advantage of  opportunities if the Company declines to do so.
Except as set forth  above,  the Company  has not adopted any other  conflict of
interest policy with respect to such transactions. In determining whether or not
the Company will  participate in any project or  opportunity,  the director will
primarily  consider  the degree of risk to which the  Company may be exposed and
its financial  position at the time. No members of management  have entered into
non-competition agreements with the Company.


                                     - 12 -

<PAGE>


NO  DIVIDENDS.  The Company has never  declared  or paid cash  dividends  on its
common  shares  and does not  anticipate  doing  so in the  foreseeable  future.
Additionally, the determination as to the declaration of dividends is within the
discretion  of the Company's  Board of  Directors,  which may never declare cash
dividends on the Company's  common stock.  Investors  cannot expect to receive a
dividend on the Company's common shares in the foreseeable future, if at all.

NO EMPLOYEES. Corporate accounting,  management and administration are provided,
in part, by Chase Management Ltd. ("Chase"), a company owned by Mr. Nick DeMare,
a director and interim President and Chief Executive Officer of the Company.  In
the event the  Company  needs to employ  additional  personnel,  it will need to
recruit qualified  personnel to staff its operations.  The Company believes that
such personnel  currently are available at reasonable  salaries and wages in the
geographic areas in which the Company and its subsidiaries operate. There can be
no assurance,  however,  that such personnel will be available in the future. In
addition,  it cannot be  predicted  whether  the  labor  staffing  at any of the
Company's  projects will be unionized,  which may result in  potentially  higher
operating costs.

"PENNY"  STOCK  REGULATION OF  BROKER-DEALER  SALES OF COMPANY  SECURITIES.  The
Securities and Exchange  Commission  (the "SEC") has adopted rules that regulate
broker-dealer  practices in  connection  with  transactions  in "penny  stocks".
Generally,  penny stocks are equity  securities  with a price of less than $5.00
(other than securities  registered on certain national  securities  exchanges or
quoted on the NASDAQ system).  If the Company's  shares are traded for less than
$5.00 per share (as the  Company's  shares  currently  are),  the shares will be
subject to the SEC's penny stock rules  unless (1) the  Company's  net  tangible
assets exceed  $5,000,000  during the Company's  first three years of continuous
operations  or $2,000,000  after the  Company's  first three years of continuous
operations;  or (2) the Company has had average  revenue of at least  $6,000,000
for the last three years. The penny stock rules require a broker- dealer,  prior
to a  transaction  in a penny  stock not  otherwise  exempt  from the rules,  to
deliver a  standardized  risk  disclosure  document  prescribed  by the SEC that
provides information about penny stocks and the nature and level of risks in the
penny stock  market.  The  broker-dealer  also must  provide the  customer  with
current bid and offer  quotations for the penny stock,  the  compensation of the
broker-dealer  and  its  salesperson  in the  transaction  and  monthly  account
statements  showing the market value of each penny stock held in the  customer's
account. In addition,  the penny stock rules require that prior to a transaction
in a penny stock not otherwise exempt from those rules, the  broker-dealer  must
make a  special  written  determination  that  the  penny  stock  is a  suitable
investment for the purchaser and receive the  purchaser's  written  agreement to
the transaction. These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that becomes subject to the
penny stock  rules.  Since the  Company's  common  stock is subject to the penny
stock  rules,  holders of the  common  stock may find it  difficult  to sell the
common stock of the Company.

BOARD OF DIRECTORS  NOT RESIDENT IN THE UNITED  STATES.  Service of process upon
individuals or firms that are not resident in the United States may be difficult
to obtain within the United States. The Board of Directors and senior management
of the Company reside outside the United  States.  Any judgment  obtained in the
United States against the Company or such persons may not be collectible  within
the United  States.  The Company has not appointed  anyone to accept  service of
process on its behalf.

PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS.  The Company may be deemed to
be a "Passive Foreign Investment Company".  See "Item 10. Additional Information
- Taxation." As a result,  a United States holder of the Company's common shares
could be subject to  increased  tax  liability,  possibly  including an interest
charge,  upon the sale or other disposition of the United States holder's common
shares or upon the  receipt of "excess  distributions,"  unless  such  holder of
common shares elects to be taxed currently on his or her pro rata portion of the
Company's  income,  whether  or not the income  was  distributed  in the form of
dividends or otherwise.  The election requires certain conditions be met such as
filing on or before the due date,  as  extended,  for  filing the  shareholder's
income tax return for the first  taxable year to which the election  will apply.
Otherwise, the election may only partially apply.

FORWARD  LOOKING  STATEMENTS.  This  annual  report  contains  estimates  of the
Company's  oil and gas reserves and the  estimated  future cash flows  therefrom
that rely upon  various  assumptions,  including  assumptions  as to oil and gas
prices,  drilling  and  operating  expenses,  capital  expenditures,  taxes  and
availability  of funds.  The  process  of  estimating  oil and gas  reserves  is
complex,  requiring  significant  decisions and assumptions in the evaluation of
available  geological,  geophysical,  engineering  and  economic  data  for each
reservoir.  As a result, such estimates are inherently imprecise.  Actual future
production,  oil  and gas  prices,  revenues,  cash  flows,  taxes,  development
expenditures, operating expenses

                                     - 13 -

<PAGE>

and quantities of recoverable oil and gas reserves may vary  substantially  from
those estimated in the respective reserve reports.  Any significant  variance in
these assumptions  could materially affect the estimated  quantities and present
value of reserves set forth in this report.  In addition,  such  reserves may be
subject to downward or upward revisions based upon production  history,  results
of future  exploration and development,  prevailing oil and gas prices and other
factors, many of which are beyond the control of the Company. Actual production,
revenues, taxes, development expenditures and operating expenses with respect to
reserves will likely vary from the  estimates  used,  and such  variances may be
material.

In general,  the volume of production  from oil and gas  properties  declines as
reserves are depleted. The decline rates depend on reservoir characteristics and
vary from steep declines to the relatively slow declines characteristic of long-
lived fields.  Except to the extent the Company acquires  properties  containing
proved reserves or conducts successful  development and exploration  activities,
or both, the reserves of the Company will decline as reserves are produced.  The
Company's future natural gas and oil production is, therefore,  highly dependent
upon its level of  success  in finding or  acquiring  additional  reserves.  The
business  of  exploring  for,   developing  or  acquiring  reserves  is  capital
intensive.  To the extent  cash flow from  operations  is reduced  and  external
sources of capital become limited or unavailable,  the Company's ability to make
the necessary capital investment to maintain or expand its asset base of oil and
gas reserves would be impaired. In addition,  there can be no assurance that the
Company's future development, acquisition and exploration activities will result
in  additional  reserves  or that the Company  will be able to drill  productive
wells at acceptable costs.


ITEM 4.  INFORMATION ON THE COMPANY.
--------------------------------------------------------------------------------


HISTORY AND DEVELOPMENT OF THE COMPANY

The Company was  incorporated  under the Company  Act  (British  Columbia)  (the
"Company  Act") on December 10, 1999 under the name "Buck  Ventures Ltd." On May
10,  2000,  the  Company  changed  its  name to "QDM  Ventures  Ltd."  With  the
acquisition  of CalEx as described  below,  on September  25, 2001,  the Company
changed its name to "California Exploration Ltd.", filed Articles of Continuance
under the  Business  Corporations  Act (Yukon)  (the  "Corporations  Act"),  and
changed its domicile from British Columbia to the Yukon Territory. On October 1,
2001, the Company commenced trading on the TSXV under its new name of California
Exploration Ltd. and with a new trading symbol of "CAX".

The Company's  registered  office is located at 3081 Third  Avenue,  Whitehorse,
Yukon, Canada, Y1A 4Z7 (telephone number 867-668-4405).  The Company's principal
executive  office  and  corporate  office is  located  at Suite 1305 - 1090 West
Georgia Street, Vancouver,  British Columbia,  Canada, V6E 3V7 (telephone number
604-685-9316).  See "Item 4.  Information  on the Company - Principal  Oil & Gas
Properties" and "Item 7. Major Shareholders and Related Party Transactions."

The Company does not have a registered agent in the United States.

The  Company  was  initially  formed to operate as a capital  pool  company,  in
accordance with the policies of the TSXV.

With the introduction of the Capital Pool Company Policy in November,  1999 (the
"CPC  Policy"),  the TSXV  created a new  category of listing,  the capital pool
company,  pursuant to which a company  formed by  individuals  acceptable to the
TSXV could complete an initial public offering  earlier in its development  than
may be  possible  with a regular  initial  public  offering.  Proceeds  from the
initial  public  offering  must  be  used  primarily  to  investigate   business
opportunities  for  acquisition  by  the  capital  pool  company.  Only  certain
acquisitions  can be made by the capital pool company to satisfy the CPC Policy.
Such an acquisition is referred to as a qualifying transaction.

During  the  period  ended May 31,  2000,  the  Company  completed  its  initial
financing and sold 2,200,001  common shares at a price of CDN$0.10 per share for
proceeds of CDN$220,000.  During December 2000, the Company completed an initial
public  offering  and sold  1,000,000  common  shares at a price of CDN$0.20 per
share, for gross proceeds of CDN$200,000.


                                     - 14 -

<PAGE>


In  connection  with the public  offering,  the  Company  and  Research  Capital
Corporation  ("Research Capital"),  an unaffiliated company,  executed an Agency
Agreement dated September 27, 2000, pursuant to which Research Capital agreed to
act as the  Company's  agent  in  the  offering.  Research  Capital  was  paid a
corporate finance fee of CDN$7,500 in connection with the offering.  The Company
also granted Research Capital a warrant  entitling  Research Capital to purchase
up to 100,000  common shares at CDN$0.20 per share  expiring June 21, 2002.  The
proceeds from these financings were used to investigate business opportunities.

Pursuant  to an  Agreement  and Plan of Merger  dated July 3, 2001,  between the
Company, CalEx and QDM Acquisition Corporation (a wholly-owned subsidiary of the
Company formed for the purpose of merging into CalEx), the shareholders of CalEx
acquired control of the Company in a reverse acquisition completed September 27,
2001. CalEx is an oil and gas company  incorporated in the State of Nevada.  See
"Item 5. Operating and Financial Review and Prospects - Overview."

The  acquisition  constituted  a  qualifying  transaction  under the CPC Policy.
Pursuant to the terms of the Agreement and Plan of Merger,  each  shareholder of
CalEx  received one share of the Company's  common stock for each share of CalEx
common stock held. Additionally, all of the issued and outstanding shares of QDM
Acquisition  Corporation  (which were held by the Company) were  converted  into
shares of CalEx.  As a result,  CalEx became a  wholly-owned  subsidiary  of the
Company.

Since its  incorporation  on October  6, 1999,  CalEx  principally  operated  in
California where it acquired,  explored and developed  petroleum and natural gas
prospects in California. Most recently it has acquired petroleum and natural gas
leases in Texas. As a prospect generator,  CalEx obtained financial support from
joint venture partners.  In addition,  CalEx raised equity financing through the
sale of its common stock.

BUSINESS OVERVIEW

As a result of the  reverse  acquisition,  the  Company's  operations  currently
consist solely of the operations of CalEx.

The Company's  original goal was to identify,  acquire,  explore and develop oil
and natural gas reserves in the Western United States,  principally in the State
of  California.  The  Company's  business plan  contemplated  that joint venture
partners would reimburse the Company for 100% of its prospect costs to acquire a
100% capital  interest (75% working  interest) in the drilling of the first well
on each prospect  resulting in the Company retaining up to a 25% interest in the
prospect with the remaining 75% interest in the prospect  being divided  amongst
the joint venture partners. Upon completion of the first well on a prospect, the
Company  would be  required  to fund its pro rata share of  further  development
costs.

In conjunction with the qualifying  transaction,  the Company proceeded with the
first stage of the exploration and  development  program  prescribed for its oil
and gas  interests,  which  consisted the drilling of eight wells.  Of the eight
wells,  six were  initially  abandoned  as dry holes,  one, the Suisun #25 well,
required  side-tracking to reach the target zone and one well was completed as a
producing well although it was shut-in shortly after commencement of production.
This well was subsequently  abandoned.  In addition,  the joint venture partners
informed the Company that they  terminated  their joint venture  agreements  and
agreed to pay  maintenance  costs with  respect to the  prospect  they retain an
interest  in. It was  therefore  determined  by  management  of the  Company  to
consider other  opportunities in the oil and gas industry.  Throughout the first
half of calendar 2002, the Company worked towards finding  partners to drill the
side-track well to the Suisun #25 well.

In August 2002, the Company commenced the side-track of the Suisun #25 well. The
side-track was completed in September 2002. Case hole logs and perforations were
accomplished  to test several  zones within the shallow  objective of the Suisun
Sands.  Gas was flowed to the surface at very low  pressures.  It was determined
that there was  insignificant  pressure and volume to be economic.  The well was
then plugged and abandoned.

In an attempt to diversify the Company's operations,  management began reviewing
other  business  opportunities  during late calendar 2001. In December 2001, the
Company  identified  and began  negotiations  with  Optimal  Power  Systems Ltd.
("OPS"), a private software  development company  incorporated under the laws of
Alberta.  On December 21, 2001,  the Company  requested a halt in the trading of
its common shares. On January 14, 2002, the Company signed a letter

                                     - 15 -

<PAGE>


of intent whereby it agreed, subject to shareholder and regulatory approvals, to
acquire 100% of the issued and outstanding common shares of OPS. Under the terms
of the  letter of intent,  the  Company  provided  OPS  bridge  loans  totalling
CDN$150,000.  OPS was unable to complete a restructuring  of their business plan
which would have enabled the Company to proceed with the acquisition. On January
7, 2003,  the Company  terminated  the agreement  under the letter of intent and
requested  repayment of the bridge  loans.  Although the  principals of OPS have
pledged their  holdings in OPS as security,  it is not known whether the Company
will recover the amount, if any, of the bridge loans.  Accordingly,  the Company
has written-off the full amount of the bridge loans.

As of the date of this  annual  report,  the Company  holds a minor  interest in
producing oil and gas leases in Texas. See "Item 4. Information on the Company -
Principal  Properties  - Principal  Oil and Gas  Properties  - West Ranch Field,
Texas." During the 2003 fiscal year the Company commenced  principal  operations
from the Texas  interest.  Commencing  March 2003 to May 2003,  the  Company has
received $14,466 of petroleum and natural gas revenues. Accordingly, the Company
is no longer considered a development stage company.  It is currently  reviewing
potential asset and business acquisitions which may or may not be in the oil and
gas industry.

The Company has received  shareholder  approval to a consolidation  of its share
capital on a one new for five old basis. Management of the Company believes that
the  share  consolidation  is  a  necessary  step  to  raise  additional  equity
financing.  As of the date of this annual  report the Company has not  initiated
the share consolidation.

DISPOSITIONS

As a prospect  generator,  the  Company's  business  was to acquire  oil and gas
prospects  and farm-out its  properties  with industry  joint venture  partners.
During fiscal 2001, the Company had farmed out various  interests in its oil and
gas properties for $405,740 cash. No dispositions  or farm-outs  occurred during
fiscal 2002.  During fiscal 2003, the Company  recorded an impairment  charge of
$373,057 to reflect its unsuccessful drilling activities and related acquisition
costs of the abandonment of the regional  California  prospects and the Michigan
exploratory well. See "Item 4. Information on the Company - Principal Properties
- Principal Oil and Gas  Properties."  During 2003,  the Company also  wrote-off
$118,636 in connection with the letter of intent and bridge loan with OPS.

EXPLORATION EXPENDITURES

During fiscal 2001, 2002 and 2003, the Company incurred  $309,841,  $287,045 and
$155,756  respectively,  on the  acquisition  and  exploration  of its petroleum
interests.

2003 - 2004 EXPLORATION BUDGET

With the  unsuccessful  drilling  results and the abandonment of the majority of
it's oil and gas  prospects,  the Company is  assessing  its business  plan.  No
exploration budgets have been determined for the remainder of fiscal 2004.

PRINCIPAL PRODUCTS OR SERVICES AND MARKETS

To date, the Company has participated in exploration  activities to locate crude
petroleum  and natural  gas. The  principal  markets for these  commodities  are
refining companies,  natural gas transmission pipeline companies,  utilities and
private  industry  end-users,  which  purchase  the crude oil,  and  natural gas
pipeline companies, which purchase the gas.

SALES AND REVENUE DISTRIBUTION

Commencing in the 2003 fiscal year,  the Company's  share of petroleum,  natural
gas and  natural gas  liquids  produced  from its wells was sold to a variety of
purchasers at the wellhead in the United States. All of its sales were conducted
with unaffiliated customers. These purchasers provided a ready market for all of
the Company's production and paid the local market price, which fluctuated based
upon prevailing market conditions. Due to the number of purchasers in each area,
the loss of one or a number of purchasers did not pose a significant risk to the
continuity of the Company's operations.



                                     - 16 -

<PAGE>

Total  revenues,  interest and other income  reported for fiscal 2003,  2002 and
2001, were as follows:
<TABLE>
<CAPTION>
                                                                          Years Ended May 31,
                                                              --------------------------------------------
                                                                 2003            2002             2001
<S>                                                          <C>             <C>             <C>
     Petroleum and Natural Gas Sales
         - United States                                        $  14,466       $       -        $       -
                                                              -----------     -----------      -----------
     Interest and Other Income
         - United States                                                -          69,442            3,970
         - Canada                                                       -           3,038            6,650
                                                              -----------     -----------      -----------
                                                                    7,599          72,480           10,620
                                                              -----------     -----------      -----------

     Total Revenue, Interest and Other Income                   $  22,065       $  72,480        $  10,620
                                                              ===========     ===========      ===========

</TABLE>


ORGANIZATIONAL STRUCTURE

The  following  organization  chart  sets forth the name of the  Company's  sole
subsidiary, CalEx, its jurisdiction of incorporation and the Company's ownership
interests  therein as of the date of this  report.  Unless  otherwise  indicated
herein, the term "Company" means collectively the Company and its subsidiary.

                               ORGANIZATION CHART

                          -----------------------------
                          |California Exploration Ltd. |
                          |     (Yukon Territory)      |
                          -----------------------------
                                       |
                                       |
                          -----------------------------
                          |California Exploration Inc. |
                          |         (Nevada)           |
                          |           100%             |
                          -----------------------------

COMPETITIVE  BUSINESS  CONDITIONS,  COMPETITIVE  POSITION  IN THE  INDUSTRY  AND
METHODS OF COMPETITION

The  Company's  petroleum and natural gas  exploration  activities in the United
States are being  undertaken in a highly  competitive and  speculative  business
atmosphere.  In seeking any other suitable  petroleum and natural gas properties
for  acquisition,  the  Company is  competing  with a number of other  companies
located  in the  United  States  and  elsewhere,  including  large  oil  and gas
companies and other  independent  operators  with greater  financial  resources.
Management does not believe that the Company's initial  competitive  position in
the petroleum and natural gas industry will be significant.

