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: 000-30390

                              HILTON PETROLEUM LTD.
             (Exact name of Registrant as specified in its charter)

                              HILTON PETROLEUM 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.

                   4,876,921 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 113
        ---------         ---------                                    ---  ----

                                       -1-

<PAGE>

General Information:

Unless otherwise indicated, all references herein are to United States dollars.

                                    GLOSSARY

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

anticlines               Underground mountain-shaped strata covered with caprock
                         or an impervious layer.

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

BCF                      One billion cubic feet.

BO                       Barrels of oil.

BOE                      Barrels of oil equivalent.

BOPD                     Barrels of oil per day.

breccia                  A rock in which angular  fragments are  surrounded by a
                         mass of fine-grained minerals.

BW                       Barrels of water.

BWPD                     Barrels of water per day.

farm-in                  Acquisition of all or part of the operating rights from
                         the  working  interest  owner  to an  assignee,  by the
                         assumption of all or some of the burden of  development
                         to earn an interest in the property. The vendor usually
                         retains an  overriding  royalty but may retain any type
                         of interest.

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 reserves           The  total  reserves   estimated  to  be   economically
                         recoverable.

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

isopach maps             Maps  showing   variations   in  the   thickness  of  a
                         particular  sedimentary bed and the interval or spacing
                         between one sedimentary bed and another.

liquids                  Crude oil and natural gas liquids.

MBO                      One thousand barrels of oil.

MCF                      One thousand cubic feet.

MCFE                     One thousand cubic feet equivalent.

md                       Millidarcies - a term used to measure the relative ease
                         with which oil and gas can flow.


                                       -2-

<PAGE>

MMBOE                    One million barrels of oil equivalent.

MMCFD                    One million cubic feet per day.

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.

NGLs                     Natural gas liquids.

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.

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.


                                       -3-
<PAGE>

                       (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.

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.

proved properties        Properties with proved reserves.

unproved properties      Properties with no proved reserves.

reversionary interest    A portion of an economic interest that will be returned
                         to its former  owner  after a  predetermined  amount of
                         production or income has been produced.

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

water flooding           The secondary  recovery method in which water is forced
                         down  injection  wells  laid  out in  various  patterns
                         around  the  producing   wells.   The  water   injected
                         displaces the oil and forces it to the producing wells.

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.


                                       -4-
<PAGE>

workover                 A  major  remedial  operation  on a  completed  well to
                         restore,  maintain,  or improve the well's  production.
                         Workovers  use  workover  rigs and can take many  forms
                         such as  acidizing  or  fracing  the well or removal of
                         sand or  paraffin  buildup.  The term  workover is also
                         used for deepening an existing well or plugging back to
                         produce from a shallower formation.


Forward Looking Statements

Pursuant to the "safe harbor"  provisions of the Private  Securities  Litigation
Reform Act of 1995 (the "PSLRA"), the Company cautions readers regarding forward
looking statements found in the following discussion and elsewhere in the annual
report  and in any other  statement  made by, or on the  behalf of the  Company,
whether or not in future filings with the  Securities  and Exchange  Commission.
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.  Readers
should also understand that under Section  27A(b)(2)(D) of the Securities Act of
1933, as amended,  and Section  21E(b)(2)(D)  of the Securities  Exchange Act of
1934,  as amended,  the "safe  harbor"  provisions  of the PSLRA do not apply to
statements made in connection with an initial public offering.



                                       -5-
<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  report.  The
selected  financial data set forth for the years ended May 31, 2000 and 1999 are
derived from the Company's audited financial statements, not included herein.

The  information  in the following  table was  extracted  from the more detailed
consolidated  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 12 of the Company's  consolidated financial statements
included herein for a discussion of the material  differences  between  Canadian
generally accepted  accounting  principles  ("GAAP") and United States GAAP ("US
GAAP"), and their effect on the Company's financial statements.


<TABLE>
<CAPTION>

                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)
                                                  -----------------------------------------------------------------
                                                      2003          2002          2001          2000           1999
                                                      ----          ----          ----          ----           ----
<S>                                             <C>             <C>         <C>           <C>            <C>

Revenues                                               $84          $231        $5,229        $4,574         $3,774
Interest Income and Other                              $38          $854          $101          $279            $96
Production Costs                                       $55          $168        $1,903        $2,312         $2,157
General and Administrative                            $538          $816        $1,292        $1,149         $1,291
Interest Expense on Long-Term Debt                    $415          $694        $1,480        $1,786         $1,997
Depreciation, Depletion and Impairment              $4,551       $26,111        $1,455        $1,541         $2,244
Legal and Litigation                                     -             -             -          $239           $303
Corporate Finance Fees                                   -             -             -             -           $327
Gain on Sale of Petroleum Interests                      -             -         $(212)            -              -
Gain on Sale of Marketable Securities                    -             -          $(25)        $(173)             -
Impairment of Investment and Advances                 $618          $700          $956             -              -
Operating Income (Loss)                            $(5,299)     $(27,370)         $579         $(666)       $(2,549)
Net Income (Loss)                                  $(6,454)     $(27,985)      $(1,519)      $(2,240)       $(4,450)
Earnings (Loss) Per Share                          $(1.43)       $(7.69)       $(0.48)       $(0.93)        $(2.76)
Weighted Average Number of Shares                    4,502         3,641         3,170         2,398          1,611
Dividends per Share                                  $0.00         $0.00         $0.00         $0.00          $0.00
Working Capital (Deficiency)                       $(1,098)         $693        $1,787      $(12,670)        $4,047
Resource Assets                                          -        $5,079       $29,721       $35,052        $25,568
Investment and Advances                                $15          $642          $807        $1,705              -
Other Assets                                          $117          $213          $202          $272           $310

</TABLE>

                                       -6-

<PAGE>


<TABLE>
<CAPTION>

                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)
                                                  -----------------------------------------------------------------
                                                      2003          2002          2001          2000           1999
                                                      ----          ----          ----          ----           ----
<S>                                             <C>             <C>         <C>           <C>            <C>

Non-current Obligations                                  -        $3,737        $3,482        $2,965        $16,256
Non-Controlling Interest                                 -             -             -             -            $23
Shareholders' Equity                                 $(965)       $2,901       $29,035       $21,394        $13,646
Total Assets                                          $298        $7,589       $36,055       $42,083        $33,637
Capital Stock                                      $47,076       $43,003       $41,152       $32,687        $22,699

</TABLE>

ADJUSTMENT TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES


DIFFERENCES  BETWEEN  CANADIAN AND 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
Loss for the year
   Canadian GAAP                                               (6,454,088)   (27,984,522)    (1,518,858)
   Write-down of investment (i)                                    45,419        575,000        956,253
   Impairment expense (ii)                                              -     (1,846,667)             -
   Stock option plan (iii)                                              -              -       (213,116)
   Other compensation expense (vi)                                      -       (181,769)      (151,495)
   Accretion of liability component of
      long-term debt (vii)                                        101,045        231,436         77,145
   Beneficial conversion feature on
      convertible debt securities (viii)                                -              -       (377,814)
   Induced early conversion of
      convertible debt securities (ix)                         (1,069,633)             -              -
                                                             ------------   ------------   ------------
   US GAAP                                                     (7,377,257)   (29,206,522)    (1,227,885)
                                                             ------------   ------------   ------------

Other Comprehensive Income
   Unrealized holding gain (loss) on
      available-for-sale marketable securities (i)                (45,419)      (600,361)    (1,216,041)
   Reclassification adjustment for gain (loss)
      on available for sale marketable securities
      included in net loss(i)                                           -          2,046        (25,345)
                                                             ------------   ------------   ------------
                                                                  (45,419)      (598,315)    (1,241,386)
                                                             ------------   ------------   ------------
Comprehensive (loss) for the year                              (7,422,676)   (29,804,837)    (2,469,271)
                                                             ============   ============   ============
   Loss per share basic and
      fully diluted - US GAAP                                      $(1.65)        $(8.00)        $(0.40)
                                                             ============   ============   ============

</TABLE>


                                       -7-

<PAGE>

<TABLE>
<CAPTION>
                                                                                 2003           2002
                                                                                   $              $
<S>                                                                        <C>           <C>

Consolidated Balance Sheets

Total Assets
   Canadian GAAP                                                                 298,078     7,589,312
   Available for sale securities (i)                                                   -        (23,315)
                                                                            ------------   ------------
   US GAAP                                                                       298,078      7,565,997
                                                                            ============   ============
Total Liabilities
   Canadian GAAP                                                               1,262,855      4,687,950
   Equity component of long-term debt (vii)                                      278,788        694,310
   Accretion of liability component of long-term debt(vii)                      (219,228)      (308,581)
                                                                            ------------   ------------
   US GAAP                                                                     1,322,415      5,073,679
                                                                            ============   ============
Shareholders' Equity
   Canadian GAAP                                                                (964,777)     2,901,362
   Available for sale securities (i)                                                   -        (23,315)
   Equity component of long-term debt (vii)                                     (278,788)      (694,310)
   Accretion of long-term component of long-term debt (vii)                      219,228        308,581
                                                                            ------------   ------------
   US GAAP                                                                    (1,024,337)     2,492,318
                                                                            ============   ============

</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.