Management does not foresee any  difficulties in procuring  drilling rigs or the
manpower to run them in the area of its operations;  however,  several  factors,
including  increased  competition  in the area,  may limit the  availability  of
drilling rigs, rig operators and related  personnel  and/or  equipment;  such an
event  may  have  a  significant  adverse  impact  on the  profitability  of the
Company's operations.

Competition in the petroleum and natural gas exploration  industry exists in the
form of competition  to acquire the most promising  acreage blocks and obtaining
the most  favorable  prices for  transporting  the  product.  The  Company,  and
ventures  in  which it  participates,  is  relatively  small  compared  to other
petroleum  and  natural  gas  exploration  companies  and  may  have  difficulty
acquiring   additional   acreage   and/or   projects  and   arranging   for  the
transportation  of product,  in the event the  Company,  or ventures in which it
participates, is successful in its exploration efforts.

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LAWS

The  Company  and any  venture in which it  participates,  is required to obtain
permits for drilling oil or gas wells.


                                     - 17 -

<PAGE>


Exploration and production activities relating to oil and gas leases are subject
to numerous  environmental laws, rules and regulations.  The Federal Clean Water
Act requires the Company to construct a fresh water containment  barrier between
the surface of each drilling site and the underlying water table.

Various federal,  state and local laws and regulations covering the discharge of
materials into the environment,  or otherwise  relating to the protection of the
environment,  may affect the Company's operations and costs through their effect
on oil and gas exploration, development and production operations. Environmental
laws and  regulations  have changed  substantially  and rapidly over the last 20
years, and the Company anticipates that there will be continuing  changes.  Laws
and regulations  protecting the environment have generally become more stringent
in recent years,  and may in certain  circumstances  impose "strict  liability,"
rendering a  corporation  liable for  environmental  damages  without  regard to
negligence or fault on the part of such  corporation.  Such laws and regulations
may expose the Company to liability  for the conduct of operations or conditions
caused by others,  or for acts of the Company which were in compliance  with all
applicable  laws at the time  such  acts  were  performed.  Increasingly  strict
environmental  restrictions and limitations have resulted in increased operating
costs for the Company and other businesses  throughout the United States, and it
is possible that the costs of compliance with environmental laws and regulations
will continue to increase.  The  modification of existing laws or regulations or
the adoption of new laws or regulations relating to environmental  matters could
have a material  adverse effect on the Company's  operations.  In addition,  the
Company's existing and proposed  operations could result in liability for fires,
blowouts,  oil  spills,  discharge  of  hazardous  materials  into  surface  and
subsurface  aquifers  and other  environmental  damage,  any one of which  could
result in personal  injury,  loss of life,  property  damage or  destruction  or
suspension of operations.

The  Comprehensive  Environmental  Response,   Compensation  and  Liability  Act
("CERCLA"),  also known as the "Superfund" law, requires payments for cleanup of
certain  abandoned  waste  disposal  sites,  even  though  such  waste  disposal
activities were undertaken in compliance with regulations applicable at the time
of disposal.  Under the  Superfund  legislation,  one party may,  under  certain
circumstances,  be required to bear more than its proportional  share of cleanup
costs at a site where it has  responsibility  pursuant  to the  legislation,  if
payments cannot be obtained from other  responsible  parties.  Other legislation
mandates  cleanup of  certain  wastes at  facilities  that are  currently  being
operated.  States also have regulatory  programs that can mandate waste cleanup.
CERCLA  authorizes  the  Environmental  Protection  Agency  ("EPA") and, in some
cases, third parties to take actions in response to threats to the public health
or the  environment  and to seek to  recover  from the  responsible  classes  of
persons the costs they incur. The scope of financial  liability under these laws
involves inherent uncertainties.

It is not  anticipated  that the Company  will be required in the near future to
expend  amounts that are material in relation to its total capital  expenditures
program by reason of environmental  laws and  regulations,  but inasmuch as such
laws and  regulations are frequently  changed,  the Company is unable to predict
the ultimate cost of compliance.

The Company believes it is presently in compliance with all applicable  federal,
state or local  environmental  laws,  rules or regulations;  however,  continued
compliance  (or  failure to comply) and future  legislation  may have an adverse
impact on the Company's present and contemplated business operations.

The  foregoing  is only a brief  summary of some of the  existing  environmental
laws,  rules and  regulations  to which the Company's  business  operations  are
subject,  and there are many others,  the effects of which could have an adverse
impact on the Company.  Future legislation in this area will no doubt be enacted
and revisions will be made in current laws. No assurance can be given as to what
effect these  present and future laws,  rules and  regulations  will have on the
Company's current and future operations.

PRINCIPAL PROPERTIES

PRINCIPAL OIL AND GAS PROPERTIES

The  Company's  initial oil and natural gas  prospects  were  located in the San
Joaquin and Sacramento Basins of California.  Each of the prospects  differed in
scope and character and consisted of working  interests in petroleum and natural
gas leases.  During the fiscal year ended May 31,  2002,  the  Company,  through
CalEx,  conducted various exploration  activities on its properties.  During the
fiscal year ended May 31, 2003, the Company participated in a side- track of the
Suisan #25 well. Based upon the results of those activities, the Company decided
to not to conduct any

                                     - 18 -

<PAGE>

exploration  of its  properties  and abandoned or returned to the vendor most of
its property  interests.  As of the date of this annual  report,  the  Company's
interest in the West Ranch Field,  Texas,  is the only  significant  interest in
petroleum  and natural gas leases  held by the  Company.  During the fiscal year
ended May 31, 2003, the Company spent approximately  $155,756 on the exploration
of its properties and recorded an impairment charge of $373,057,  reflecting its
share of unsuccessful  drilling  activities and related acquisition costs of the
abandonment  of the regional  California  prospects  and other minor oil and gas
interests.

REGIONAL CALIFORNIA

The Company  participated in a regional  exploration  program in the San Joaquin
Basin of California and a number of prospects were drill tested.

During fiscal 2002, the Company, as the operator, drilled an exploratory well on
the Basil  Prospect,  located in the southern  portion of the Sacramento  Basin.
This prospect is believed to be a structural  fault trap documented with seismic
and well data. This well must be drilled  directional under a body of water from
a land based position. The targets are believed to be at 4,500 feet but the well
must be drilled 6,000 feet laterally to the target. The initial test well on the
Basil Prospect, the Suisun #25 well, commenced drilling on July 25, 2001 and was
completed  on August 28,  2001 at a depth of 7,829 feet.  The Basil  Prospect is
adjacent to the Suisun  producing field and separated by a fault. The Suisun #25
well was  directionally  drilled to a  measured  depth of 7,829 feet to test the
Suisun and Domengine  Sands for natural gas. At 5,550 feet the well  encountered
the trapping fault with a 440 unit gas spike  supporting the sealing  ability of
the fault.  The Suisun Sands were  encountered  at 6,545 feet - 132 feet high to
prognosis.  The first  sands  coming in high  supports  throw on the fault to be
greater  than  expected.  Once the sands were  encountered  the  background  gas
increased by nearly 200 units (1 unit = 50 ppm Methane).  Throughout  the Suisun
Sands  the  background  gas  remained  between  100 and 200 units  with  several
connection  gas  readings  in excess of 300  units.  The  Domengine  Sands  were
encountered at a measured  depth of 7,120 feet - 162 feet high to prognosis.  In
the lower  Domengine  Sands,  background gas readings  remained in excess of 500
units. When pulling out of the hole the drill pipe became stuck at approximately
2,300 feet and after three days of recovery  efforts the pipe, below 3,216 feet,
remained stuck. It was therefore determined to temporarily suspend the well.

On August 19, 2002,  the Company  commenced  the  sidetrack of the well from the
same  surface  location  using  the  existing  casing  down to 2,114  feet.  The
side-track  parallelled the original hole to the same total depth of 7,829 feet.
Only the Suisun  sands were  encountered  in this well.  Gas shows were  present
throughout the Suisun Sands from 6,480 feet to 7,170 feet measured  depth.  Once
again,  hole problems were  encountered  while pulling out to log preventing any
open hole logs.  While  performing  the clean-out trip for casing the drill pipe
became stuck at 6,248 feet.  Coiled  tubing was run through  drill pipe to 7,500
feet and cemented in place. Case hole logs and perforations were accomplished to
test several  zones within the shallow  objective of the Suisun  Sands.  Gas was
flowed to the surface at very low pressures.  It was  determined  that there was
insignificant  pressure  and volume to be  economic.  The well was  plugged  and
abandoned September 21, 2002.

The Company has abandoned the Regional California prospects.

WEST RANCH FIELD, TEXAS

On December 18,  2002,  the Company  entered into a purchase and sale  agreement
with PNP  Petroleum  Inc.  ("PNP"),  a private  company at  arm's-length  to the
Company,  whereby the Company acquired a 3% net working interest  (2.360825% net
revenue  interest)  in certain oil and gas leases known as the West Ranch Field.
To acquire its interest the Company funded $43,500 of initial development costs.

The West Ranch Field is located approximately 25 miles southeast of Victoria, in
Jackson  County,  Texas.  The field was  discovered in 1938 by Mobil Oil and has
produced  in  excess  of 300 BCF gas and 300 MMBO from  hundreds  of wells.  The
geology of the West Ranch Field  consists of typical  Gulf Coast sand  sequences
with numerous stacked sand pays of both Miocene and Frio age rocks. Over 25 main
producing  sands have been  identified  within the West Ranch  Field  production
limits  with the Greta,  Glasscock,  41-A,  98-A and Ward  sands  being the most
prolific  producers.  These  sands  are  historically  high  permeability,  high
porosity sands capable of producing high fluid rates.


                                     - 19 -

<PAGE>


In the early 1980's the previous  operator  became active in the region  through
acquisition  of a few old  producing  well  bores.  After  reworking  geological
structure  and net sand maps,  the  operator  was able to extend  the  southwest
production  limits of the  field by the  drilling  of  infield  wells  targeting
structural highs. PNP purchased the West Ranch Field and took over its operation
on January 1, 2002.  The  property  includes  35 wells with only a small  number
currently  producing on gas lift. After a detailed  engineering  analysis of the
property,   the  operator   has   developed  a  plan,   which   focuses  on  the
re-establishing  of shut-in wells to active status by adding  compression,  salt
water  handling  and  disposal.  It is  expected  that  any  additional  capital
expenditures can be funded from cash flow.

OIL AND GAS RESERVES

The following  table sets forth  information  regrading  the Company's  share of
estimated  proven oil and gas reserve  quantities,  reserve value and discounted
future  net  revenues.  The  reserve  related  information  at May 31,  2003 was
determined  through  independent  engineering  evaluations  completed  by Bommer
Engineering  Co.  ("Bommer"),  an  independent  petroleum  consulting  firm. The
Company does not have any long-term  supply or similar  agreements  with foreign
governments or authorities in which the Company acts as producer.

There are numerous  uncertainties  inherent in  estimating  quantities of proved
reserves and  projecting  future rates of production  and timing of  development
expenditures.  The following reserve information  represents  estimates only and
should not be construed as being exact:
<TABLE>
<CAPTION>
                                                                                                       Present Value of
                                                                                                       Estimated Future
                                                                                      Estimated          Net Revenues
                                                                         Gas          Future Net     Before Income Taxes
                                              Gas          Oil        Equivalent     Revenues (2)     Discounted at 10%
                                            (MMCF)        (MBO)       (MMCFE)(1)        ($000)              ($000)

<S>                                       <C>           <C>           <C>            <C>                 <C>
May 31, 2003

Proved oil and gas reserves                  21.75        5.67          55.77           95.70                60.0
                                             =====        ====          =====           =====                ====
</TABLE>

(1)  Condensates  and natural gas liquids are  converted  to MCFE at the rate of
     six gallons of liquids per MCF of natural gas. These  conversions are based
     upon the approximate energy content of natural gas condensates and liquids.

(2)  Estimated future net revenue  represents  estimated future gross revenue to
     be  generated  from the  production  of proved  reserves,  net of estimated
     production and future  development  costs, using prices and costs in effect
     as of the date of the  estimates.  The amounts  shown do not give effect to
     non-property related expenses, such as general and administrative expenses,
     debt service and future income tax expense or  depreciation,  depletion and
     amortization.

ACREAGE

As of the date of this annual  report,  the Company  has  interests  in the West
Ranch Field, Texas, as follows:

                                                    Gross Acres        Net Acres
     Proved developed producing                         814              19.21
     Proved developed non-producing                     320               7.55
                                                      -----              -----
                                                      1,134              26.76
                                                      =====              =====
PRODUCTIVE OIL AND GAS WELLS

As at the date of this annual report,  the Company has fifteen  producing  wells
(0.354 net wells),  six proved non- producing  wells (0.141648 net wells) and 18
shut-in wells (0.425 net wells) at the West Ranch Field.  The Company  commenced
receiving  revenues in March 2003.  During the year ended May 31, 2003, the West
Ranch Field produced  14,063 barrels (332 barrels net to the Company) of oil and
33,929 mcfs (801 mcfs net to the Company) of gas.


                                     - 20 -


PROPOSED EXPLORATION AND DEVELOPMENT PROGRAM

No exploration  budgets have been  determined by the Company for the 2004 fiscal
year. All further  capital  expenditures  on the West Ranch Field will be funded
from cash flow from existing producing wells.

OTHER ASSETS

On January 14,  2002,  the Company  entered  into a letter of intent  whereby it
agreed to acquire  100% of the issued and  outstanding  common  shares of OPS, a
private company  incorporated under the laws of Alberta.  Under the terms of the
Letter of Intent,  the Company proposed to issue up to 4.8 million common shares
of the Company to the  shareholders  of OPS,  based upon OPS  achieving  certain
revenue levels. The Company had also provided OPS bridge loans totalling $95,822
(CDN  $150,000).  OPS was unable to complete a  restructuring  of their business
plan which  would have  enabled  the  Company to proceed  with the  acquisition.
Accordingly, the Company terminated the agreement under the Letter of Intent and
requested  repayment of the bridge  loans.  Although the  principals of OPS have
pledged  their  holdings in OPS as security it is not known  whether the Company
will recover the full amount of the bridge loans. Accordingly, the Company wrote
off $95,822  relating to the bridge loans. The Company had also incurred a total
of $22,814 for legal fees  associated  with the proposed  acquisition,  of which
$13,221 had been  recorded as at May 31, 2002,  as deferred  acquisition  costs.
These  deferred  acquisition  costs were also written off during the 2003 fiscal
year.

PRINCIPAL OFFICES

The  Company's  principal  executive  and  corporate  office  is  provided  on a
month-to-month basis by Chase as part of its agreement with the Company. Chase's
office is located at Suite 1305 - 1090 West Georgia Street,  Vancouver,  British
Columbia, V6E 3V7, Canada.


ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.
--------------------------------------------------------------------------------

The  following  discussion  of the  financial  position,  changes  in  financial
position  and results of operation of the Company for the fiscal years ended May
31,  2003,  2002 and 2001 should be read in  conjunction  with the  accompanying
Audited Financial Statements of the Company and related notes included therein.

The Company's  financial  statements  are prepared in  accordance  with Canadian
GAAP,  the  application  of which,  in the case of the Company,  conforms in all
material  respects  for the  period  presented  with U.S.  GAAP  except  for the
differences noted in Note 13 of the financial statements of the Company included
herein.  The noon rate of  exchange  on January 2, 2004,  reported by the United
States Federal Reserve Bank of New York, for the conversion of Canadian  dollars
into United States dollars was CDN$1.2900 (US$0.7752 = CDN$1.00). The effects of
inflation  and price  changes  have not had a material  impact on the  Company's
operations since its incorporation.

The Company's financial  statements were prepared on a going concern basis which
assumes  that the  Company  will be able to realize  its  assets  and  discharge
liabilities in the normal course of business.

OVERVIEW

On  September  27,  2001,  the  Company  completed  a  reorganization  with  the
shareholders of CalEx, whereby the Company issued 4,346,084 common shares of its
share capital for 100% of the issued and outstanding share capital of CalEx.

Since this  transaction  resulted in the former  shareholders of CalEx acquiring
control of the Company, the exchange has been treated for accounting purposes as
a reverse takeover. In accounting for this transaction:

i)   CalEx is deemed to be the  purchaser  and  parent  company  for  accounting
     purposes.  Accordingly,  its net assets are  included  in the  consolidated
     balance sheets at their historical book value;


                                     - 21 -

<PAGE>



ii)  control  of the  net  assets  and  business  of the  Company  was  acquired
     effective  September 27, 2001. The  transaction has been accounted for as a
     purchase of the assets and  liabilities  of the Company by CalEx,  with the
     assets and liabilities of the Company recorded at their fair values; and

iii) the consolidated statements of operations and deficit and cash flow for the
     year ended May 31, 2002 include CalEx's results of operations and cash flow
     for the year ended May 31, 2002 and the Company's results of operations and
     cash  flow  from  the  effective  date  of the  business  acquisition.  The
     comparative  figures for the years ended May 31, 2001 and 2000 are those of
     CalEx.

In January  2002,  the Company  entered  into an  agreement  to acquire  OPS, as
described in "Item 4. Information on the Company - Business  Overview" and "Item
4.  Information on the Company - Other  Assets".  The proposed  acquisition  was
terminated  in January  2003.  Although  the Company  remains in the business of
exploration,  development and production of oil and natural gas reserves,  it is
actively  reviewing other potential  business or asset  acquisitions.  As of the
date of this  annual  report,  the  Company  has not  identified  any  potential
acquisitions. The Company may consider potential acquisitions not related to the
oil and gas industry.  In the event that a potential  acquisition is not engaged
in the oil and gas  industry,  the Company will probably be required to seek and
obtain  Company  shareholder  and  regulatory  approvals in order to complete an
acquisition.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED MAY 31, 2003 COMPARED TO YEAR ENDED MAY 31, 2002

During the year ended May 31,  2003,  the  Company  reported a loss of  $699,602
($0.09 per share), compared to a loss of $408,713 ($0.06 per share) for the year
ended May 31, 2002. The increase in loss reported in fiscal 2003, was attributed
to the unsuccessful  drilling results at Regional California and the termination
of the proposed acquisition of OPS.

In January  2002,  the Company had entered into an agreement to acquire OPS. The
Company  provided  OPS with a $95,822  (CDN  $150,000)  bridge loan and incurred
$22,814 of costs  associated  with the proposed  acquisition.  The agreement was
terminated  in  fiscal  2003  and the  Company  wrote-off  $22,814  of  deferred
acquisition costs and the $95,822 bridge loan as uncollectible.

During  fiscal  2003,  the Company  recorded an  impairment  charge of $373,057,
reflecting the unsuccessful  drilling  results at Regional  California and other
wells.  An  impairment  charge  of  $39,346  was  recorded  in fiscal  2002.  In
connection  with its  activities  as the  operator  of the  Regional  California
properties,  the Company  also had recorded  $90,689 due from Trimark  Resources
Inc.,  a related  party,  as  receivable  on  account of unpaid  joint  interest
billings. During fiscal 2003, the Company wrote-off the amount as uncollectible.

With the unsuccessful results in fiscal 2003, the Company implemented procedures
to reduce its general  and  administration  costs.  The  Bakersfield  office was
closed and corporate  activities reduced or eliminated  wherever possible.  As a
result general and administration  expenses decreased by $179,095, from $244,179
in fiscal 2002 to $65,084 in fiscal 2003. The Company  wrote-off  $41,829 on the
remaining capital assets as a result of the closure of the Bakersfield office.

During  the last  quarter  of  fiscal  2003,  the  Company  commenced  receiving
production revenue from its West Ranch Field.  During this period the West Ranch
Field generated $14,466 oil and gas revenue,  comprising of $9,679 (332 barrels)
of oil and $4,787 (801 mcf) of gas.  Production costs of $3,193 was incurred and
depletion of $3,632 was recorded.

FISCAL YEAR ENDED MAY 31, 2002 COMPARED TO FISCAL YEAR ENDED MAY 31, 2001

During the year ended May 31, 2002 the  Company  reported a net loss of $408,713
($0.06 per share)  compared to a net loss of $248,035  ($0.08 per share) for the
comparable  period in 2001.  The  increase in loss in 2002 was  attributed  to a
number of factors.  General and  administration  expenses increased by $135,930,
from  $108,249 in 2001 to $244,179 in 2002.  During  2001,  the  majority of the
Company's overhead costs were reimbursed by its joint venture partners.


                                     - 22 -

<PAGE>


During  2002,  the  joint  venture  partners  informed  the  Company  that  they
terminated their joint venture agreements. As a result, the Company was not able
to recover a significant portion of its overhead costs in 2002.

With the unsuccessful drilling of the regional California prospects, during 2002
the Company  wrote-off  $39,346 of costs.  In addition,  as at May 31, 2002, the
Company had  incurred  $268,396  associated  with the  acquisition  of the Basil
Prospect and the drilling of the Suisun #25 well. A further  $58,620 was paid by
the Company, subsequent to May 31, 2002, for its share of the side-track.  These
costs will be recorded as impairment charges during fiscal 2003.

During  2002,  a write-off  of $74,293 was made to the  receivable  from Westone
Ventures Inc. and Hutton Creek Resources Inc., former joint venture partners. In
addition, the Company wrote-down its marketable securities by a further $123,375
to its estimated $11,500 fair market value.

LIQUIDITY AND CAPITAL RESOURCES

The  Company  has  historically  funded  its  operations  from  the  sale of its
securities  and  the  joint  venture  of its oil and  gas  prospects.  With  the
unsuccessful  outcome  at the  Basil  Prospect,  the  Company  no  longer  holds
significant interests in oil and gas properties and is not generating sufficient
operating cash flow to meet its ongoing  obligations and acquire  additional oil
and gas  properties.  As at May 31,  2003,  the  Company  had a working  capital
deficiency  of $126,489 and a net  shareholders'  deficiency  of  $140,146.  The
future  viability  of the  Company is  dependent  upon the  continued  financial
support of the Company's creditors, the ability to generate additional financing
to satisfy  future  working  capital  requirements  and, in the longer term, the
generation of profit and positive cash flow from business operations.  There are
no  assurances  that the Company will be able to obtain  adequate  financings or
generate sufficient cash flows.

In order to  facilitate  future  equity  financings,  management  of the Company
believes that a consolidation  of its share capital is required.  The Company is
proposing that a one new for five old share consolidation be effected. While the
shareholders  of the  Company  have  approved  the  consolidation,  there are no
assurances  that  the  share   consolidation  will  receive  Company  regulatory
approvals.  As of the date of this annual  report the Company has not  initiated
the share consolidation.

TREND INFORMATION

The  Company  is  not  aware  of  any  known  trends,  uncertainties,   demands,
commitments  or events that are reasonably  likely to have a material  effect on
the  Company's  net  sales  or  revenues,  income  from  continuing  operations,
profitability,  liquidity  or capital  resources,  or that would cause  reported
financial  information  not  necessarily  to be indicative  of future  operating
results or financial condition.

The  historical  results of the  Company's  operations  discussed in this annual
report are not necessarily  indicative of the future  operations of the Company.
In particular, if the Company acquires another business or assets, the Company's
operations  may change  significantly  from  those in which it has  historically
engaged.  Therefore,  the  discussion  of the  Company's  historical  operations
contained  in this  report may not  provide an  adequate  representation  of the
Company's future performance and results of its operations.


EXPLORATION EXPENDITURES

During fiscal 2001, 2002 and 2003, the Company incurred  $309,841,  $287,045 and
$155,756  respectively,  on the  acquisition  and  exploration  of its petroleum
interests.



                                     - 23 -

<PAGE>



ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.
-------------------------------------------------------------------------------

DIRECTORS AND SENIOR MANAGEMENT

The names,  positions held with the Company and terms of office of each director
and officer of the Company as of the date of this annual report, are as follows:

                       POSITION                    TERM OF OFFICE
NAME                   WITH THE COMPANY            (FOR EACH OFFICE HELD)

Nick DeMare            President                   September 24, 2003 to present
                       Chief Executive Officer     September 24, 2003 to present
                       Corporate Secretary         September 24, 2003 to present
                       Director                    October 27, 2002 to present

Andrew Carter          Director                    September 24, 2003 to present

Harvey Lim             Director                    September 24, 2003 to present


There are no family relationships between any directors or executive officers of
the Company. To the best of the Company's  knowledge,  there are no arrangements
or understandings  with major  shareholders,  customers,  suppliers,  or others,
pursuant to which any of the Company's  officers or directors was selected as an
officer or director of the Company.

Set forth  below are  brief  descriptions  of  recent  employment  and  business
experience of the Company's officers and directors.

NICK DEMARE.  Nick DeMare,  age 49, holds a Bachelor of Commerce degree from the
University of British Columbia and is a member in good standing of the Institute
of Chartered  Accountants of British  Columbia.  Since May, 1991, Mr. DeMare has
been the President of Chase,  a private  company which provides a broad range of
administrative,   management  and  financial  services  to  private  and  public
companies  engaged  in  mineral  exploration  and  development,  gold and silver
production,  oil and gas  exploration  and production and venture  capital.  Mr.
DeMare  indirectly owns 100% of Chase. Mr. DeMare currently serves as an officer
and  director  of  other  public  reporting   companies.   See  "Item  7.  Major
Shareholders and Related Party Transactions - Conflicts of Interest."

ANDREW CARTER.  Andrew Carter, age 56, obtained a certificate in accounting from
the Principal  Midland College of TAFE (Western  Australia) in 1987. Since 1992,
Mr. Carter has been a member of the Australian  Institute of Credit  Management.
Mr.  Carter has an extensive  background,  initially in the mining  industry and
then as a commercial  financial  executive.  During the 1970's,  Mr.  Carter was
involved  in the  mining  industry,  where he managed  exploration  crews in the
Leonora and  Kimberly  regions in Western  Australia.  He  subsequently  changed
professions  and, in 1988, was appointed Chief Executive of RAC Finance Limited,
the largest non-bank owned  commercial  financier in Western  Australia.  During
this  time,  he was  appointed  Chairman  and  Director  of  Australian  Finance
Conference  Limited  and  represented  the  industry  as a panel  member  of the
Commercial  Tribunal for Western  Australia.  In 1999,  Mr. Carter  relocated to
Vancouver  where he has been  providing  services  as an  independent  corporate
consultant.  Mr.  Carter  currently  serves as an officer and  director of other
public reporting  companies.  See "Item 7. Major  Shareholders and Related Party
Transactions - Conflicts of Interest."

HARVEY LIM.  Harvey Lim,  age 45,  holds a Bachelor of Commerce  degree from the
University of British Columbia and is a member in good standing of the Institute
of Chartered Accountants of British Columbia.  Mr. Lim was employed by Coopers &
Lybrand (now  PricewaterhouseCoopers  LLC) from 1981 to 1988. From 1988 to 1991,
Mr. Lim was employed as controller  with Ingot  Management  Ltd. Since 1991, Mr.
Lim has been employed by Chase Management Ltd. as controller.  Mr. Lim currently
serves as an officer and director of other public reporting companies. See "Item
7. Major Shareholders and Related Party Transactions - Conflicts of Interest."

The  Company  has  not  entered  into  any   non-competition  or  non-disclosure
agreements with any of the directors or officers of the Company.


                                     - 24 -

<PAGE>


BOARD PRACTICES

Each officer's and director's  term of office shall expire at the Company's next
annual general  meeting.  The Company does not have an executive  committee or a
compensation  committee.  The  Company's  audit  committee  is  responsible  for
reviewing the  Company's  financial  statements  before they are approved by the
Company's directors.

There are no contracts  between the Company and any of the directors which would
provide benefits to any director upon termination of employment.

AUDIT COMMITTEE

The Company's Audit Committee must be comprised of at least three directors, the
majority of whom are not employees,  control persons or members of management of
the Company or any of its  associates or  affiliates.  The board of directors of
the Company,  after each annual shareholders' meeting must appoint or re-appoint
an audit  committee.  As of the date of this annual  report,  the members of the
audit committee were Nick DeMare, Andrew Carter and Harvey Lim.

The Audit Committee must review the annual  financial  statements of the Company
before they are approved by the board of directors of the Company.  The board of
directors of the Company must review, and if considered appropriate, approve the
annual  financial   statements  of  the  Company  before   presentation  to  the
shareholders of the Company.

COMPENSATION COMMITTEE

The Company does not have a compensation committee.

COMPENSATION

The Company does not compensate its directors in their capacities as such.

During the fiscal year ended May 31,  2003,  the  directors  and officers of the
Company,  as a group, had received or charged the Company a total of CDN $28,792
for services  rendered by the directors  and officers or companies  owned by the
individuals.

The Company is required,  under applicable securities  legislation in Canada, to
disclose to its shareholders  details of compensation  paid to its directors and
officers.  The  following  fairly  reflects all material  information  regarding
compensation  paid by the Company to its  directors  and officers for its fiscal
year ended May 31, 2003.

EXECUTIVE COMPENSATION

COMPENSATION OF NAMED EXECUTIVE OFFICERS

The Company is required,  by the Proxy and Information  Circular  Regulations to
the Business  Corporations  Act (Yukon)  ("Yukon  Regulations")  and  applicable
securities legislation in British Columbia ("B.C. Regulations"),  to disclose to
its  shareholders  details of  compensation  paid to its  directors and officers
under applicable Canadian Law.

The following table  discloses,  to the extent required by the B.C.  Regulations
and Yukon Regulations,  information with respect to executive  compensation paid
by the Company to the Named Executive  Officers indicated for the fiscal periods
ended May 31, 2001, 2002 and 2003.

"Named  Executive  Officers"  include  the CEO,  despite the amount of the CEO's
compensation and each of the four most highly  compensated  executive  officers,
other than the CEO,  who were  serving as  executive  officers at the end of the
most recently  completed  financial year and whose total salary and bonus during
the most recently  completed  financial year was CDN $40,000 or more as required
by the Yukon Regulations. In addition, disclosure is required for any individual
whose  salary and bonus  during  the most  recent  fiscal  year was at least CDN
$40,000,  whether or not they were  executive  officers at the end of the fiscal
year.  During the fiscal  year ended May 31,  2003,  the  Company  had two Named
Executive  Officers,  Ted  Carlsen,  the former  President  and  Director of the
Company and Desmond O'Kell, the

                                     - 25 -

<PAGE>

former  President and Director of the Company.  On October 7, 2002,  Mr. Carlsen
resigned  as the  President  and  Director  of the  Company  and Mr.  O'Kell was
appointed as the  President of the Company.  On September  24, 2003,  Mr. O'Kell
resigned as the  President  and  Director of the Company and Mr. Nick DeMare was
appointed as the President of the Company.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                       ANNUAL COMPENSATION                     LONG TERM COMPENSATION
                                 ------------------------------       --------------------------------------
                                                                                AWARDS               PAYOUTS
                                                                      --------------------------     -------
                                                                      SECURITIES      RESTRICTED
                                                        OTHER           UNDER         SHARES OR                     ALL
                       FISCAL                           ANNUAL         OPTIONS/       RESTRICTED                   OTHER
   NAME AND             YEAR                            COMPEN-          SARS           SHARE         LTIP        COMPEN-
   PRINCIPAL           ENDED     SALARY       BONUS     SATION         GRANTED          UNITS        PAYOUTS      SATION
   POSITION            MAY 31     (US$)       (US$)     (US$)            (#)            (US$)         (US$)        (US$)
--------------------   ------    -------      -----     -------       ----------      ----------     -------      -------
<S>                   <C>      <C>         <C>       <C>          <C>                <C>           <C>        <C>
Desmond O'Kell,(1)     2003        Nil         Nil        Nil          Nil/Nil            N/A          N/A           Nil
former President       2002        Nil         Nil        Nil        250,000/Nil          N/A          N/A           Nil
                       2001        Nil         Nil        Nil          Nil/Nil            N/A          N/A           Nil

Ted Carlsen,(1)        2003     $14,473        Nil        Nil          Nil/Nil            N/A          N/A           Nil
former President       2002     $90,817        Nil        Nil        250,000/Nil          N/A          N/A           Nil
                       2001        Nil         Nil        Nil          Nil/Nil            N/A          N/A           Nil

</TABLE>
(1)  On September  27, 2001,  Mr.  Carlsen was  appointed  the  President  and a
     Director of the Company.  On October 7, 2002, Mr.  Carlsen  resigned as the
     President and a Director of the Company and Mr. O'Kell was appointed as the
     President of the Company. On September 24, 2003, Mr. O'Kell resigned as the
     President and a Director of the Company.

LONG-TERM INCENTIVE PLAN AWARDS

Long-term  incentive plan awards ("LTIP") means any plan providing  compensation
intended to serve as an incentive for  performance to occur over a period longer
than one  financial  year  whether  performance  is  measured  by  reference  to
financial  performance  of the  Company  or an  affiliate,  or the  price of the
Company's common shares but does not include option or stock appreciation rights
plans or plans for compensation  through restricted shares or units. The Company
did not grant any LTIP's  during the most recently  completed  fiscal year ended
May 31, 2003.

STOCK APPRECIATION RIGHTS

Stock appreciation  rights ("SAR's") means a right,  granted by an issuer or any
of its subsidiaries as compensation for services  rendered or in connection with
office or  employment,  to receive a payment of cash or an issue or  transfer of
securities  based  wholly  or in part on  changes  in the  trading  price of the
Company's  common  shares.  There were no SAR's granted during the most recently
completed fiscal year ended May 31, 2003 to the Named Executive  Officers of the
Company.

OPTIONS GRANTED AND EXERCISED DURING THE MOST RECENTLY COMPLETED FINANCIAL YEAR

The  Company  did not grant  stock  options  to the  Company's  Named  Executive
Officers during the fiscal year ended May 31, 2003.

No stock options were exercised during the fiscal year ended May 31, 2003 by the
Named Executive Officers. The following table sets out the fiscal year-end value
of  unexercised  options of the Named  Executive  Officers as at the fiscal year
ended May 31, 2003:



                                     - 26 -

<PAGE>


                                                                    Value of
                                                                  Unexercised
                                                Unexercised       In-the-Money
                                                 Options at         Options
                                                  Fiscal            at Fiscal
                                                 Year-End           Year-End
                    Securities    Aggregate       (#)(3)          (CDN$)(3)(4)
                   Acquired on      Value
                    Exercise      Realized      Exercisable/       Exercisable/
Name                 (#)(1)        ($)(2)      Unexercisable      Unexercisable
---------------    -----------    ---------    -------------      -------------
Desmond O'Kell         Nil           Nil        250,000/Nil           Nil/Nil

Ted Carlsen            Nil           Nil        250,000/Nil           Nil/Nil

(1)  Number of shares acquired on the exercise of the options.
(2)  Calculated  using the  difference  between the closing price on the TSXV on
     the date of exercise and the exercise price of the options.
(3)  As  freestanding  SARs have not been granted,  the number relates solely to
     options.
(4)  Calculated  using the closing price of the Company's  shares on the TSXV on
     May 29, 2003, of CDN$0.05.

DEFINED BENEFIT OR ACTUARIAL PLAN

The Company does not provide retirement benefits for directors or officers.

TERMINATION OF EMPLOYMENT, CHANGE OF RESPONSIBILITIES AND EMPLOYMENT CONTRACTS

The Company has no plans or arrangements in respect of remuneration  received or
that may be  received by the Named  Executive  Officers  in the  Company's  most
recently  completed  financial  year or  current  financial  year in  respect of
compensating  such  officers in the event of  termination  of  employment  (as a
result  of  resignation,  retirement,  change of  control,  etc.) or a change in
responsibilities  following  a  change  of  control,  where  the  value  of such
compensation exceeds CDN $100,000 per executive officer.

During  the  fiscal  year  ended  May 31,  2003,  the  Company  did not have any
contracts with its directors  which would provide for benefits upon  termination
of employment.

COMPENSATION OF DIRECTORS

The Company  does not  compensate  its  directors in their  capacities  as such,
although  directors of the Company are reimbursed for their expenses incurred in
connection with their services as directors.  During the most recently completed
financial  year  ended  May 31,  2003,  the  Company  paid  CDN$21,840  to Chase
Management  Ltd.,  a  private  company  owned by Nick  DeMare,  for  accounting,
administration, professional and management services provided.

The Company did not grant stock  options to directors of the Company who are not
the Named Executive Officers during the fiscal year ended May 31, 2003.

No stock options were exercised during the fiscal year ended May 31, 2003 by the
directors of the Company who are not the Named Executive Officers. The following
table sets out the fiscal  year-end  value of  unexercised  options  held by the
directors who are not the Named  Executive  Officers as of the fiscal year ended
May 31, 2003:

                                                                    Value of
                                                                  Unexercised
                                                Unexercised       In-the-Money
                                                 Options at         Options
                                                  Fiscal            at Fiscal
                                                 Year-End           Year-End
                    Securities    Aggregate       (#)(3)          (CDN$)(3)(4)
                   Acquired on      Value
                    Exercise      Realized      Exercisable/       Exercisable/
Name                 (#)(1)       (CDN$)(2)    Unexercisable      Unexercisable
---------------    -----------    ---------    -------------      -------------
Directors other        Nil           N/A        190,000/N/A           Nil/N/A
than Named Execu-
tive Officers
(#) two (2)


                                      -27-

<PAGE>


(1)  Number of shares acquired on the exercise of the options.
(2)  Calculated  using the  difference  between the closing price on the TSXV on
     the date of exercise and the exercise price of the options.
(3)  As  freestanding  SARs have not been granted,  the number relates solely to
     the options.
(4)  Calculated  using the closing price of the Company's  shares on the TSXV on
     May 29, 2003, of CDN$0.05.