   (ii)  Ceiling test on petroleum interests

         US GAAP requires that the net book value of proved petroleum  interests
         not  exceed  the sum of the  present  value  of  estimated  future  net
         revenues  (determined using current prices of petroleum production less
         estimated  future   expenditures  to  be  incurred  in  developing  and
         producing the proved reserves, discounted at ten percent). This ceiling
         test  was  performed  effective  May  31,  2002  and an  impairment  of
         $27,753,746 was required to be recorded.

   (iii) Stock options granted to consultants and non-employees

         The Company  grants  stock  options  which  reserve  common  shares for
         issuance to consultants and other  non-employees.  Under Canadian GAAP,
         such stock options are not recognized for accounting purposes. Under US
         GAAP the Company has adopted the  provisions of Statements of Financial
         Accounting   Standards   ("SFAS")  123   "Accounting  for  Stock  Based
         Compensation"   for  stock   options   granted   to   consultants   and
         non-employees.

         Accordingly,  the Company has recognized  stock based  compensation for
         these stock option grants using the fair value method.

         The  fair  value  of each  option  granted  to a  consultant  or  other
         non-employee 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 2001 fiscal years:


                                       -8-

<PAGE>


                                                         2002             2001
                                                         ----             ----
         Risk-free interest rate                         3.69%            4.50%
         Expected volatility                              125%             107%
         Expected lives                                3 years          3 years

         No options were granted to consultants and other  non-employees  during
         the 2003 fiscal year.

   (iv)  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. 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  2001fiscal  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 GAAP             (29,206,522)   (1,227,885)
         Loss - proforma                              (29,352,135)   (1,918,509)

         Loss per share - as reported under US GAAP         (8.00)        (0.40)
         Loss per share - proforma                          (8.10)        (0.60)

         No options  were  granted to employees  and  directors  during the 2003
         fiscal year.

         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 2001 fiscal years:
                                                         2002             2001
                                                         ----             ----
         Risk-free interest rate                         3.69%            4.79%
         Expected volatility                              125%             109%
         Expected lives                                3 years          3 years

   (v)   Private  Placements of Common Stock and Special  Warrants 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  2002  fiscal  year,  directors,   officers  and  companies
         controlled by the directors or officers acquired 1,593,000 shares (2001
         - 2,250,000) of the Company,  pursuant to private placements  conducted
         by the Company, for cash proceeds of $1,769,537 (2001 - $1,893,684).

   (vi)  Private Placements of Common Stock

         The Company conducts the majority of its equity financings  pursuant to
         private  placements.  Under the  policies of the TSX  Venture  Exchange
         ("TSXV"),  on which the Company's  common stock is listed,  the Company
         may provide a discount  off the market  price of the  Company's  common
         stock.  US GAAP does not permit a discount  from the market  price.  US
         GAAP  requires the  recognition  of the 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

                                       -9-

<PAGE>



         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 the 2003 fiscal year
         would  increase  by $nil (2002 - $181,769;  2001 -  $148,800)  and $nil
         (2002 - $9,128;  2001 - $nil),  respectively,  and share capital, as at
         May 31, 2003 would  increase by $1,913,486  (2002 - $1,913,486;  2001 -
         $1,731,717). There is no net change to shareholders' equity.

   (vii) Accretion of Liability Component of Long-term Debt

         Under Canadian GAAP, compound financial instruments such as convertible
         debentures  are required to be accounted for at the fair value of their
         components.  Such  accounting is not permitted under US GAAP unless the
         components are detachable, which they are not in this case.

  (viii) Beneficial Conversion Feature on Convertible Debt Securities

         Under  US  GAAP,  additional  interest  expense  is  recognized  when a
         convertible  debt  security is issued with an "in the money  conversion
         rate".  This additional  interest  expense is recognized in the year of
         issue when, as in the Company's  case, the debt security is convertible
         at the time of issue. No such charge is required under Canadian GAAP.