INDEBTEDNESS OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR OFFICERS

During the fiscal year ended May 31, 2001, the Company,  through CalEx, provided
a loan of  US$35,000  to Ted  Carlsen,  a former  President  and director of the
Company,  to acquire  350,000 common shares of the Company (the "Loan  Shares").
The Company had received a promissory  note for the loan. The promissory note is
non-interest  bearing and is repayable  either in part or in full as required by
the Company upon the  disposition  of part or all of the Loan Shares held by Mr.
Carlsen.  During the fiscal  year ended May 31,  2002,  the  Company  received a
partial  payment of  US$5,000  and,  as at May 31,  2003,  300,000  Loan  Shares
remained pledged as security for the remaining  principal  balance of $30,000 of
the promissory note.

Otherwise,  during the Company's  last  completed  financial  year ended May 31,
2003, no current or former director,  executive officer or senior officer of the
Company,  proposed  management  nominee  for  election  as a  director  or  each
associate  or  affiliate of any such  director,  executive or senior  officer or
proposed  nominee  is or  has  been  indebted  to  the  Company  or  any  of its
subsidiaries  or  is  and  has  been  indebted  to  another  entity  where  such
indebtedness  is or has been the  subject  of a  guarantee,  support  agreement,
letter of credit or other similar  arrangement or understanding  provided by the
Company or any of its subsidiaries.

EMPLOYEES

As at the date of this annual report,  the Company had no employees.  All of the
Company's   officers  and  directors  devote  less  than  full-time   employment
equivalent  to the affairs of the Company.  During the fiscal year ended May 31,
2003,  the Company  employed no  full-time or  part-time  employees.  During the
fiscal year ended May 31, 2002, the Company employed no full-time  employees and
one part-time  employee.  During the fiscal year ended May 31, 2001, the Company
employed one full-time employee and no part-time employees.

SHARE OWNERSHIP

The following table sets forth certain  information  regarding  ownership of the
Company's  shares by each current  officer and director of the Company,  and all
officers and directors as a group, as of the date of this annual report.


                                                               PERCENTAGE OF(1)
     NAME AND POSITION(S)          COMMON SHARE OWNERSHIP     OUTSTANDING SHARES
     -----------------------       ----------------------     ------------------
     Nick DeMare                          956,526(2)                 12.5%
     President, Secretary
     and Director

     Andrew Carter                            Nil                     Nil
     Director

     Harvey Lim                               Nil                     Nil
     Director
                                          -------                    ----
     Officers and Directors,
     as a group (3 persons)               956,526                    12.5%
                                          =======                    ====

     (1)  Based on 7,646,085  shares of common stock  outstanding as of the date
          of this annual report.

     (2)  Includes  600,001  shares held  directly,  60,000  shares held through
          Chase and  296,525  shares  held  through  DNG  Capital  Corp.("DNG"),
          private companies owned by Mr. DeMare.


                                     - 28 -

<PAGE>


OPTIONS

On August 22, 2001, the shareholders of the Company approved the Company's Stock
Option Plan.  The Stock Option Plan  provides  for equity  participation  in the
Company by the  directors,  officers  and  employees  of the  Company  and their
affiliates,  employees of persons providing  management services to the Company,
and  consultants to the Company and its  affiliates,  through the acquisition of
common shares  pursuant to the grant of options to purchase  common shares.  The
Stock  Option  Plan is  administered  by the board of  directors  or, in certain
circumstances,  a committee of the board of directors. Options may be granted to
purchase the Company's common shares on such terms that the administrator of the
Stock Option Plan may determine  within the limitations of the Stock Option Plan
and  subject to the rules of  applicable  regulatory  authorities.  The  maximum
aggregate  number of common  shares to be reserved and  authorized  to be issued
pursuant to options  granted  under the Stock  Option Plan is  1,518,217  common
shares.

The exercise  price for options  granted  under the Stock Option Plan may not be
less than the closing  price of the common shares on the TSXV on the trading day
prior  to the  date of  grant  (less up to the  maximum  discount  permitted  by
applicable  TSXV  policies).  Options  granted  under the Stock  Option Plan are
subject to a minimum 18 month  vesting  schedule  whereby  each option will vest
equally on a quarterly basis, or such other more restrictive vesting schedule as
the  administrator  of  the  Stock  Option  Plan  may  determine.   Options  are
non-assignable  and are  exercisable  for a period of up to five  years from the
date the option is granted,  subject to earlier termination after certain events
such as the optionee's  cessation of service to the Company or death. Under TSXV
rules all stock  options  granted  under the Stock  Option  Plan and any  Common
Shares  issued  thereunder  will be subject to a minimum  four month hold period
from the date of grant of the option.

Insiders of the Company are not  permitted  to hold  options  entitling  them to
acquire greater than 10% of the Company's  outstanding  common shares. The Stock
Option Plan is effective until ten years from its commencement, unless the Stock
Option Plan is extended or earlier  terminated by the administrator of the Stock
Option Plan in accordance with the terms thereof.

There are no Options  granted and  outstanding  to acquire  common shares of the
Company as of the date of this annual report.


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.
--------------------------------------------------------------------------------

PRINCIPAL HOLDERS OF VOTING SECURITIES

The following table sets forth certain  information  regarding  ownership by all
persons who  beneficially  own greater than five  percent (5%) of the  Company's
outstanding shares, as of the date of this annual report:


                                                              PERCENTAGE OF
NAME                              NO. OF SECURITIES       OUTSTANDING SHARES(1)

Donald W. Busby                      1,424,000(2)                18.4%
Bakersfield, California

Desmond O'Kell                       1,406,975(3)                18.6%
St. Albert, Alberta

Nick DeMare                            956,526(4)                12.5%
Burnaby, British Columbia

Ted Carlsen                            600,000                    8.9%
Bakersfield, California


(1)  Where  persons  listed on this  table  have the right to obtain  additional
     shares of common  stock  through  the  exercise of  outstanding  options or
     warrants or the  conversion of convertible  securities  within 60 days from
     the date of this

                                     - 29 -

<PAGE>


     annual report, these additional shares are deemed to be outstanding for the
     purpose of computing the  percentage of common stock owned by such persons,
     but are not  deemed to be  outstanding  for the  purpose of  computing  the
     percentage  owned by any other person.  Based on 7,646,085 shares of common
     stock  outstanding as of the date of this annual  report.
(2)  These  shares are held in the name of the Donald W. Busby 1999  Irrevocable
     Trust, of which Mr. Busby is the grantor of the trust and retains the power
     to replace the trustee.
(3)  1,396,975 shares and 10,000 shares held through Greystoke  Investments Ltd.
     ("Greystoke")  and Eland Jennings  Investor  Services  Inc.,  respectively,
     private companies owned by Mr. O'Kell.
(4)  Includes 600,001 shares held directly, 60,000 shares held through Chase and
     296,525 shares held through DNG.

None of the Company's  principal  shareholders have different voting rights than
any of the Company's other common shareholders.

SIGNIFICANT CHANGES IN OWNERSHIP

None.

ESCROWED SHARES

(1)  Capital Pool Escrow Shares

Pursuant to the Capital Pool Company Policy, all common shares which were issued
prior to completion of a qualifying  transaction  and were  beneficially  owned,
directly or  indirectly,  by a related  party (a person who was a related  party
prior to the completion of the qualifying  transaction)  are required to be held
in escrow,  including  common  shares  acquired by a related  party prior to the
Company's  initial public offering and common shares acquired by a related party
pursuant to the Company's initial public offering. The shares held in escrow may
be voted by the owner of the shares. Any common shares acquired in the secondary
market prior to the  qualifying  transaction by a control person of the Company,
will also be held in escrow.  Any common shares  acquired by any person prior to
the offering at less than the initial public offering price must also be held in
escrow. Release of the common shares from escrow is subject to completion by the
Company of a qualifying transaction.

The  Company,  Donald W. Busby,  Nick DeMare and William Lee have entered into a
discount seed share capital escrow  agreement  dated June 28, 2000 with Montreal
Trust Company of Canada  pursuant to which  2,200,001  seed capital  shares were
held in escrow (the "Escrow Agreement").  The Escrow Agreement provides that the
common shares held in escrow pursuant to its terms and the beneficial  ownership
thereof may not be sold,  assigned,  hypothecated,  transferred within escrow or
otherwise  dealt with in any manner  without  the prior  written  consent of the
TSXV.  The capital pool company  policy  provides  that the TSXV will  generally
permit a transfer of escrow shares in an arm's length qualifying  transaction to
incoming  principals of the Company. In the event of the bankruptcy of an escrow
shareholder,  provided  the TSXV does not  object,  the  escrowed  shares may be
transferred to the trustees in the bankruptcy or such person legally entitled to
the escrowed  shares  which  shares will remain in escrow  subject to the Escrow
Agreement. In the event of the death of an escrow shareholder, provided the TSXV
does not object,  the  escrowed  shares held by the escrow  shareholder  will be
released from escrow.

As of the date of this annual report, 1,540,000 common shares,  representing 70%
of the original  escrowed shares,  were released and the following shares remain
held in escrow:

                                                              NUMBER OF COMMON
     NAME OF BENEFICIAL OWNER                                 SHARES IN ESCROW

     Donald W. Busby 1999 Irrevocable Trust(i)                     420,000
     Nick DeMare                                                   225,001
     William Lee                                                    15,000
                                                                   -------
     Total:                                                        660,001
                                                                   =======

     (i)  These  common  shares are held in the name of the Donald W. Busby 1999
          Irrevocable  Trust, of which Mr. Busby is the grantor of the trust and
          retains the power to replace the trustee.


                                     - 30 -

<PAGE>

(2)  CALEX ESCROW SHARES

On the  completion  of the  Agreement  and Plan of Merger,  a total of 2,323,500
common shares held by the principals of CalEx  described  below were escrowed in
accordance  with  the  policies  of the  TSXV  (the  "Escrowed  Securities")  in
connection with the acquisition.  The Escrowed Securities have been deemed to be
Surplus  Securities  and will be released  from escrow on an automatic  six year
time release, at six month intervals, in equal tranches of 5% for the first four
tranches  ending on the 24th month from September 27, 2001, the date of the TSXV
Notice,  and in equal tranches of 10% for the remaining eight tranches ending on
the 72nd month from the date of the TSXV Notice.

As at the date of this  annual  report,  the  following  shares  remain  held in
escrow.


                                                          NUMBER OF COMMON
     NAME OF BENEFICIAL OWNER                             SHARES IN ESCROW

     Ted Carlsen                                               544,000 (1)
     Desmond O'Kell                                          1,314,800 (1)
                                                             ---------
     Total:                                                  1,858,000
                                                             =========

     (1)  includes  24,000 common shares held by Monica  Carlsen,  the spouse of
          Mr. Carlsen.
     (2)  held by Greystokes a private company owned by Mr. O'Kell.

CHANGE OF CONTROL

As of the date of this annual  report,  there are no  arrangements  known to the
Company  which may at a  subsequent  date  result in a change of  control of the
Company.

UNITED STATES SHAREHOLDERS

As of the date of this annual  report,  there were  approximately  13 registered
holders of the  Company's  common  shares in the United  States,  with  combined
holdings of 1,157,000  shares,  representing  15.1% of the issued  shares of the
Company on January 2, 2004.

CONTROL BY FOREIGN GOVERNMENT OR OTHER PERSONS

To the  best  of the  Company's  knowledge,  the  Company  is  not  directly  or
indirectly owned or controlled by another  corporation,  any foreign government,
or any other natural or legal person.

RELATED PARTY TRANSACTIONS AND PROPOSED COMPENSATION

Other than as  disclosed  below,  for the year ended May 31, 2003 and the period
from June 1, 2003 to December  31,  2003,  the Company has not entered  into any
transactions or loans between the Company and any (a) enterprises  that directly
or indirectly through one or more intermediaries,  control or are controlled by,
or are under common control with, the Company;  (b) associates;  (c) individuals
owning,  directly or indirectly,  an interest in the voting power of the Company
that gives them significant influence over the Company, and close members of any
such individuals' family; (d) key management personnel and close members of such
individuals' families; or (e) enterprises in which a substantial interest in the
voting power is owned, directly or indirectly, by any person described in (c) or
(d) or over which such a person is able to exercise significant influence.

     1.   During the fiscal  year ended May 31, 2003 and the period from June 1,
          2003 to December 31, 2003, the Company paid a total of $14,319 (2002 -
          $13,092; 2001 - $nil) and $4,936, respectively to Chase for accounting
          services   provided  by  Chase,  a  private   corporation  owned  100%
          indirectly by Mr.  DeMare.  Mr.  DeMare  resigned as a Director of the
          Company on  completion  of the  acquisition  of CalEx on September 27,
          2001.  Mr.  DeMare was  reappointed  as a Director  of the  Company on
          October 7, 2002 and appointed as the President and Corporate Secretary
          of the Company on September 24, 2003.

                                                     - 31 -


<PAGE>

     2.   During the fiscal  year ended May 31,  2001,  the  Company  provided a
          working capital loan of $35,000 to Ted Carlsen,  the former  President
          of the Company.  During the fiscal year ended May 31, 2002, $5,000 was
          repaid.  See  "Indebtedness  of Management"  below. As of December 31,
          2003, Mr. Carlsen owed the Company $30,000.

INDEBTEDNESS OF MANAGEMENT

Except as described  below, no director,  officer or promoter or other member of
management of the Company,  or any associate or affiliate of any such person, is
or has been indebted to the Company.

During the fiscal year ended May 31, 2001, the Company,  through CalEx, provided
a loan of $35,000 to Ted  Carlsen,  the former  President  and  Director  of the
Company,  to acquire  350,000 common shares of the Company (the "Loan  Shares").
The Company had received a promissory  note for the loan. The promissory note is
non-interest  bearing and is repayable  either in part or in full as required by
the Company upon the  disposition  of part or all of the Loan Shares held by Mr.
Carlsen.  During the fiscal  year ended May 31,  2002,  the  Company  received a
partial payment of $5,000 and, as at May 31, 2002,  300,000 Loan Shares remained
pledged  as  security  for the  remaining  principal  balance  of $30,000 of the
promissory note.

Otherwise,  during the Company's  last  completed  financial  year ended May 31,
2003, no current or former director,  executive officer or senior officer of the
Company,  proposed  management  nominee  for  election  as a  director  or  each
associate  or  affiliate of any such  director,  executive or senior  officer or
proposed  nominee  is or  has  been  indebted  to  the  Company  or  any  of its
subsidiaries  or  is  and  has  been  indebted  to  another  entity  where  such
indebtedness  is or has been the  subject  of a  guarantee,  support  agreement,
letter of credit or other similar  arrangement or understanding  provided by the
Company or any of its subsidiaries.

CONFLICTS OF INTEREST

The table below shows that certain  directors of the Company are also directors,
officers or shareholders of other companies which are engaged in the business of
acquiring,   developing  and  exploiting  natural  resource   properties.   Such
associations  may give rise to  conflicts  of interest  from  time-to-time.  The
directors  of the Company are  required by law to act honestly and in good faith
with a view to the best  interest of the Company  and to disclose  any  interest
which they may have in any project or opportunity of the Company.  However, each
director has a similar  obligation  to other  companies  for which such director
serves as an officer or director.  The Company has no specific  internal  policy
governing conflicts of interest.  As of the date of this report, no conflicts of
interest have arisen,  except as described  below and above.  Where conflicts of
interests  arose,  the directors of the Company  disclosed  their  interests and
abstained from voting on the transaction.

The following table  identifies the name of each director of the Company and any
company,  which is a reporting  issuer in Canada and the United States,  and for
which such director currently serves as an officer or director:


<TABLE>
<CAPTION>

PRINCIPAL            REPORTING COMPANY                    CAPACITY                           PERIOD
-------------        -----------------------              ----------------------             ------------------------
<S>                <C>                                  <C>                                <C>
Nick DeMare          Aguila American Resources Ltd.       Director                           January 2003 - present
                     Aladdin Resources Corp.              Director & President               August 2003 - present
                     Andean American Mining Corp.         Director                           August 2002- present
                                                          Secretary                          December 1995 - present
                     Dial Thru International Inc.         Director                           January 1991 - present
                     GGL Diamond Corp.                    Director                           May 1989 - present
                     Global Energy Inc.                   Director & President               September 2002 - present
                     Golden Peaks Resources Ltd.          Director                           January 1992 - present
                     Goldmarca Limited                    Director                           September 2000 - present
                     Hilton Petroleum Ltd.                President & CEO                    July 2003 - present
                                                          Director                           October 1989 - present
                     Kookaburra Resources Ltd.            Director                           June 1988 - present
                     Lariat Resources Ltd.                Director & President               August 2002 - present
                     North American Oil & Gas Inc.        Director, Secretary & Treasurer    June 2001 - present
                     Medina International Corp.           Director, Secretary & Treasurer    May 2002 - present

</TABLE>

                                     - 32 -

<PAGE>


<TABLE>
<CAPTION>

PRINCIPAL            REPORTING COMPANY                    CAPACITY                           PERIOD
-------------        -----------------------              ----------------------             ------------------------
<S>                <C>                                  <C>                                <C>

                     Trimark Energy Ltd.                  Director                           January 1996 - present
                     Tinka Resources Limited              Director & Secretary               October 2003 - present
                     Tumi Resources Limited               Director                           January 2000 - present

Andrew Carter        Hilton Petroleum Ltd.                Director                           July 2003 - present
                     Tinka Resources Ltd.                 Director, President & CEO          February 2003 - present

Harvey Lim           Aladdin Resources Corp.              Director & Secretary               October 2003 - present
                     Hilton Petroleum Ltd.                Secretary                          September 1995 - present
                     Medina International Corp.           Director                           May 2002 - present
                     Trimark Energy Ltd.                  Secretary                          December 1988 - present
                     Tumi Resources Limited               Director                           January 2000 - present

</TABLE>


There  are no known  existing  or  potential  conflicts  of  interest  among the
Company,  promoters,  directors,  officers,  principal holders of securities and
persons providing professional services to the Company which could reasonably be
expected to affect an investor's investment decision except as described in this
section.

The  Company  does not have any  agreements  with  its  officers  or  directors,
including any officers or directors with a conflict of interest, with respect to
the amount of time they must spend on the Company's business.


ITEM 8.  FINANCIAL INFORMATION.
--------------------------------------------------------------------------------

FINANCIAL STATEMENTS

Audited  Financial  Statements for the fiscal years ended May 31, 2003, 2002 and
2001.

LEGAL PROCEEDINGS

There are no  material  legal  proceedings  to which the  Company  or CalEx is a
party,  nor to the  best  knowledge  of  management  are any  legal  proceedings
contemplated.

SIGNIFICANT CHANGES

Not applicable.

DIVIDEND POLICY

Since its  inception,  the Company has not paid any  dividends to  shareholders.
Management  does not  anticipate  that the  Company  will pay any  dividends  to
shareholders in the immediate future.


ITEM 9.  THE OFFER AND LISTING.
--------------------------------------------------------------------------------

PRICE HISTORY

The Company's  common stock commenced  trading on the TSXV on December 21, 2000.
The Company's  common stock currently trades on the TSXV, under the symbol "CAX"
and CUSIP number 130202 10 4.

The following tables list the volume of trading and high and low sales prices on
the TSXV for shares of the Company's common stock for the periods indicated:


                                     - 33 -

<PAGE>


                  TSX VENTURE EXCHANGE - STOCK TRADING ACTIVITY

                                                        SALES PRICE (CDN $)
                                                    ---------------------------
YEAR ENDED                     VOLUME               HIGH                    LOW

May 31, 2003 (1)                11,966               $0.16                $0.02
May 31, 2002 (1)(2)            114,384               $0.70                $0.17
May 31, 2001 (2)               601,634               $0.63                $0.20

(1)  Trading in the  Company's  shares was halted on December  21, 2001 to allow
     for the announcement of the proposed acquisition of OPS. The shares resumed
     trading on January 13, 2003.
(2)  Trading in the Company's  shares was halted on May 3, 2001 to allow for the
     announcement  of the  acquisition of CalEx.  The shares resumed  trading on
     July 12, 2001.


                                                        SALES PRICE (CDN $)
                                                    ---------------------------
QUARTER ENDED                  VOLUME               HIGH                    LOW

November 30, 2003               13,621               $0.09                $0.04
August 31, 2003                  2,250               $0.04                $0.03
May 31, 2003                     7,352               $0.06                $0.02
February 28, 2003 (1)            4,614               $0.16                $0.04
November 30, 2002 (1)                -                   -                    -
August 31, 2002 (1)                  -                   -                    -
May 31, 2002 (1)                     -                   -                    -
February 28, 2002 (1)           10,750               $0.50                $0.35
November 30, 2001               24,928               $0.50                $0.17
August 31, 2001                 18,706               $0.70                $0.23

(1)  Trading in the  Company's  shares was halted on December  21, 2001 to allow
     for the announcement of the proposed acquisition of OPS. The shares resumed
     trading on January 13, 2003.


                                                        SALES PRICE (CDN $)
                                                    ---------------------------
MONTH ENDED                    VOLUME               HIGH                    LOW

December 31, 2003                  761               $0.06                $0.05
November 30, 2003                3,337               $0.09                $0.05
October 31, 2003                10,094               $0.10                $0.04
September 30, 2003                 190               $0.04                $0.04
August 31, 2003                      -                   -                    -
July 31, 2003                    2,250               $0.04                $0.03

The   Company's   common   shares  have  been  approved  for  quotation  on  the
Over-the-Counter  Bulletin Board (the "OTC- BB") system operated by the National
Association of Securities  Dealers under the symbol CAXVF;  the initial trade of
the Company's  common shares on the OTC-BB system  occurred on January 22, 2002.
The following  tables list the trading volume and high and low bid prices on the
OTC-BB for shares of the Company's common stock for the periods indicated:


                   OTC-BULLETIN BOARD - STOCK TRADING ACTIVITY

                                                          BID PRICE (US $)
                                                    ---------------------------
YEAR ENDED                     VOLUME               HIGH                    LOW

May 31, 2003                    13,050               $0.15                $0.01
May 31, 2002                 2,530,800               $0.43                $0.01


                                     - 34 -

<PAGE>


                                                          BID PRICE (US $)
                                                    ---------------------------
QUARTER ENDED                  VOLUME               HIGH                    LOW

November 31, 2003                    -                   -                    -
August 31, 2003                      -                   -                    -
May 31, 2003                         -               $0.01                $0.01
February 28, 2003                1,000               $0.03                $0.01
November 31, 2002                4,500               $0.05                $0.03
August 31, 2002                 25,000               $0.30                $0.10
May 31, 2002                    35,500               $0.30                $0.20
February 28, 2002               40,000               $0.35                $0.18


                                                          BID PRICE (US $)
                                                    ---------------------------
MONTH ENDED                    VOLUME               HIGH                    LOW

December 31, 2003                    -                 $ -                 $ -
November 30, 2003                    -                 $ -                 $ -
October 31, 2003                     -                 $ -                 $ -
September 30, 2003                   -                 $ -                 $ -
August 31, 2003                      -                 $ -                 $ -
July 31, 2003                        -                 $ -                 $ -

These above  quotations  reflect  inter-dealer  prices without  retail  mark-up,
markdown, or commissions and may not necessarily represent actual transactions.

The OTC-BB is smaller and less liquid than the major  securities  markets in the
United States. The trading volume of our shares on the OTC-BB has been volatile.
Consequently,  shareholders  in the United  States may not be able to sell their
shares at the time and at the price they desire.


ITEM 10. ADDITIONAL INFORMATION.
--------------------------------------------------------------------------------

ARTICLES OF CONTINUANCE AND BYLAWS

The  Company  was  incorporated  under the laws of British  Columbia,  Canada on
December 10, 1999 by  registration  of its Memorandum and Articles with the B.C.
Registrar of Companies under the  incorporation  number 597349. On September 25,
2001,  the  Company  was  continued  to  the  Yukon  Territory,  Canada  by  the
registration  of its  Articles  of  Continuance  with  the  Yukon  Registrar  of
Corporations.

Paragraph  five of the Company's  Articles of  Continuance  does not contain any
restrictions  on the  business  which the  Company may carry on.  Although,  the
Company may, by law, be prohibited from carrying on certain types of business.

The Company has previously been engaged in the business of acquiring,  exploring
and  developing  crude oil and  natural  gas  prospects  in the San  Joaquin and
Sacramento Basins in California,  United States. See "Item 4. Information on the
Company." The following is a summary of all material provisions of the Company's
Articles of Continuance and Bylaws and certain  provisions of the Yukon Business
Corporations Act (the "Yukon Act"), applicable to the Company:

A.   DIRECTOR'S  POWER TO VOTE ON A PROPOSAL,  ARRANGEMENT  OR CONTRACT IN WHICH
     THE DIRECTOR IS MATERIALLY INTERESTED.

     A director or officer who is a party to, or who is a director or officer of
     or has a  material  interest  in any  person  who is a party to, a material
     contract or proposed  material contract must disclose the nature and extent
     of his interest in accordance with the Yukon Act. A director who holds such
     material  interest may not vote on the  transaction  but will be counted in
     the quorum present at the meeting at which such vote is taken. A director


                                     - 35 -

<PAGE>

     that is a party to a material contract or proposed material contract cannot
     vote on any resolution to approve the contract unless the contract is:

     1.   an  arrangement  by way of security  for money lent to or  obligations
          undertaken by a director,  or by a body  corporate in which a director
          has an interest, for the benefit of the Company or an affiliate,

     2.   a  contract  relating  primarily  to a  director's  remuneration  as a
          director, officer, employee or agent of the Company or an affiliate;

     3.   a contract for purchasing and maintaining insurance to cover directors
          against liability incurred by them as directors as specified under the
          Yukon Act;

     4.   a contract  for the  indemnification  of a director  by the Company as
          specified under the Yukon Act; or

     5.   a contract with an affiliate.

B.   DIRECTOR'S  POWER,  IN  THE  ABSENCE  OF AN  INDEPENDENT  QUORUM,  TO  VOTE
     COMPENSATION TO THEMSELVES OR ANY MEMBERS OF THEIR BODY.

     The  compensation  of the  directors is governed by the  Company's  By-laws
     which allow for the  determination  of remuneration to be paid by the Board
     of Directors.

C.   BORROWING POWERS EXERCISABLE BY THE DIRECTORS.

     The directors may, on behalf of the Company:

     1.   borrow money on the credit of the Company;

     2.   issue, reissue, sell or pledge debt obligations of the Company;

     3.   give a guarantee on behalf of the Company to secure  performance of an
          obligation of any person,  subject to certain  conditions  detailed in
          section 46 of the Yukon Act; or

     4.   mortgage,  hypothecate, pledge or otherwise create a security interest
          in all or any property of the Company,  owned or subsequently acquired
          to secure any obligation of the Company.

D.   RETIREMENT AND NON-RETIREMENT OF DIRECTORS UNDER AN AGE LIMIT REQUIREMENT.

     There are no such  provisions  applicable to the Company under its Articles
     of Continuance, Bylaws or the Yukon Act.

E.   NUMBER OF SHARES REQUIRED FOR A DIRECTOR'S QUALIFICATION

     A director of the Company is not required to hold a share in the capital of
     the Company as qualification of his office.

DESCRIPTION OF COMMON SHARES

The authorized  capital of the Company consists of an unlimited number of common
shares without par value.  A complete  description is contained in the Company's
Articles of Continuance.

Of the Company's  unlimited  share capital,  a total of 7,646,085  common shares
were issued and outstanding as of December 31, 2003. All of the common shares of
the Company rank equally as to voting rights, participation in a distribution of
the assets of the Company on a  liquidation,  dissolution  or  winding-up of the
Company and the  entitlement of dividends.  The holders of the common shares are
entitled to receive notice of all shareholder meetings and to attend


                                     - 36 -

<PAGE>

and vote at such  meetings.  Each common share  carries with it the right to one
vote.  The  Company's  directors  do  not  stand  for  reelection  at  staggered
intervals.  The common shares do not have  preemptive or conversion  rights.  In
addition,  there are no sinking fund or redemption  provisions applicable to the
common shares.

The  declaration  of dividends on the common shares of the Company is within the
discretion  of the Company's  Board of  Directors.  The Company has not paid any
dividends on its common  shares and has no policy with respect to the payment of
dividends.

The Company's  issued and  outstanding  common shares are not subject to further
capital  calls by the  Company  and there  are no  provisions  in the  Company's
Articles of  Continuance or Bylaws or the Yukon Act  discriminating  against any
existing or  prospective  holder of the  Company's  common shares as a result of
such shareholder owning a substantial number of shares.

Neither the  Articles  of  Continuance  nor the Bylaws of the  Company  have any
limitations on non-resident or foreign ownership of the Company's common shares.

The Yukon Act provides that the rights and  provisions  attached to any class of
shares may not be amended unless consented to by a separate resolution passed by
a majority  of not less than 2/3 of the votes  cast,  in person or by proxy,  by
holders of shares of that class.

SHAREHOLDER MEETINGS

The  Company's  first annual  general  meeting  must take place within  eighteen
months of the date of its incorporation and thereafter an annual general meeting
will  be  held  not  later  than  fifteen   months  from  its  last  meeting  of
shareholders, at such time and place as may be determined by the directors.

The annual  meeting shall be held at such time in each year as determined by the
board of  directors,  the  Chairman  of the  board of  directors,  the  managing
director or the president of the Company.  Special meetings may be called by the
board of  directors,  the  Chairman  of the  board of  directors,  the  managing
director or the  president at any time.  Shareholder  meetings may be held at or
such other place or places as the directors may determine from time to time.

A notice of record date advising of the Company's annual general meeting and the
date for which the  determination  of shareholders is to be fixed must be issued
seven days in advance of the record  date.  The notice of  meeting,  information
circular,  financial  statements and proxy are to be mailed to the  shareholders
not less than 25 days prior to the meeting date. A quorum for the transaction of
business  at a  general  meeting  is  two  shareholders  present  in  person  or
represented by proxy representing a minimum of 5% of the issued voting shares in
the Company.

Only members who are registered  holders of the Company's shares at the close of
business  on the record  date (a date  which is not more than 50 days,  nor less
than 35 days prior to the date of the meeting) who either  attend the meeting or
who have  completed  and  delivered a form of proxy in the manner and subject to
the provisions described above shall be entitled to vote or to have their shares
voted at the meeting.

On a show of hands,  every person who is present and entitled to vote shall have
one  vote.  Whenever  a vote by show of  hands  shall  have  been  taken  upon a
question,  unless a ballot thereon is so required or demanded,  a declaration by
the  Chairman of the meeting that the vote upon the question has been carried or
carried by a particular  majority or not carried, an entry to that effect in the
minutes of the meeting shall be conclusive evidence of the fact without proof of
the  number or  proportion  of the votes  recorded  in favor of or  against  any
resolution or other  proceeding in respect of the said question,  and the result
of the  vote so  taken  shall  be the  decision  of the  members  upon  the said
question.

MATERIAL CONTRACTS

The following is a listing of contracts material to the business of the Company,
which were not entered into in the ordinary  course of business,  during the two
years preceding the date of this annual report:


                                     - 37 -

(1)  Letter of Intent Agreement dated January 14, 2002, among the Company,  OPS,
     EYEKON Technologies Inc. and Craig Clydesdale.  See "Item 4. Information on
     the Company - Business Overview"; and

(2)  Purchase and Sale  Agreement  dated December 18, 2003 between CalEx and PNP
     Petroleum Inc. relating to the acquisition of an interest in the West Ranch
     Field,  Texas.  See  "Item  4.  Information  on  the  Company  -  Principal
     Properties - Principal Oil and Gas Properties - West Ranch Field, Texas."

EXCHANGE CONTROLS

There are no governmental  laws,  decrees,  or regulations in Canada relating to
restrictions on the export or import of capital,  or affecting the remittance of
interest,  dividends, or other payments to non-resident holders on the Company's
Common  Stock.  Any  remittances  of dividends to United States  residents  are,
however,  subject  to a  15%  withholding  tax  (10%  if  the  shareholder  is a
corporation  owning at least 10% of the outstanding Common Stock of the Company)
pursuant to Article X of the reciprocal tax treaty between Canada and the United
States. See "Item 10. Additional Information - Taxation," below.

Except as  provided  in the  Investment  Canada  Act (the  "Act"),  there are no
limitations  specific to the rights of non- Canadians to hold or vote the common
stock of the Company under the laws of Canada or in the charter documents of the
Company.

Management of the Company  considers that the following  general  summary fairly
describes those  provisions of the Act pertinent to an investment by an American
investor in the Company.

The Act requires a non-Canadian  making an investment  which would result in the
acquisition of control of a Canadian business,  the gross value of the assets of
which  exceeds  certain  threshold  levels or the business  activity of which is
related to Canada's cultural heritage or national identity, to either notify, or
file an  application  for review with,  Investment  Canada,  the federal  agency
created by the Investment Canada Act.

The notification  procedure  involves a brief statement of information about the
investment  of a prescribed  form which is required to be filed with  Investment
Canada by the investor at any time up to 30 days following implementation of the
investment.  It is intended that investments  requiring only  notification  will
proceed without government  intervention  unless the investment is in a specific
type of business  activity  related to Canada's  cultural  heritage and national
identity.

If an investment is reviewable  under the Act, an application  for review in the
form prescribed is normally required to be filed with Investment Canada prior to
the investment  taking place and the investment may not be implemented until the
review has been completed and the Minister  responsible for Investment Canada is
satisfied that the  investment is likely to be of net benefit to Canada.  If the
Minister is not satisfied  that the investment is likely to be of net benefit to
Canada, the non-Canadian must not implement the investment or, if the investment
has been  implemented,  may be  required  to divest  himself  of  control of the
business that is the subject of the investment.

The following investments by non-Canadians are subject to notification under the
Act:

(1)  an investment to establish a new Canadian business; and

(2)  an  investment  to  acquire  control  of a  Canadian  business  that is not
     reviewable pursuant to the Act.

The following investments by a non-Canadian are subject to review under the Act:

(1)  direct  acquisitions of control of Canadian businesses with assets of CDN$5
     million  or more  unless  the  acquisition  is  being  made by an  American
     investor;

(2)  direct  acquisitions  of  control of  Canadian  businesses  with  assets of
     CDN$152 million or more by an American investor;


                                     - 38 -

<PAGE>


(3)  indirect  acquisitions  of control of  Canadian  businesses  with assets of
     CDN$5 million or more if such assets  represent  more than 50% of the total
     value  of the  assets  of the  entities,  the  control  of  which  is being
     acquired, unless the acquisition is being made by an American investor;

(4)  indirect  acquisitions  of control of  Canadian  businesses  with assets of
     CDN$152  million or more by an American  investor if such assets  represent
     more than 50% of the total value of the assets of the entities, the control
     of which is being acquired;

(5)  indirect  acquisitions  of control of  Canadian  businesses  with assets of
     CDN$50  million or more even if such assets  represent less than 50% of the
     total  value of the assets of the  entities,  the control of which is being
     acquired,  unless the acquisition is being made by an American  investor in
     which case there is no review; and

(6)  an  investment   subject  to  notification  that  would  not  otherwise  be
     reviewable if the Canadian business engages in the activity of publication,
     distribution or sale of books, magazines, periodicals, newspapers, audio or
     video music recordings, or music in print or machine-readable form.

Generally  speaking,  an acquisition is direct if it involves the acquisition of
control of the Canadian business or of its Canadian parent or grandparent and an
acquisition  is  indirect  if  it  involves  the  acquisition  of  control  of a
non-Canadian  parent  or  grandparent  of an  entity  carrying  on the  Canadian
business.  Control may be acquired  through the acquisition of actual or de jure
voting  control  of  a  Canadian  corporation  or  through  the  acquisition  of
substantially  all of the assets of the Canadian  business.  No change of voting
control  will be deemed to have  occurred if less than  one-third  of the voting
control of a Canadian corporation is acquired by an investor.

An  American,  as defined in the Act includes an  individual  who is an American
national or a lawful,  permanent  resident of the United States, a government or
government  agency of the United  States,  an  American-controlled  corporation,
limited  partnership,  trust  or  joint  venture  and  a  corporation,   limited
partnership,  trust or joint  venture  that is  neither  American-controlled  or
Canadian-controlled  of which  two-thirds  of its  board of  directors,  general
partners or trustees,  as the case may be, are any  combination of Canadians and
Americans.

The  higher  thresholds  for  Americans  do not apply if the  Canadian  business
engages in  activities  in certain  sectors such as oil,  natural gas,  uranium,
financial  services  (except  insurance),   transportation   services  or  media
activities.

The Act specifically  exempts certain  transactions from either  notification or
review. Included among the category of transactions is the acquisition of voting
shares or other voting  interests  by any person in the ordinary  course of that
person's  business as a trader or dealer in securities.  Given the nature of the
Company's  business and the size of its operations,  management does not believe
the Act would apply to an investment in the Company's shares by a U.S. investor.

TAXATION

MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES

Management  of the  Company  considers  that  the  following  discussion  fairly
describes the material Canadian federal income tax consequences  applicable to a
holder of Common Stock of the Company who is a resident of the United States and
who is not a resident of Canada and who does not use or hold,  and is not deemed
to use or hold,  his shares of Common  Stock of the Company in  connection  with
carrying on a business in Canada (a "non-resident shareholder").