   (ix)  Induced Early Conversion of Convertible Debt Securities

         US GAAP requires a charge to operations on an induced early  conversion
         of  convertible  debentures,  equal to the fair value of all securities
         issued in excess of the securities  issuable under the original  terms.
         Canadian GAAP provides similar treatment, but requires the charge to be
         made to  retained  earnings as opposed to  operations.  There is no net
         change to shareholders' equity.

   (x)   Income Tax

         Under Canadian GAAP, future income tax assets relating to the potential
         benefit of income tax loss carry  forwards  are not  recognized  unless
         realization  of the benefit is more  likely than not. US GAAP  provides
         similar  treatment,  but  requires  the  benefit  be  recognized  and a
         valuation allowance be recognized to fully offset the future income tax
         assets.

         As at May 31, 2003,  the Company has fully  reserved the CDN $3,390,000
         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 CDN $529,000 is
         attributable to the 2003 fiscal year.

   (xi)  Functional Currency

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

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

                                      -10-

<PAGE>

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  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, 2003,
2002, 2001, 2000, and 1999.

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
June 1, 1999 - May 31, 2000                              0.6792
June 1, 1998 - May 31, 1999                              0.6616


                                      -11-

<PAGE>

The  following  table sets forth high and low  exchange  rates for one  Canadian
dollar  expressed  in terms of one U.S.  dollar for the  six-month  period ended
November 30, 2003.

Month                                       High                       Low
-----                                       ----                       ---
June 2003                                  0.7492                     0.7263
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 30, 2003                          0.7708                     0.7484

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  December  1, 2003,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.2973 (US$0.7708 = CDN$1.00).

RISK FACTORS

The Company has, in the past,  conducted business primarily in the petroleum and
natural  gas  industry.  As of the date of this  annual  report,  the Company no
longer is active in this  industry.  The Company has,  however,  entered into an
option  agreement  which,  if concluded,  will result in the Company  conducting
mineral  exploration  activities.  See  "Item  4.  Information  on the  Company.
Properties - El Nayar Properties,  Mexico".  The following risk factors apply to
the Company's proposed mineral exploration activities.

THE  COMPANY'S  ACQUISITION  MAY NOT BE APPROVED BY THE TSXV,  IN WHICH CASE THE
COMPANY  WILL NOT HAVE ANY  OPERATIONS  AND WILL NEED TO  CONTINUE TO SEARCH FOR
OTHER BUSINESS OPPORTUNITIES.

The Company has  received  conditional  approval  from the TSXV to complete  the
option agreement on the El Nayar Properties, subject to filing of an independent
geological report.  The Company has engaged an independent  geologist to prepare
the report.  There is no assurance  that the Company will receive final approval
from the TSXV.  In the event the  agreement  is not  approved,  the Company will
continue  to search  for and  identify  businesses  or  properties  to  acquire,
however,   it  will  have  incurred   significant   costs  associated  with  the
transaction.

THE COMPANY MAY BE  RE-CLASSIFIED  BY THE TSXV,  WHICH MAY RESULT IN  ADDITIONAL
FILINGS AND LONGER REVIEW PERIODS BY THE TSXV.

The TSXV classifies listed companies into two different tiers based on standards
which  include  historical  financial  performance,  stage  of  development  and
financial  resources.  Tier I is the TSXV's premier tier and is reserved for the
TSXV's most advanced issuers with the most financial  resources.  Tier I issuers
benefit from decreased filing  requirements and improved service standards.  The
majority of the companies  listed on the TSXV are Tier II  companies.  As of the
date of this annual  report,  the Company  believes  that it no longer meets the
maintenance  requirements of a Tier I  classification.  However,  it has not yet
been  re-classified  by the  TSXV  into a Tier II  company.  If the  Company  is
reclassified  as a Tier II company by the TSXV, the Company would be required to
make additional filings and may be subject to longer review periods. An increase
in the number of filings could increase the Company's  expenses  associated with
its TSXV listing.

THE  COMPANY  HAS LIMITED  FINANCIAL  RESOURCES  AND IF THE COMPANY IS UNABLE TO
SECURE  ADDITIONAL  FUNDING  AND/OR IF THE  COMPANY'S  EXPLORATION  PROGRAMS ARE
UNSUCCESSFUL, THE COMPANY MAY FAIL.