This summary is based upon the current provisions of the Income Tax Act (Canada)
(the  "ITA"),  the  regulations  thereunder  (the  "Regulations"),  the  current
publicly  announced  administrative and assessing policies of Canada Customs and
Revenue  Agency,  Taxation and all specific  proposals (the "Tax  Proposals") to
amend the ITA and  Regulations  announced  by the  Minister of Finance  (Canada)
prior to the date hereof.  This  description  is not  exhaustive of all possible
Canadian federal income tax consequences and, except for the Tax Proposals, does
not take into account or anticipate any changes in law,  whether by legislative,
governmental or judicial action.


                                     - 39 -


<PAGE>


DIVIDENDS

Dividends  paid on the common  stock of the  Company to a  non-resident  will be
subject to withholding  tax. The Canada- U.S. Income Tax Convention  (1980) (the
"Treaty") provides that the normal 25% withholding tax rate is reduced to 15% on
dividends  paid on  shares of a  corporation  resident  in  Canada  (such as the
Company) to  residents  of the United  States,  and also  provides for a further
reduction of this rate to 5% where the  beneficial  owner of the  dividends is a
corporation  which is a resident of the United States which owns at least 10% of
the voting shares of the corporation paying the dividend.

CAPITAL GAINS

In general,  a  non-resident  of Canada is not subject to tax under the ITA with
respect  to a  capital  gain  realized  upon  the  disposition  of a share  of a
corporation  resident in Canada that is listed on a prescribed  stock  exchange.
For purposes of the ITA, the TSXV is a prescribed stock exchange.  Non-residents
of Canada who dispose of shares of the Company  will be subject to income tax in
Canada with respect to capital gains if:

     (a)  the non-resident holder;
     (b)  persons  with  whom  the  non-resident  holder  did not  deal at arm's
          length; or
     (c)  the non-resident  holder and persons with whom the non-resident holder
          did not deal with at arm's length,

owned  not less  than 25% of the  issued  shares  of any  class or series of the
Company at any time during the five-year period  preceding the  disposition.  In
the case of a  non-resident  holder  to whom  shares  of the  Company  represent
taxable Canadian  property and who is resident in the United States, no Canadian
taxes will be payable on a capital gain realized on such shares by reason of the
Treaty unless the value of such shares is derived principally from real property
situated in Canada.  However, in such a case, certain  transitional relief under
the Treaty may be available.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following  discussion  summarizes the material  United States federal income
tax  consequences,  under current law,  applicable to a U.S.  Holder (as defined
below)  of  the  Company's  common  stock.  This  discussion  does  not  address
consequences peculiar to persons subject to special provisions of federal income
tax law, such as tax-exempt organizations, qualified retirement plans, financial
institutions,  insurance  companies,  real estate investment  trusts,  regulated
investment companies,  broker-dealers,  nonresident alien individuals or foreign
corporations,  or shareholders  owning common stock representing 10% of the vote
and value of the Company. In addition, this discussion does not cover any state,
local or foreign tax consequences.

The following discussion is based upon the sections of the Internal Revenue Code
of 1986,  as amended (the  "Code"),  Treasury  Regulations,  published  Internal
Revenue Service ("IRS") rulings,  published  administrative positions of the IRS
and court decisions that are currently applicable,  any or all of which could be
materially and adversely changed,  possibly on a retroactive basis, at any time.
In addition,  this  discussion  does not consider the  potential  effects,  both
adverse and beneficial of recently proposed legislation which, if enacted, could
be  applied,  possibly  on  a  retroactive  basis,  at  any  time.  Holders  and
prospective  holders of the Company's  common stock should consult their own tax
advisors  about the  federal,  state,  local and  foreign  tax  consequences  of
purchasing, owning and disposing of shares of common stock of the Company.

U.S. HOLDERS

As used herein,  a "U.S.  Holder" is defined as (i) citizens or residents of the
U.S.,  or any state  thereof,  (ii) a  corporation  or other  entity  created or
organized  under the laws of the U.S.,  or any  political  subdivision  thereof,
(iii) an estate  the  income of which is  subject  to U.S.  federal  income  tax
regardless of source or that is otherwise  subject to U.S. federal income tax on
a net  income  basis in  respect  of the  common  stock,  or (iv) a trust  whose
administration  is subject to the primary  supervision of a U.S. court and which
has one or  more  U.S.  fiduciaries  who  have  the  authority  to  control  all
substantial  decisions  of the trust,  whose  ownership  of common  stock is not
effectively  connected  with the  conduct of a trade or  business  in the United
States and  shareholders  who  acquired  their  stock  through  the  exercise of
employee stock options or otherwise as compensation.



                                     - 40 -


<PAGE>


DISTRIBUTIONS ON SHARES OF COMMON STOCK

U.S. Holders receiving dividend distributions (including constructive dividends)
with  respect to the  Company's  common  stock are  required to include in gross
income for United  States  federal  income tax purposes the gross amount of such
distributions to the extent that the Company has current or accumulated earnings
and profits,  without  reduction for any Canadian  income tax withheld from such
distributions.  Such  Canadian tax withheld may be credited,  subject to certain
limitations,  against  the  U.S.  Holder's  United  States  federal  income  tax
liability  or,  alternatively,  may be deducted in computing  the U.S.  Holder's
United States federal taxable income by those who itemize deductions.  (See more
detailed  discussion  at  "Foreign  Tax  Credit"  below.)  To  the  extent  that
distributions exceed current or accumulated earnings and profits of the Company,
they  will be  treated  first as a return  of  capital  up to the U.S.  Holder's
adjusted  basis in the  common  stock  and  thereafter  as gain from the sale or
exchange of such shares.  Preferential tax rates for long-term capital gains are
applicable to a U.S. Holder which is an individual,  estate or trust.  There are
currently  no  preferential  tax rates for  long-term  capital  gains for a U.S.
Holder which is a corporation. Dividends paid on the Company's common stock will
not  generally  be eligible for the  dividends  received  deduction  provided to
corporations receiving dividends from certain United States corporations.

FOREIGN TAX CREDIT

A U.S. Holder who pays (or has withheld from distributions)  Canadian income tax
with respect to the ownership of the Company's common stock may be entitled,  at
the option of the U.S.  Holder,  to either a deduction  or a tax credit for such
foreign tax paid or withheld. Generally, it will be more advantageous to claim a
credit  because  a  credit  reduces  United  States  federal  income  taxes on a
dollar-for-dollar  basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign  taxes paid by (or  withheld  from) the U.S.  Holder  during  that year.
Subject to certain  limitations,  Canadian  taxes  withheld will be eligible for
credit against the U.S.  Holder's United States federal income taxes.  Under the
Code,  the  limitation  on  foreign  taxes  eligible  for  credit is  calculated
separately  with respect to specific  classes of income.  Dividends  paid by the
Company  generally  will be  either  "passive"  income or  "financial  services"
income,  depending on the particular U.S.  Holder's  circumstances.  Foreign tax
credits  allowable  with respect to each class of income  cannot exceed the U.S.
federal income tax otherwise  payable with respect to such class of income.  The
consequences of the separate  limitations  will depend on the nature and sources
of each U.S.  Holder's  income and the  deductions  appropriately  allocated  or
apportioned  thereto.  The  availability  of the  foreign  tax  credit  and  the
application  of the  limitations on the credit are fact specific and holders and
prospective  holders  of common  stock  should  consult  their own tax  advisors
regarding their individual circumstances.

DISPOSITION OF SHARES OF COMMON STOCK

A U.S.  Holder  will  recognize  gain or loss  upon the sale of shares of common
stock equal to the difference,  if any,  between (i) the amount of cash plus the
fair market value of any property received; and (ii) the shareholder's tax basis
in the  common  stock.  This  gain or loss will be  capital  gain or loss if the
shares  are a capital  asset in the hands of the U.S.  Holder,  and such gain or
loss will be  long-term  capital  gain or loss if the U.S.  Holder  has held the
common  stock for more than one year.  Gains and losses are netted and  combined
according to special rules in arriving at the overall capital gain or loss for a
particular  tax  year.   Deductions  for  net  capital  losses  are  subject  to
significant  limitations.  For U.S.  Holders  who are  individuals,  any  unused
portion of such net  capital  loss may be  carried  over to be used in later tax
years until such net capital loss is thereby  exhausted.  For U.S. Holders which
are corporations (other than corporations  subject to Subchapter S of the Code),
an unused net  capital  loss may be carried  back three years from the loss year
and carried  forward five years from the loss year to be offset against  capital
gains until such net capital loss is thereby exhausted.

OTHER CONSIDERATIONS

The Company has not  determined  whether it meets the  definition  of a "passive
foreign  investment  company" (a "PFIC").  It is unlikely that the Company meets
the  definition  of  a  "foreign  personal  holding  company"  (a  "FPHC")  or a
"controlled foreign corporation" (a "CFC") under current U.S. law.

If more  than  50% of the  voting  power  or value  of the  Company  were  owned
(actually  or  constructively)  by U.S.  Holders  who each  owned  (actually  or
constructively)  10% or more of the voting power of the Company's  common shares
("10%  Shareholders"),  then  the  Company  would  become  a CFC  and  each  10%
Shareholder would be required to include in


                                     - 41 -

<PAGE>


its taxable  income as a  constructive  dividend an amount equal to its share of
certain  undistributed income of the Company. If (1) more than 50% of the voting
power  or  value  of  the  Company's  common  shares  were  owned  (actually  or
constructively)  by five or fewer  individuals  who are citizens or residents of
the  United  States and (2) 60% or more of the  Company's  income  consisted  of
certain interest, dividend or other enumerated types of income, then the Company
would be a FPHC. If the Company were a FPHC, then each U.S.  Holder  (regardless
of the amount of the Company's common shares owned by such U.S. Holder) would be
required to include in its taxable income as a  constructive  dividend its share
of the Company's undistributed income of specific types.

If 75% or more of the  Company's  annual gross income has ever  consisted of, or
ever consists of, "passive" income or if 50% or more of the average value of the
Company's  assets in any year has ever consisted of, or ever consists of, assets
that produce, or are held for the production of, such "passive" income, then the
Company would be or would become a PFIC. The Company has not provided assurances
that it has not been and does not expect to become a PFIC.

If the Company were to be a PFIC, then a U.S. Holder would be required to pay an
interest  charge  together  with tax  calculated at maximum tax rates on certain
"excess  distributions"  (defined to include  gain on the sale of stock)  unless
such U.S.  Holder made an  election  either to (1) include in his or her taxable
income  certain  undistributed  amounts of the  Company's  income or (2) mark to
market his or her Company  common  shares at the end of each taxable year as set
forth in Section 1296 of the Code.

INFORMATION REPORTING AND BACKUP WITHHOLDING

U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S.  Holders of the Company  shares.  Under  Treasury  regulations
currently in effect,  non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct  taxpayer  identification  number to the payor in the required
manner,  (2) is  notified  by the IRS that it has failed to report  payments  of
interest or dividends  properly or (3) fails,  under certain  circumstances,  to
certify  that it has been  notified  by the IRS  that it is  subject  to  backup
withholding for failure to report interest and dividend payments.

INSPECTION OF DOCUMENTS

Copies of the  documents  referred to in this annual  report may be inspected at
the  Company's  corporate  office  at Suite  1305 - 1090  West  Georgia  Street,
Vancouver, British Columbia, V6E 3V7, during normal business hours.


ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------

Not applicable.


ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.
--------------------------------------------------------------------------------

Not applicable.


                                     PART II

ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.
--------------------------------------------------------------------------------

The Company is not in default under any of its indebtedness.


ITEM 14. MATERIAL
         MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.
--------------------------------------------------------------------------------

Not applicable.



                                     - 42 -

<PAGE>


ITEM 15. CONTROLS AND PROCEDURES.
--------------------------------------------------------------------------------

An evaluation was performed under the supervision and with the  participation of
the Company's  management,  including  Mr.  DeMare,  who is the chief  executive
officer and chief  financial  officer,  of the  effectiveness  of the design and
operation of the Company's  disclosure controls and procedures pursuant to Rules
13a-15(e) and 15d-15(e) of the  Securities  Exchange Act of 1934 (the  "Exchange
Act") as of May 31, 2003.  Based upon that  evaluation,  Mr. DeMare,  who is the
Company's chief executive  officer and chief financial  officer,  concluded that
the Company's  disclosure  controls and  procedures are effective to ensure that
information  required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded,  processed,  summarized and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.


ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT.
--------------------------------------------------------------------------------

Not applicable.


ITEM 16B.  CODE OF ETHICS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------------------------------------------------

Not applicable.


ITEM 16D.  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
--------------------------------------------------------------------------------

Not applicable.


ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
           PURCHASERS.
--------------------------------------------------------------------------------

Not applicable.



                                     - 43 -
<PAGE>


                                    PART III

ITEM 17. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

See pages F-1 through F-19.


ITEM 18. FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------

Not applicable.


ITEM 19. EXHIBITS.
--------------------------------------------------------------------------------

EXHIBIT
NUMBER                 DESCRIPTION                                         PAGE

 1.1     Articles of Continuance (3)                                        N/A

 1.2     By-Law No. 1 (3)                                                   N/A

 4.1     Stock Option Agreements dated June 19, 2000 among                  N/A
         the Company and each of Donald W. Busby, Chase Management
         Ltd., Nick DeMare, William Lee and Harvey Lim. (1)

 4.2     Escrow Agreement dated June 28, 2000 among the Company             N/A
         and each of Donald W. Busby 1999 Irrevocable Trust,
         Chase Management Ltd., Nick DeMare and William Lee. (1)

 4.3     Agency Agreement dated September 27, 2000 between QDM              N/A
         Ventures Ltd., Research Capital Corporation and Montreal
         Trust Company of Canada. (2)

 4.4     2001 Stock Option Plan (3)                                         N/A

 4.5     Letter Agreement dated May 3, 2001 between the Company,            N/A
         California Exploration Inc. and certain major shareholders
         of California Exploration Inc.(3)

 4.6     Agreement and Plan of Merger dated July 3, 2001 among              N/A
         the Company, California Exploration Inc. and QDM
         Acquisition Corporation (3)

 4.7     Sponsorship Agreement dated July 6, 2001 among the                 N/A
         Company, Canaccord Capital Corporation and California
         Exploration Inc. (3)

 4.8     Escrow Agreement dated September 26, 2001 among the Company,       N/A
         Computershare Trust Company of Canada and each of Greystoke
         Investments Inc., Ted Carlsen and Monica Carlsen (3)

 4.9     Letter of Intent Agreement dated January 14, 2002 among            N/A
         the Company, Optimal Power Systems Ltd., EYEKON Technologies
         Inc. and Craig Clydesdale (4)

 4.10    Purchase and Sale Agreement dated December 18, 2003 between         66
         CalEx and PNP Petroleum Inc.

 8.1     List of Subsidiaries                                                89

12.1     Certification of Nick DeMare Pursuant to Rule 13a-14(a)             91


                                     - 44 -

<PAGE>


EXHIBIT
NUMBER                 DESCRIPTION                                         PAGE

13.1     Certification of Nick DeMare Pursuant to 18 U.S.C. Section 1350     93


(1)  Previously filed as an exhibit to the Company's  registration  statement on
     Form 20-F, filed with the Securities and Exchange  Commission on August 31,
     2000. File Number 0-30920.

(2)  Previously filed as an exhibit to the Company's  registration  statement on
     Form  20-F/A  Amendment  No. 1,  filed  with the  Securities  and  Exchange
     Commission on October 16, 2000. File Number 0-30920.

(3)  Previously filed as an exhibit to the Company's annual report on Form 20-F,
     filed with the  Securities  and Exchange  Commission  on November 29, 2001.
     File Number 0-30920.

(4)  Previously filed as an exhibit to the Company's annual report on Form 20-F,
     filed with the  Securities  and Exchange  Commission  on December 13, 2002.
     File Number 0-30920.




                                     - 45 -

<PAGE>

                                   SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the  undersigned to sign
this annual report on its behalf.


                                               CALIFORNIA EXPLORATION LTD.



Dated:   January 14, 2004                      /s/   Nick DeMare
                                               Nick DeMare, President
                                               corporate Secretary and Director


                                     - 46 -

<PAGE>












--------------------------------------------------------------------------------


                           CALIFORNIA EXPLORATION LTD.


                        CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 and 2001

          (Expressed in United States Dollars, unless otherwise stated)


--------------------------------------------------------------------------------





                                      F-1

                                     - 47 -
<PAGE>


AUDITOR'S REPORT




To the Shareholders of
California Exploration Ltd.


We have audited the consolidated balance sheet of California Exploration Ltd. as
at May 31,  2003 and 2002  and the  consolidated  statement  of  operations  and
deficit and cash flow for the years May 31,  2003,  2002 and 2001  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with Canadian and United States  generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable  assurance 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.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the financial position of the Company as at May 31, 2003 and
2002 and the results of its operations and cash flow for the years ended May 31,
2003, 2002 and 2001 in accordance with Canadian  generally  accepted  accounting
principles.

Canadian generally accepted  accounting  principles vary in certain  significant
respects from  accounting  principles  generally  accepted in the United States.
Application  of accounting  principles  generally  accepted in the United States
would have affected  assets and  shareholder  equity as at May 31, 2003 and 2002
and the results of operations for the years ended May 31, 2003, 2002 and 2001 to
the extent summarized in Note 13 to the consolidated financial statements.

On September 30, 2003, we reported  separately to the shareholders of California
Exploration Inc. on consolidated  financial  statements as at, and for the years
ended,  May 31, 2003 and 2002  audited in  accordance  with  Canadian  generally
accepted accounting principles.


                                                      /s/ D&H Group

Vancouver, BC
September 30, 2003                                    CHARTERED ACCOUNTANTS






                                    D&H Group
                          A Partnership of Corporations
           A Member of BHD Association with affiliated offices across
                           Canada and Internationally
             10th Floor, 1333 West Broadway, Vancouver B.C. V6H 4C1
                  www.dhgroup.ca F 604-731-9923 T 604-731-5881

                                       F-2
                                      -48-

<PAGE>




COMMENTS BY AUDITORS FOR U.S. READERS
ON CANADA - U.S. REPORTING DIFFERENCE




In the United States,  reporting  standards for auditors require the addition of
an explanatory  paragraph  (following the opinion  paragraph) when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
Note 1 to the  financial  statements.  Our  report  to  the  shareholders  dated
September 30, 2003, is expressed in accordance with Canadian reporting standards
which do not permit a reference to such events and  conditions  in the auditors'
report when these are adequately disclosed in the financial statements.



                                                      /s/ D&H Group

Vancouver, BC
September 30, 2003                                    CHARTERED ACCOUNTANTS











                                    D&H Group
                          A Partnership of Corporations
           A Member of BHD Association with affiliated offices across
                           Canada and Internationally
             10th Floor, 1333 West Broadway, Vancouver B.C. V6H 4C1
                  www.dhgroup.ca F 604-731-9923 T 604-731-5881


                                       F-3
                                      -49-

<PAGE>






                           CALIFORNIA EXPLORATION LTD.
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
          (Expressed in United States Dollars, unless otherwise stated)


                                                      2003              2002
                                                        $                 $
                                     ASSETS

CURRENT ASSETS

Cash                                                   26,413            98,408
Amounts receivable and prepaids                         7,637            20,323
                                                   ----------        ----------
                                                       34,050           118,731
BRIDGE LOAN (Note 5)                                        -            99,800
CAPITAL ASSETS                                              -            50,698
OIL AND GAS PROPERTIES (Note 6)                        47,463           268,396
OTHER ASSETS (Note 7)                                  11,500           263,531
                                                   ----------        ----------
                                                       93,013           801,156
                                                   ==========        ==========

                                   LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities
   (Note 9(c))                                        160,539           190,031

ADVANCES FROM SHAREHOLDER (Note 9(b))                  72,620            58,920
                                                   ----------        ----------
                                                      233,159           248,951
                                                   ----------        ----------

                        SHAREHOLDERS' EQUITY (DEFICIENCY)


SHARE CAPITAL (Note 8)                              1,110,074         1,102,823

DEFICIT                                            (1,250,220)         (550,618)
                                                   ----------        ----------
                                                     (140,146)          552,205
                                                   ----------        ----------
                                                       93,013           801,156
                                                   ==========        ==========

NATURE OF OPERATIONS AND GOING CONCERN (Note 1)


APPROVED BY THE DIRECTORS

/s/  Nick DeMare      , Director
----------------------
/s/  Harvey Lim       , Director
----------------------

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

                                       F-4
                                      -50-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
          (Expressed in United States Dollars, unless otherwise stated)




<TABLE>
<CAPTION>

                                                      2003              2002              2001
                                                                      (Note 3)          (Note 3)
                                                        $                 $                 $
<S>                                              <C>               <C>               <C>

REVENUES

Oil and gas sales                                      14,466                 -                 -
Interest and other income                               7,599            72,480            10,620
                                                   ----------        ----------        ----------
                                                       22,065            72,480            10,620
                                                   ----------        ----------        ----------

EXPENSES

Production                                              3,193                 -                 -
General and administration                             65,084           244,179           108,249
Depreciation, depletion and impairment                376,689            39,346                 -
                                                   ----------        ----------        ----------
                                                      444,966           283,525           108,249
                                                   ----------        ----------        ----------
OTHER ITEMS

Write-off of other assets (Notes 5 and 7(b))         (113,503)         (123,375)         (100,000)
Write-off of amounts receivable                       (15,194)          (74,293)                -
Impairment of bridge loan (Note 5)                    (95,822)                -                 -
Write-off of capital assets (Note 3)                  (41,829)                -                 -
Industry partners inducement                                -                 -          (123,406)
Income tax recovery                                         -                 -            73,000
Unrealized foreign exchange loss                      (10,353)                -                 -
                                                   ----------        ----------        ----------
                                                     (276,701)         (197,668)         (150,406)
                                                   ----------        ----------        ----------
LOSS FOR THE YEAR                                    (699,602)         (408,713)         (248,035)

(DEFICIT) RETAINED EARNINGS - BEGINNING OF YEAR      (550,618)         (141,905)          106,130
                                                   ----------        ----------        ----------
DEFICIT - END OF YEAR                              (1,250,220)         (550,618)         (141,905)
                                                   ==========        ==========        ==========
BASIC AND DILUTED LOSS PER SHARE                       $(0.09)           $(0.06)           $(0.08)
                                                   ==========        ==========        ==========
WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING                      7,643,674         6,509,418         3,233,755
                                                   ==========        ==========        ==========

</TABLE>


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

                                       F-5
                                      -51-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
          (Expressed in United States Dollars, unless otherwise stated)


<TABLE>
<CAPTION>

                                                      2003              2002              2001
                                                       $                 $                 $
<S>                                              <C>               <C>                <C>

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Loss for the year                                    (699,602)         (408,713)         (248,035)
Items not affecting cash
     Amortization of capital assets                     8,869            38,442            36,524
     Depreciation, depletion and impairment           376,689            39,346                 -
     Impairment of bridge loan                         95,822                 -                 -
     Write-off of capital assets                       41,829                 -                 -
     Unrealized foreign exchange loss                  10,353                 -                 -
     Write-off of amounts receivable                   15,194            74,293                 -
     Write-off of other assets                        113,503           123,375           100,000
(Increase) decrease in amounts
     receivable and prepaids                           (2,508)           72,407           255,102
(Decrease) increase in accounts payable
     and accrued liabilities                          (29,492)          157,564            12,171
Decrease in income taxes payable                            -                 -           (73,000)
                                                   ----------        ----------        ----------
                                                      (69,343)           96,714            82,762
                                                   ----------        ----------        ----------
INVESTING ACTIVITIES

Recovery of (additions to) oil and gas properties    (155,756)         (287,045)           63,520
Other assets                                          148,121          (190,401)         (114,393)
Loan repayment (advance)                                    -             5,000           (35,000)
                                                   ----------        ----------        ----------
                                                       (7,635)         (472,446)          (85,873)
                                                   ----------        ----------        ----------
FINANCING ACTIVITIES

Issuance of common shares                               7,251                 -           200,000
Share issue costs                                           -                 -              (680)
Deferred acquisition costs                             (9,233)          (13,221)                -
Advances from shareholder                               6,965            58,920                 -
Cash assumed on reorganization                              -           100,047                 -
Reorganization costs                                        -           (32,186)                -
                                                   ----------        ----------        ----------
                                                        4,983           113,560           199,320
                                                   ----------        ----------        ----------
NET (DECREASE) INCREASE  IN CASH                      (71,995)         (262,172)          196,209

CASH - BEGINNING OF YEAR                               98,408           360,580           164,371
                                                   ----------        ----------        ----------
CASH - END OF YEAR                                     26,413            98,408           360,580
                                                   ==========        ==========        ==========
</TABLE>

SUPPLEMENTARY CASH FLOW INFORMATION (Note 12)

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

                                       F-6
                                      -52-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



1.   NATURE OF OPERATIONS AND GOING CONCERN

     California  Exploration Ltd. (the "Company") is focused on the acquisition,
     exploration,  development  and  production  of crude  oil and  natural  gas
     reserves.

     During the 2003 fiscal year the Company recorded a loss of $699,602 and, as
     at May 31, 2003, the Company had an accumulated deficit of $1,250,220 and a
     working  capital  deficiency  of  $126,489.   The  consolidated   financial
     statements  have  been  prepared  on the  basis  of  accounting  principles
     applicable to a going concern, which contemplates the realization of assets
     and  extinguishment  of liabilities  in the normal course of business.  The
     Company's  consolidated financial statements do not include any adjustments
     related to the  realization  of the carrying value of assets or the amounts
     and  classification  of  liabilities  that  might be  necessary  should the
     Company be unable to continue in existence.

     The  ability of the Company to continue  operations  as a going  concern is
     dependent  upon its success in  obtaining  capital  through  sale of common
     shares or other securities and ultimately achieving profitable operations.

     See also Note 5.


2.   CHANGE IN ACCOUNTING POLICY

     During the 2003 fiscal year the Company  adopted,  on a prospective  basis,
     the  provisions  of new Section 3870  "Stock-Based  Compensation  and Other
     Stock Based Payments" of the Canadian  Institute of Chartered  Accountants'
     Handbook  ("Section  3870").  Section 3870  establishes  standards  for the
     recognition,  measurement  and disclosure of stock-based  compensation  and
     other   stock-based   payments.   Section  3870   recommends  that  certain
     stock-based transactions,  such as the grant of stock options, be accounted
     for at fair value.  The section is only  applicable  to  transactions  that
     occurred on or after January 1, 2002. No stock-based  compensation or other
     stock-based payments occurred during the 2003 fiscal year.


3.   SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation

     These consolidated  financial  statements of the Company have been prepared
     in  accordance  with  Canadian  generally  accepted  accounting  principles
     ("Canadian GAAP"). The significant differences between these principles and
     those  that  would  be  applied  under  United  States  generally  accepted
     accounting principles ("US GAAP") are disclosed in Note 13.

     The  preparation of financial  statements in conformity  with Canadian GAAP
     requires  management  to make  estimates  and  assumptions  that affect the
     reported  amount of assets and  liabilities  and  disclosure  of contingent
     liabilities  at the  date of the  financial  statements,  and the  reported
     amounts of revenues and expenditures  during the reporting  period.  Actual
     results could differ from those reported.

     The consolidated  financial  statements include the accounts of the Company
     and its wholly-owned  subsidiary,  California Exploration Inc. ("CalEx"), a
     company  incorporated  under the laws of the state of Nevada. See also Note
     4.


                                       F-7
                                      -53-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



3.   SIGNIFICANT ACCOUNTING POLICIES (continued)

     Cash Equivalents

     Cash includes cash and short-term  deposits  maturing within 90 days of the
     original date of acquisition.

     Oil and Gas Properties

     Capitalized Costs

     The  Company  follows the full cost  method of  accounting  for oil and gas
     operations.  Under this method all costs related to the exploration for and
     development of oil and gas reserves are capitalized on a country-by-country
     basis.  Costs include lease acquisition  costs,  geological and geophysical
     expenses,   overhead   directly  related  to  exploration  and  development
     activities and costs of drilling both productive and non-productive  wells.
     Proceeds from the sale of properties are applied against capitalized costs,
     without  any  gain or  loss  being  recognized,  unless  such a sale  would
     significantly alter the rate of depletion and depreciation.

     Depletion and Depreciation

     Depletion  of  exploration  and  development   costs  and  depreciation  of
     production equipment is provided using the unit-of-production  method based
     upon  estimated  proven  oil and gas  reserves.  The  costs of  significant
     unevaluated  properties  are excluded from costs subject to depletion.  For
     depletion  and  depreciation  purposes,  relative  volumes  of oil  and gas
     production and reserves are converted at the energy  equivalent  conversion
     rate of six thousand cubic feet of natural gas to one barrel of crude oil.

     Ceiling Test

     In  applying  the full cost  method,  the Company  performs a ceiling  test
     whereby the carrying  value of  petroleum  and natural gas  properties  and
     production  equipment,  net of  future  income  taxes  and the  accumulated
     provision for site restoration and abandonment  costs, is compared annually
     to an  estimate  of  future  net cash flow  from the  production  of proven
     reserves.  Net cash flow is estimated using year end prices, less estimated
     future  general and  administrative  expenses,  financing  costs and income
     taxes. Should this comparison indicate an excess carrying value, the excess
     is charged against earnings.

     Joint Operations

     Substantially  all of the Company's oil and gas exploration  activities are
     conducted  jointly  with  others  and,   accordingly,   these  consolidated
     financial statements reflect the Company's  proportionate  interest in such
     activities.

     Capital Assets

     Capital assets, which comprise office equipment, furniture and fixtures and
     computer  software  were  recorded  at cost less  accumulated  amortization
     calculated  using the  straight-line  method  over their  estimated  useful
     lives.

     During the 2003 fiscal year the Company  wrote-off  the  remaining  $41,829
     book value of the capital assets.


                                       F-8
                                      -54-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



3.   SIGNIFICANT ACCOUNTING POLICIES (continued)

     Long-term Investments

     Long-term investments are accounted for using the cost method.

     Revenue Recognition

     The  Company  recognizes  petroleum  and  natural  gas  revenues  from  its
     interests in producing  wells as petroleum  and natural gas is produced and
     sold from these wells.  The Company has no gas  balancing  arrangements  in
     place.  Petroleum and natural gas sold is not significantly  different from
     the Company's product entitlement.

     Cash Equivalents

     Cash includes cash and short-term  deposits  maturing within 90 days of the
     original date of acquisition.

     Deferred Financing Charges

     The costs of  obtaining  long-term  debt are  deferred  and  amortized on a
     straight-line  basis over the terms of these  loans.  The  amortization  of
     these charges is included in interest expense on long-term debt.

     Translation of Foreign Currencies

     Monetary  items are  translated  at the rate of  exchange  in effect at the
     balance sheet date.  Non-monetary  items are translated at average rates in
     effect  during the period in which they were earned or incurred.  Gains and
     losses  resulting from the fluctuation of foreign  exchange rates have been
     included in the determination of income.

     Income Taxes

     Income tax liabilities  and assets are recognized for the estimated  income
     tax consequences  attributable to differences  between the amounts reported
     in the  consolidated  financial  statements and their respective tax bases,
     using enacted income tax rates.  The effect of a change in income tax rates
     on future income tax  liabilities and assets is recognized in income in the
     period that the change  occurs.  Future income tax assets are recognized to
     the extent that they are considered more likely than not to be realized.

     Earnings (Loss) Per Share

     Basic earnings per share is computed by dividing income available to common
     shareholders  by the weighted  average number of common shares  outstanding
     during the period.  The  computation of diluted  earnings per share assumes
     the  conversion,  exercise or contingent  issuance of securities  only when
     such  conversion,  exercise  or  issuance  would have a dilutive  effect on
     earnings  per share.  The  dilutive  effect of  convertible  securities  is
     reflected  in  diluted  earnings  per  share  by  application  of  the  "if
     converted" method. The dilutive effect of outstanding  options and warrants
     and  their  equivalents  is  reflected  in  diluted  earnings  per share by
     application of the treasury stock method.

     Comparative Figures

     Certain of the 2002 fiscal year figures have been  reclassified  to confirm
     with the presentation used in the 2003 fiscal year.

                                       F-9
                                      -55-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)


4.   CORPORATE REORGANIZATION

     On September  27, 2001,  the Company  completed a  reorganization  with the
     shareholders of CalEx,  whereby the Company issued  4,346,084 common shares
     of its share capital for 100% of the issued and  outstanding  share capital
     of CalEx.

     Since  this  transaction  resulted  in the  former  shareholders  of  CalEx
     acquiring  control  of the  Company,  the  exchange  has been  treated  for
     accounting  purposes  as  a  reverse  takeover.   In  accounting  for  this
     transaction:

     i)   CalEx is deemed to be the purchaser and parent  company for accounting
          purposes. Accordingly, its net assets are included in the consolidated
          balance sheets at their historical book value;

     ii)  control of the net assets and  business of the  Company  was  acquired
          effective  September 27, 2001. The transaction has been accounted as a
          purchase of the assets and  liabilities  of the Company by CalEx.  The
          assets and liabilities of the Company have been recorded at their fair
          values, as follows:
                                                                           $

          Net working capital                                            89,208
          Advances to CalEx, as at combination
              date, eliminated on consolidation                          21,462
          Deferred reorganization costs                                  70,113
                                                                     ----------
          Net assets purchased                                          180,783
                                                                     ==========

     iii) the  consolidated  statements of operations  and deficit and cash flow
          for the 2002 fiscal year include  CalEx's  results of  operations  and
          cash  flow  for the 2002  fiscal  year and the  Company's  results  of
          operations  and cash  flow  from the  effective  date of the  business
          acquisition.

     Prior to completion of the corporate  reorganization  the Company  incurred
     general and  administration  costs totalling $40,391 for the period June 1,
     2001 to September 27, 2001.


5.   TERMINATION OF PROPOSED BUSINESS ACQUISITION

     On January  14,  2002,  the  Company  entered  into a letter of intent (the
     "Letter of  Intent")  whereby  it agreed to acquire  100% of the issued and
     outstanding  common shares of Optimal Power Systems Ltd. ("OPS"), a private
     company  incorporated  under  the laws of  Alberta.  Under the terms of the
     Letter of Intent,  the Company  proposed to issue up to 4.8 million  common
     shares of the Company to the  shareholders of OPS, based upon OPS achieving
     certain  revenue  levels.  The Company had also  provided  OPS bridge loans
     totalling   $95,822   (CDN   $150,000).   OPS  was  unable  to  complete  a
     restructuring  of their  business plan which would have enabled the Company
     to proceed with the acquisition.  Accordingly,  the Company  terminated the
     agreement under the Letter of Intent and requested  repayment of the bridge
     loans. Although the principals of OPS have pledged their holdings in OPS as
     security it is not known  whether the Company  will recover the full amount
     of the bridge loans. Accordingly, the Company wrote off $95,822 relating to
     the bridge  loans.  The  Company  had also  incurred a total of $22,814 for
     legal fees associated with the proposed  acquisition,  of which $13,221 had
     been  recorded as at May 31, 2002,  as deferred  acquisition  costs.  These
     deferred  acquisition  costs were also  written  off during the 2003 fiscal
     year.


                                      F-10
                                      -56-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)


6.   OIL AND GAS PROPERTIES
                                                         2003            2002
                                                           $               $
     Evaluated property
       Exploration and development costs                  51,095              -

     Undeveloped oil and gas prospects
       Acquisitions and leasehold costs                        -         20,697
       Exploration costs                                       -        287,045
                                                      ----------     ----------
                                                          51,095        307,742
     Less accumulated depreciation, depletion
       and impairment                                     (3,632)       (39,346)
                                                      ----------     ----------
                                                          47,463        268,396
                                                      ==========     ==========

     During the 2003 fiscal year the Company  recorded an  impairment  charge of
     $373,057 (2002 - $39,346; 2001 - $nil) reflecting its share of unsuccessful
     drilling activities and related acquisition costs of the abandonment of the
     regional California prospects and the Michigan exploratory well.

     In January 2003, the Company  acquired a 3% working interest in certain oil
     and gas leases known as the West Ranch Field in Jackson  County,  Texas. As
     at May 31,  2003,  the  Company has  incurred  $51,095 of  exploration  and
     development costs.


7.   OTHER ASSETS

                                                         2003           2002
                                                           $              $

     Portfolio investments (a)                            11,500         11,500
     Due from related parties (b)                              -        102,131
     Deferred acquisition costs (Note 5)                       -         13,221
     Other                                                     -        136,679
                                                      ----------     ----------
                                                          11,500        263,531
                                                      ==========     ==========

     (a)  During the 2001  fiscal  year the  Company  wrote  down the  portfolio
          investments by $100,000. A further write-down of $123,375, to $11,500,
          was made during the 2002 fiscal year.  The quoted  market value of the
          portfolio investments at May 31, 2003 was $48,147.

     (b)  The Company has acted as the operator of drilling  programs  conducted
          on the regional California  prospects.  Certain  corporations' current
          and  former  officers  and  directors  are  current  shareholders  and
          directors of the Company.  These transactions were conducted under the
          same terms and conditions as transactions  with  non-related  parties.
          During the 2003 fiscal year, due to  uncertainty  of  collection,  the
          Company  wrote off an account  receivable  of $90,689 for unpaid joint
          interest billings to Trimark Resources Inc., a related party.