Mineral  exploration  involves  significant  risk  and few  properties  that are
explored are ultimately developed into producing mines. Substantial expenditures
may  be  required  to  establish  ore  reserves  through  drilling,  to  develop
metallurgical  processes to extract the metals from the ore and to construct the
mining  and  processing  facilities  at any  site  chosen  for  mining.  Current
exploration programs may not result in any commercial mining operation. The


                                      -12-

<PAGE>


Company's  option  relates to unproved  mineral claims which are without a known
body of commercial ore and the proposed  programs are an exploratory  search for
ore.  The  Company  intends  to carry  out  exploration  with the  objective  of
establishing  an economic  body of ore. If the  Company's  proposed  exploration
programs are successful,  additional  funds will be required for the development
of an economic  ore body and to place it into  commercial  production.  The only
sources of future  funds  presently  available  to the  Company  are the sale of
equity  capital,  the  exercise of warrants  and options or the  offering by the
Company of an  interest in the  mineral  claim to be earned to another  party or
parties. If the Company is unable to secure additional funding,  the Company may
lose its interest in one or more of its mineral claims and/or may be required to
cease operations.

THE COMPANY MAYBE UNABLE TO  RENEGOTIATE  OR SETTLE ITS  DEBENTURES AS THEY COME
DUE, IN WHICH CASE THE COMPANY MAY DEFAULT ON ITS DEBENTURES AND MAY NOT BE ABLE
TO CONTINUE ITS OPERATIONS.

The Company has  approximately  CDN $1.8 million of  debentures  which mature on
January 24, 2004.  As of the date of the annual report the Company does not have
sufficient  funds to repay the debentures on maturity.  The Company is proposing
to make an offer to the debenture  holders to settle the debentures  through the
issuance of common shares. In addition to obtaining debenture holder acceptance,
the Company will be required to obtain TSXV  approval.  The Company has received
shareholder approval for the issuance of shares to the debenture holders.  There
are no assurances  that the requisite  approval will be received in which event,
the Company  will be  insolvent  and may be forced to  liquidate  its  remaining
assets.

IF THE  COMPANY  ISSUES  SHARES OR OPTIONS  TO ITS  OFFICERS,  DIRECTORS  OR KEY
EMPLOYEES,  OR IF THE COMPANY  OBTAINS  FUNDING  THROUGH THE SALE OF  ADDITIONAL
COMMON SHARES, THE SHAREHOLDERS WILL EXPERIENCE DILUTION.

The Company may in the future grant to some or all of its  directors,  officers,
insiders and key employees  options to purchase the  Company's  common shares as
non-cash incentives to those employees.  Such options may be granted at exercise
prices equal to market prices,  or at prices as allowable  under the policies of
the TSXV,  when the public market is depressed.  To the extent that  significant
numbers of such  options may be granted and  exercised,  the  interests  of then
existing shareholders of the Company will be subject to additional dilution.

The  Company is  currently  without a source of revenue  and will most likely be
required  to issue  additional  shares to settle  its  debentures,  finance  its
operations and, depending on the outcome of its proposed  exploration  programs,
may issue additional shares to finance additional exploration programs on any or
all of its  projects  or to  acquire  additional  properties.  The  issuance  of
additional shares will cause the Company's  existing  shareholders to experience
dilution of their ownership interests.

BECAUSE THE COMPANY HAS LIMITED  FINANCIAL  RESOURCES  AND DOES NOT GENERATE ANY
REVENUE  FROM  ITS  OPERATIONS,  THE  COMPANY  MAY NOT BE ABLE TO  CONTINUE  ITS
OPERATIONS AND AN INVESTMENT IN THE COMPANY'S COMMON SHARES MAY BE WORTHLESS.

The Company has limited financial resources,  has a history of losses and has no
source of operating  cash flow.  The Company has not generated any revenues from
its  mineral  claims  and does not  anticipate  any in the  foreseeable  future.
Additional  funding may not be available to the Company for further  exploration
of its  option  interests  or to fulfil  its  obligations  under any  applicable
agreements. Failure to obtain such additional financing could result in delay or
indefinite postponement of further exploration of its projects with the possible
loss of such interests.  Any further  additional equity financing  undertaken by
the Company would cause dilution to its shareholders.