                                       F-11
                                      -57-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



8.   SHARE CAPITAL

                                                        Number
                                                       of Shares          $
Authorized - unlimited common shares
     (2001 - 100,000,000 common shares)
     without par value

CALEX

Balance, May 31, 2000                                  2,346,084        855,019
Shares issued for cash                                 2,000,000        200,000
Less:  share issuance costs                                    -           (680)
Loan to officer                                                -        (35,000)
                                                      ----------     ----------
Balance, May 31, 2001                                  4,346,084      1,019,339

Repayment on loan by officer                                   -          5,000

REVERSE TAKE-OVER TRANSACTION AT SEPTEMBER 27, 2001

Adjustment of shares to reflect shares of the legal
     parent outstanding at time of reverse take-over   3,245,001              -
Net assets of legal parent at time of
     reverse take-over                                         -        180,783
Less:  reorganization costs                                    -       (102,299)
                                                      ----------     ----------
Balance, May 31, 2002                                  7,591,085      1,102,823

Shares issued for cash                                    55,000          7,251
                                                      ----------     ----------
                                                       7,646,085      1,110,074
                                                      ==========     ==========

     (a)  During the 2003 fiscal year the Company issued 55,000 common shares of
          its share capital at CDN$0.20 per share, for $7,251.

     (b)  During  the  2002  fiscal  year the  Company  completed  the  business
          combination with CalEx and issued 4,346,084 common shares of its share
          capital for 100% of the issued and outstanding  common stock of CalEx.
          Of the shares  issued in the  business  combination,  at May 31, 2003,
          1,974,975  shares are held in escrow  pursuant  to a  security  escrow
          agreement,  and are  released  at six months  intervals  over a period
          ending September 27, 2007.

     (c)  As at May 31,  2003,  990,001  shares  remain  held in escrow  and are
          released at six month  intervals  over a period  ending  September 27,
          2004.

     (d)  On July 20,  2001,  the  Company's  Board of  Directors  approved  and
          adopted a stock option plan (the "Plan"). The maximum number of shares
          reserved for issuance under the Plan is 1,518,217 common shares.


                                      F-12
                                      -58-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



8.   SHARE CAPITAL (continued)

     A summary of the Company's options at May 31, 2003 and May 31, 2002 and the
     changes for the years ending on those dates is presented below:

<TABLE>
<CAPTION>

                                                 2003                      2002
                                        ----------------------    ----------------------
                                                      Weighted                  Weighted
                                                      Average                   Average
                                           Number     Exercise       Number     Exercise
                                        of Options    Price       of Options    Price
                                                         $                         $
        <S>                            <C>           <C>         <C>           <C>

          Balance, beginning of year     1,085,000      0.49         285,000      0.20
          Granted                                -         -         800,000      0.60
          Expired                         (450,000)     0.60               -         -
                                        ----------                ----------
          Balance, end of year             635,000      0.42       1,085,000      0.49
                                        ==========                ==========
</TABLE>

          The following  table  summarizes  information  about the stock options
          outstanding and exercisable at May 31, 2003:

                Number            Exercise                   Expiry
              of Options            Price                     Date
                                      $

                285,000              0.20               December 21, 2003
                350,000              0.60               September 28, 2004
             ----------
                635,000
             ==========

9.   RELATED PARTY TRANSACTIONS

     (a)  During the 2003 fiscal year the  Company was charged  $14,473  (2002 -
          $nil) for consulting  services provided by the former President of the
          Company  and  accounting  fees of  $14,319  (2002 - $nil) by a company
          controlled  by a director of the  Company.  As at May 31,  2003,  $164
          remained  unpaid and is  included  in  accounts  payable  and  accrued
          liabilities.

     (b)  The  advances  from  a  shareholder  are  non-interest   bearing.  The
          shareholder has agreed not to demand  repayment of the advances during
          the next fiscal year.

     (c)  The  Company  participated  in the  drilling  of  certain  oil and gas
          prospects  with  corporations  in which  certain of the  corporations'
          current and former officers and directors are current shareholders and
          directors of the Company.  These transactions were conducted under the
          same terms and conditions as transactions with non-related parties. As
          at May 31, 2003,  $136,296 (2002 - $172,394) remained unpaid to Hilton
          Petroleum Inc., a related party,  and is included in accounts  payable
          and accrued liabilities.

     (d)  During the 2002 fiscal year the Company  provided a loan of $35,000 to
          a former  President of the Company to acquire 350,000 common shares of
          the Company  (the "Loan  Shares").  The Company  received a promissory
          note for the loan. The promissory note is non-interest  bearing and is
          repayable  either in part or in full as required  by the Company  upon
          the  disposition  of part or all of the Loan  Shares.  During the 2002
          fiscal year the Company  received a partial  payment of $5,000.  As at
          May 31, 2003,  300,000 Loan Shares remain  pledged as security for the
          promissory note.

     (e)  See also Note 7(b).

                                       F-13
                                      -59-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)


10.  INCOME TAXES

     As at May 31,  2003,  the Company has  accumulated  non-capital  losses for
     income tax purposes of  approximately  CDN $465,000,  expiring from 2007 to
     2010.



11.  SEGMENTED INFORMATION

     As at May 31, 2003, the Company and its subsidiary operated in one industry
     segment,  the  exploration for and the development of petroleum and natural
     gas. The Company's  current petroleum and natural gas interests are located
     in the  United  States  and its  corporate  assets  are  located in Canada.
     Identifiable  assets,  revenues  and net loss in each of  these  geographic
     areas are as follows:

                                                                 2003
                                                     ---------------------------
                                                     Identifiable        Net
                                                        Assets          Loss
                                                           $              $

     United States                                        49,329       (536,308)
     Canada                                               43,684       (163,294)
                                                      ----------     ----------
                                                          93,013       (699,602)
                                                      ==========     ==========

                                                                 2002
                                                     ---------------------------
                                                     Identifiable        Net
                                                        Assets          Loss
                                                           $              $

     United States                                       590,781       (227,389)
     Canada                                              210,375       (181,324)
                                                      ----------     ----------
                                                         801,156       (408,713)
                                                      ==========     ==========

                                                                 2001
                                                     ---------------------------
                                                     Identifiable        Net
                                                        Assets          Loss
                                                           $              $

     United States                                       458,836        (96,006)
     Canada                                              453,669       (152,029)
                                                      ----------     ----------
                                                         912,505       (248,035)
                                                      ==========     ==========


12.  SUPPLEMENTARY CASH FLOW INFORMATION

     Non-cash activities:

     During the 2002 fiscal year the Company issued  4,346,084  common shares to
     complete the corporate reorganization, as described in Note 4.

                                      F-14
                                      -60-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



12.  SUPPLEMENTARY CASH FLOW INFORMATION (continued)

     Other supplementary cash flow information:

                                          2003           2002           2001
                                            $              $              $

     Interest paid in cash                      -              -              -
                                       ==========     ==========     ==========
     Income taxes paid in cash                  -              -              -
                                       ==========     ==========     ==========



13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES

     (a)  The  consolidated  financial  statements  of  the  Company  have  been
          prepared  according to Canadian GAAP which differ in certain  material
          respects from US GAAP.  Material  differences  between Canadian and US
          GAAP  and  their  effect  on  the  Company's   consolidated  financial
          statements are summarized in the tables below.
<TABLE>
<CAPTION>

                                                         2003           2002           2001
                                                           $              $              $
<S>                                                 <C>            <C>            <C>
Consolidated Statements of Operations
     and Comprehensive Income

Earnings (loss) for the year
     Canadian GAAP                                      (699,602)      (408,713)      (248,035)
     Write-down of investment (i)                              -         38,500        100,000
     Other compensation expense (iv)                           -              -       (160,000)
                                                      ----------     ----------     ----------
                                                        (699,602)      (370,213)      (308,035)
Other Comprehensive Income
     Unrealized holding gain (loss) on
         available-for-sale marketable securities (i)     36,647        (27,317)      (129,576)
                                                      ----------     ----------     ----------
Comprehensive earnings (loss) for the year              (662,955)      (397,530)      (437,611)
                                                       =========     ==========     ==========
     Earnings (loss) per share basic and
         fully diluted - US GAAP                          $(0.09)        $(0.06)        $(0.14)
                                                       =========     ==========     ==========

</TABLE>

                                      F-15
                                      -61-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)


                                                         2003           2002
                                                           $              $

Consolidated Balance Sheets

Total Assets
    Canadian GAAP                                         93,013        801,156
    Increase in available for sale securities (i)         36,647              -
                                                      ----------     ----------
    US GAAP                                              129,660        801,156
                                                      ==========     ==========
Total Liabilities
    Canadian GAAP                                        233,159        248,951
                                                      ----------     ----------
    US GAAP                                              233,159        248,951
                                                      ==========     ==========
Shareholders' Equity (Deficiency)
    Canadian GAAP                                       (140,146)       552,205
    Increase in available for sale securities (i)         36,647              -
                                                      ----------     ----------
    US GAAP                                             (103,499)       552,205
                                                      ==========     ==========

          (i)  Marketable securities

               US GAAP requires  marketable  securities  which are classified as
               available for sale to be carried at fair value,  as determined by
               quoted published market prices,  with unrealized losses and gains
               on  available  for sale  securities  to be included as a separate
               component of  shareholders'  equity.  In  addition,  net realized
               gains and losses on security  transactions would be determined on
               the  specific  identification  cost  basis  and  included  in the
               determination of earnings for the year.

          (ii) Stock option plan for employees and directors

               The Company has a stock option plan which reserves  common shares
               for issuance to employees and directors.  The Company has adopted
               the disclosure  only provisions of SFAS No. 123 for stock options
               granted to employees and directors.  Accordingly, no compensation
               cost has been  recognized  for the stock option plan.  No options
               were granted to  employees  or  directors  during the 2003 fiscal
               year. Had compensation  costs for the Company's stock option plan
               been  determined  based on the fair  value at the grant  date for
               awards during the 2002 and 2001 fiscal years  consistent with the
               provisions  of SFAS No. 123, the  Company's  earnings  (loss) and
               earnings  (loss)  per  share  would  have been  increased  to the
               proforma amounts indicated below:

                                                         2002           2001
                                                           $              $
               Earnings (loss)
                  - as reported under US GAAP           (397,530)      (437,611)
               Earnings (loss) - proforma               (447,800)      (437,611)

               Earnings (loss) per share
                  - as reported under US GAAP             $(0.06)        $(0.14)
               Earnings (loss) per share - proforma       $(0.07)        $(0.14)

                                      F-16
                                      -62-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

               The fair market  value of each  option  granted to an employee or
               director  is  estimated  on the date of grant  using  the Black -
               Scholes Option Pricing Model with the following  assumptions used
               for grants during the 2002 and 2001fiscal years:

                                                         2002           2001

               Risk-free interest rate                   3.14%           N/A
               Expected volatility                        125%           N/A
               Expected lives                           3 years          N/A

          (iii)Private Placements of Common Stock with Related Parties

               US GAAP requires  disclosure of private  placements  conducted by
               the  Company  where  directors  and  officers  of the Company are
               participants. During the 2001 fiscal year directors, officers and
               companies  controlled  by  the  directors  or  officers  acquired
               1,600,000 shares of the Company,  pursuant to private  placements
               conducted by the Company, for cash proceeds of $160,000;

          (iv) Private Placements of Common Stock

               The  Company  conducts  the  majority  of its  equity  financings
               pursuant  to  private  placements.  US GAAP  does  not  permit  a
               discount from the estimated fair value,  or the market price,  as
               appropriate.  US GAAP requires the  recognition  of the estimated
               fair value or market  value of the  Company's  common  stock as a
               credit  to share  capital,  with a charge to  operations  for the
               portion of the discount relating to equity  financings  conducted
               with  officers  and  directors  of the  Company  and a charge  to
               shareholders' equity, as a capital distribution, for the discount
               relating to the remaining portion of the equity financings.

               Under US GAAP,  loss and  capital  distributions  for 2003 fiscal
               year would  increase by $nil (2002 - $nil;  2001 - $160,000)  and
               $nil  (2002 - $nil;  2001 -  $40,000),  respectively,  and  share
               capital,  as at May 31, 2003 would  increase by $200,000  (2002 -
               $200,000;   2001  -   $200,000).   There  is  no  net  change  to
               shareholders' equity.

          (v)  Reverse Take-over Accounting

               At the time the Company completed its reverse take-over, Canadian
               GAAP  considered such  transactions to be business  combinations.
               Under US GAAP, such a reverse takeover of a publicly listed shell
               corporation  is  considered  to  be  a  capital   transaction  in
               substance  and not a  business  combination.  In this  particular
               transaction  there is no difference in the underlying  accounting
               for the transaction.

          (vi) Income Tax

               Under  Canadian  GAAP,   deferred  tax  assets  relating  to  the
               potential  benefit  of  income  tax  loss  carryforwards  are not
               recognized unless there is reasonable assurance of realization of
               the benefit. US GAAP provides similar treatment, but requires the
               benefit be recognized and a valuation  allowance be recognized to
               fully offset the deferred tax asset.

                                      F-17
                                      -63-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)



13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

               As at May 31, 2003,  the Company has fully  reserved the $140,000
               tax  benefit of  operating  loss  carryforwards,  by a  valuation
               allowance  of  the  same  amount,   because  the   likelihood  of
               realization of the tax benefit cannot be determined. Of the total
               tax benefit, $83,000 is attributable to the 2003 fiscal year.

         (vii) Functional Currency

               The Company's functional currency is the U.S. dollar.

        (viii) Development Stage Company

               During the 2003 fiscal year the Company  commenced  its principal
               operations  in the  production  of  crude  oil  and  natural  gas
               reserves and received  revenues from its operation.  Accordingly,
               the Company is no longer  considered a development  stage company
               as defined by SFAS 7. The  deficit of  $550,618  was  accumulated
               during the development stage.

     (b)  The  Company's  consolidated  statements  of cash flow  comply with US
          GAAP.

     (c)  New Technical Pronouncements

          In June 2001, the Financial Accounting Standards Board ("FASB") issued
          SFAS  143,  "Asset  Retirement   Obligations."  SFAS  143  establishes
          accounting  requirements  for retirement  obligations  associated with
          tangible long-lived assets,  including (1) the timing of the liability
          recognition,  (2) initial measurement of the liability, (3) allocation
          of asset  retirement costs to expense,  (4) subsequent  measurement of
          the  liability  and  (5)  financial  statement  disclosure.  SFAS  143
          requires that an asset  retirement  cost should be capitalized as part
          of the cost of the related long-lived asset and subsequently allocated
          to expense using a systematic and rational  method.  The provisions of
          SFAS 143 are  effective  for  financial  statements  issued for fiscal
          years  beginning  after June 15, 2002. The adoption of SFAS 143 is not
          expected  to  have  a  material  effect  on  the  Company's  financial
          position, results of operations or cash flows.

          In  April  2002,  the  FASB  issued  SFAS  145,  "Rescission  of  FASB
          Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and
          Technical  Corrections."  FASB 4  required  all gains or  losses  from
          extinguishment of debt to be classified as extraordinary  items net of
          income   taxes.   SFAS  145  requires   that  gains  and  losses  from
          extinguishment of debt be evaluated under the provisions of Accounting
          Principles  Board Opinion No. 30, and be classified as ordinary  items
          unless they are unusual or  infrequent  or meet the specific  criteria
          for treatment as an  extraordinary  item.  This statement is effective
          January 1, 2003. The Company does not anticipate  that the adoption of
          this statement will have a material  effect on its financial  position
          or results of operations.

          In July  2002,  the  FASB  issued  SFAS  146,  "Accounting  for  Costs
          Associated with Exit or Disposal Activities." This Statement addresses
          financial  accounting and reporting for costs  associated with exit or
          disposal  activities  and  nullifies  EITF Issue No. 94-3,  "Liability
          Recognition for Certain Employee  Termination Benefits and Other Costs
          to  Exit  an  Activity   (including   Certain  Costs   Incurred  in  a
          Restructuring)."  This Statement  requires  recognition of a liability
          for a cost  associated  with an exit or  disposal  activity  when  the
          liability  is  incurred,  as opposed to when the entity  commits to an
          exit plan under EITF No. 94-3. SFAS 146 is to be applied prospectively
          to exit or disposal activities  initiated after December 31, 2002. The
          Company does not  anticipate  that the adoption of this statement will
          have a  material  effect  on its  financial  position  or  results  of
          operations.


                                      F-18
                                      -64-

<PAGE>

                           CALIFORNIA EXPLORATION LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
          (Expressed in United States Dollars, unless otherwise stated)


13.  DIFFERENCES   BETWEEN  CANADIAN  AND  UNITED  STATES   GENERALLY   ACCEPTED
     ACCOUNTING PRINCIPLES (continued)

          In  December  2002,  the  FASB  approved  SFAS  148,  "Accounting  for
          Stock-Based Compensation - Transition and Disclosure - an amendment of
          FASB  Statement  No. 123." SFAS 148 amends SFAS 123,  "Accounting  for
          Stock-Based Compensation" to provide alternative methods of transition
          for a voluntary  change to the fair value based  method of  accounting
          for stock-based employee  compensation.  In addition,  SFAS 148 amends
          the  disclosure   requirements  of  SFAS  123  to  require   prominent
          disclosures in both annual and interim financial  statements about the
          method of accounting for  stock-based  employee  compensation  and the
          effect of the method used on reported  results.  SFAS 148 is effective
          for financial  statements  for fiscal years ending after  December 15,
          2002.   The  Company   will   continue  to  account  for   stock-based
          compensation   using  the   methods   detailed   in  the   stock-based
          compensation   accounting  policy,  and  has  adopted  the  disclosure
          requirement of SFAS 148.

          In April 2003,  the FASB issued SFAS 149,  "Amendment of Statement No.
          133 on Derivative Instruments and Hedging Activities." SFAS 149 amends
          certain  portions  of SFAS  133  and is  effective  for all  contracts
          entered into or modified  after June 30, 2003 on a prospective  basis.
          SFAS 149 is not  expected to have a material  effect on the results of
          operations  or  financial  position of the  Company  since the Company
          currently has no derivatives or hedging contracts.

          In June 2003,  the FASB  approved  SFAS 150,  "Accounting  for Certain
          Financial  Instruments  with  Characteristics  of both Liabilities and
          Equity".  SFAS 150 establishes  standards for how an issuer classifies
          and measures certain  financial  instruments with  characteristics  of
          both  liabilities  and equity.  SFAS 150 is  effective  for  financial
          instruments entered into or modified after May 31, 2003, and otherwise
          is effective at the  beginning of the first interim  period  beginning
          after June 15, 2003. SFAS 150 is not expected to have an effect on the
          Company's financial position.

                                      F-19

                                      -65-

<PAGE>