As of May 31, 2003, the Company had a working capital  deficiency of $1,097,521,
which  includes  $1,248,093 of debentures  which become due in January 2004. The
Company has sought the  debenture  holders'  consent to  settlement of all their
outstanding  debt via common shares. A formal proposal has not been made but the
Company has been conducting ongoing  correspondence  with the debenture holders.
The Company is currently not  generating  cash flow from its  operations to meet
ongoing corporate overhead and to discharge its liabilities as they come due. In
addition,  on October 1, 2003, the Company  entered into an agreement to acquire
the El Nayar  concessions in Mexico.  The  exploration of the  concessions  will
require significant funds. On November 25, 2003, the Company completed a private
placement  financing  of  4,030,000  units,  for  approximately   $310,000  (CDN
$403,000). The Company has also announced that it has arranged,  subject to TSXV
approval, to conduct a private placement financing of up to 750,000

                                      -13-

<PAGE>


units at CDN $0.20 per unit,  to raise up to CDN  $150,000.  These funds will be
used for working capital  purposes and due diligence costs to be incurred on the
El Nayar Project.  However,  if the Company decides to proceed with the El Nayar
Project,  the  Company  will  require  additional  funds to fulfill  its funding
requirements on the project.

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.

THE PRICE OF THE COMPANY'S  COMMON SHARES IS SUBJECT TO MARKET  FLUCTUATIONS AND
VOLATILITY  WHICH  MAY NOT BE  RELATED  TO THE  COMPANY'S  OPERATIONS  AND  SUCH
FLUCTUATIONS MAY IMPACT THE COMPANY'S ABILITY TO COMPLETE EQUITY FINANCINGS;  IF
THE COMPANY CANNOT COMPLETE ADDITIONAL EQUITY FINANCINGS,  IT MAY NOT BE ABLE TO
CONTINUE ITS OPERATIONS.

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  from a high of  CDN$0.80 to a low of  CDN$0.06  during the  12-month
period  ending  November  30, 2003.  Continued  price  fluctuations  will have a
significant impact on the Company's ability to complete equity financings.

THE COMPANY'S PROPOSED  OPERATIONS ARE SUBJECT GOVERNMENT  REGULATIONS WHICH MAY
SUBJECT  THE  COMPANY  TO  PENALTIES  FOR  FAILURE  TO COMPLY  AND MAY LIMIT THE
COMPANY'S ABILITY TO CONDUCT EXPLORATION  ACTIVITIES AND COULD CAUSE THE COMPANY
TO DELAY OR ABANDON ITS PROJECTS.

Exploration  activities  are  also  subject  to  national  and  local  laws  and
regulations governing prospecting, taxes, labor standards,  occupational health,
land use, environmental  protection,  mine safety, and others which currently or
in the future may have a substantial  adverse impact on the Company. In order to
comply with  applicable  laws,  the  Company  may be  required  to make  capital
expenditures  until a  particular  problem is  remedied.  Existing  and possible
future environmental  legislation,  regulation and action could cause additional
expense,  capital expenditures,  restriction and delays in the activities of the
Company,  the extent of which cannot be reasonably  predicted.  Violators may be
required to compensate  those suffering loss or damage by reason of their mining
activities and may be fined if convicted of an offence under such legislation.

Amendments  to current laws,  regulations  and permits  governing  activities of
mineral  exploration  companies or more stringent  implementation  thereof could
require increases in exploration expenditures,  or require delays in exploration
or abandonment of new mineral properties.

The  Company's  proposed  exploration  activities  may be  subject  to  foreign,
federal,  state,  provincial  and  local  laws  and  regulations  governing  the
protection of the  environment,  including laws and regulations  relating to air
and  water  quality,  waste  disposal,  and  the  protection  of  endangered  or
threatened species. The Company's proposed exploration activities may be subject
to  foreign,  federal,  state,  provincial  and local laws and  regulations  for
protection of surface and ground water.

If  the  Company   undertakes  new,  or  significantly   expands  its  proposed,
exploration  activities  the Company may be required to obtain  pre-construction
environmental  and land use review  and  comply  with  permitting,  control  and
mitigation  requirements of the  jurisdiction in which such operations are to be
located.  Compliance with new requirements  could impose costs on the Company in
the future,  the  materiality  of which cannot  reasonably  be predicted at this
time.  Any change in the applicable  laws or  regulations  could have an adverse
effect on any mining  project  which the  Company  might  undertake.  Also,  the
Company may require additional  permits for its future operations,  which may or
may not be obtainable on reasonable terms.

If the Company is unable to obtain the necessary permits, the Company might have
to change its planned  exploration for such  non-permitted  properties and/or to
seek other joint  venture  arrangements.  If the Company were unable to mitigate
the problem, the Company might not be able to proceed with exploration.  In this
event,  the  Company  might  seek to  mitigate  any losses  through  sale of the
property, prior to abandonment.


                                      -14-

<PAGE>


THE COMPANY'S  PROPOSED MINERAL CLAIM INTERESTS ARE LOCATED IN MEXICO,  THE LAWS
OF WHICH MAY PREVENT OR DELAY THE COMPANY'S PROPOSED EXPLORATION  ACTIVITIES AND
COULD CAUSE THE COMPANY TO DELAY OR ABANDON ITS PROJECTS.

The project in which the  Company  proposes to acquire an interest is located in
Mexico.  Mineral  exploration  activities  in Mexico may be  affected in varying
degrees by political  instability  and  government  regulations  relating to the
mining  industry.  Any changes in regulations or shifts in political  conditions
are beyond the  control of the Company and may  adversely  affect its  business.
Operations  may be affected in varying  degrees by government  regulations  with
respect to restrictions on production,  price controls,  export controls, income
taxes,  expropriations of property,  environmental  legislation and mine safety.
The status of Mexico as a developing  country may make it more difficult for the
Company to obtain any required financing for its projects.  The effect of all of
these  factors  cannot be  accurately  predicted.  Notwithstanding  the progress
achieved in restructuring the Mexican political institution and revitalizing its
economy, the present  administration,  or any successor  government,  may not be
able to sustain the progress achieved. While the Mexican economy has experienced
growth in recent  years,  such growth may not  continue in the future at similar
rates or at all.  If the  economy  of Mexico  fails to  continue  its  growth or
suffers a recession,  the Company may not be able to continue its  operations in
this country. The Company does not carry political risk insurance.

All of the mineral claim  interests the Company  proposes to acquire are located
outside of Canada,  in  Mexico.  As a result,  such  assets may be  affected  by
government  regulations and treaties,  as well as by laws and policies of Canada
affecting  foreign  trade,  investment  and  taxation.  In  addition,  it may be
difficult  to enforce  judgments  obtained in  Canadian  courts  against  assets
located outside of Canada.

EXPLORATION  FOR  MINERALS ON THE  COMPANY'S  PROPOSED  PROJECTS  ARE SUBJECT TO
SIGNIFICANT  RISKS WHICH COULD INCREASE THE COSTS OF EXPLORATION AND COULD CAUSE
THE COMPANY TO DELAY OR ABANDON ITS PROJECTS.

The El Nayar  Properties are without a known ore body of commercial ore. Mineral
exploration involves a high degree of risk and few properties which are explored
are ultimately  developed into producing mines.  The long-term  profitability of
the  Company's  operations  will be, in part,  directly  related to the cost and
success of its proposed exploration programs,  which may be affected by a number
of factors beyond the Company's control.

Mineral exploration involves many risks, which even a combination of experience,
knowledge  and careful  evaluation  may not be able to overcome.  Operations  in
which the Company has a direct or indirect  interest  will be subject to all the
hazards and risks  normally  incidental  to  exploration  for gold (also  "Au"),
silver  (also  "Ag")  and  other  metals,  any of  which  could  result  in work
stoppages, damage to property, and possible environmental damage.

The  Company  will rely upon  consultants  and others for  exploration  and,  if
required, development expertise. If any of option interests the Company proposes
to acquire  merit  development,  substantial  expenditures  will be  required to
establish ore reserves through drilling, to develop  metallurgical  processes to
extract  the metal from the ore and, in the case of new  properties,  to develop
the mining and processing  facilities and  infrastructure at any site chosen for
mining.  The  Company may not  discover  minerals in  sufficient  quantities  to
justify  commercial  operations  and the  Company  may not be able to obtain the
funds required for  development  on a timely basis.  The economics of developing
gold, silver and other mineral  properties is affected by many factors including
the cost of operations,  variations in the grade of ore mined,  fluctuations  in
metal  markets,  costs  of  processing  equipment  and  such  other  factors  as
government regulations,  including regulations relating to royalties,  allowable
production, importing and exporting of minerals and environmental protection.

BECAUSE THE COMPANY IS SUBJECT TO COMPLIANCE WITH GOVERNMENTAL  REGULATION,  THE
COST OF ITS  PROPOSED  EXPLORATION  PROGRAMS MAY  INCREASE,  WHICH MAY CAUSE THE
COMPANY TO HAVE TO ABANDON SUCH PROGRAMS.

The Company's  proposed  operations may be subject to environmental  regulations
promulgated by government agencies from time to time. Environmental  legislation
provides for restrictions  and prohibitions on spills,  releases or emissions of
various  substances   produced  in  association  with  certain  mining  industry
operations,  such as seepage from tailings disposal areas, which would result in
environmental  pollution.  A  breach  of  such  legislation  may  result  in the
imposition  of fines and  penalties.  In addition,  certain  types of operations
require  the  submission  and  approval  of  environmental  impact  assessments.
Environmental   legislation  is  evolving  in  a  manner  which  means  stricter
standards,  and  enforcement,  fines and penalties for  non-compliance  are more
stringent. Environmental assessments of proposed projects carry a

                                      -15-

<PAGE>


heightened  degree of responsibility  for companies and directors,  officers and
employees. The cost of compliance with changes in governmental regulations has a
potential to reduce the profitability of operations.

THE COMPANY MAY INCUR LIABILITY FOR CERTAIN RISKS AGAINST WHICH THE COMPANY DOES
NOT HAVE INSURANCE, WHICH COULD REDUCE OR ELIMINATE ANY FUTURE PROFITABILITY AND
NEGATIVELY IMPACT THE PRICE OF THE COMPANY'S SHARES.

In the course of  exploration  of mineral  concessions,  certain  risks,  and in
particular, unexpected or unusual geological operating conditions including rock
bursts,  cave-ins,  fires,  flooding and earthquakes may occur. It is not always
possible to fully  insure  against  such risks and the Company may decide not to
take out  insurance  against  such risks as a result of high  premiums  or other
reasons.  Should such  liabilities  arise,  they could reduce or  eliminate  any
future  profitability  and result in increasing costs and a decline in the value
of the  securities  of the  Company.  The  Company  does not have any  insurance
coverage on its mineral concessions.

THE COMPANY MAY NOT BE ABLE TO OBTAIN SUPPLIES AND  INFRASTRUCTURE  NECESSARY TO
CONDUCT ITS PROPOSED  EXPLORATION  OPERATIONS AND, AS SUCH, MAY HAVE TO DELAY OR
ABANDON ITS PROJECTS.

The property  interests  the Company  proposes to acquire are not in a developed
area and the availability of infrastructure  (water and power, and in some areas
roads) at an economic cost cannot be assured.  Power is an integral  requirement
of any  production  facility  on such  properties.  In the event the  Company is
unable to obtain water or power at any of the properties it proposes to acquire,
the Company may not be able to conduct its proposed exploration  activities,  or
in the event the Company discovers  mineralization,  the Company may not be able
to begin a development  program, in which case the Company may lose its interest
in the property or may have to abandon the property.

THE  COMPANY  MAY NOT  RECEIVE  PROPER  TITLE TO THE  PROPERTIES  IT PROPOSES TO
ACQUIRE AND, AS A RESULT, MAY INCUR SIGNIFICANT EXPENSES TO OBTAIN PROPER TITLE,
OR MAY HAVE TO ABANDON ANY SUCH PROPERTIES.

The Company  proposes to own, lease or option,  unpatented  and patented  mining
claims,  mineral  claims or  concessions  which will  constitute  the  Company's
property  holdings.  The ownership and validity of unpatented  mining claims and
concessions are often uncertain and may be contested.

In those jurisdictions where the Company has intends to have property interests,
the Company intends to make a search of mining records in accordance with mining
industry  practices to confirm that it has  acquired  satisfactory  title to its
properties  but does not intend to obtain title  insurance  with respect to such
properties.  The possibility exists that title to one or more of the concessions
which the Company intends to acquire,  particularly title to undeveloped claims,
might be  defective  because  of  errors  or  omissions  in the  chain of title,
including  defects in conveyances  and defects in locating or  maintaining  such
claims, or concessions.

The boundaries of some of the property interests the Company proposes to acquire
have not been surveyed and,  therefore,  the precise  location and area of these
mining properties may be in doubt. The Company is not aware of challenges to the
location or area of the unpatented mining claims it intends to acquire.

IF THE COMPANY IS UNABLE TO EFFECTIVELY  COMPETE AGAINST OTHER COMPANIES,  OR IF
THE COMPANY  CANNOT MARKET ANY MINERALS  DISCOVERED ON THE PROPERTIES IT INTENDS
TO ACQUIRE, THE COMPANY MAY HAVE TO CEASE OPERATIONS.

The mineral  industry is intensely  competitive  in all its phases.  The Company
competes  with  many  companies   possessing  greater  financial  resources  and
technical  facilities  than itself for the  acquisition of mineral  concessions,
claims,  leases and other mineral  interests as well as for the  recruitment and
retention of qualified employees.

Even if  commercial  quantities  of ore are  discovered,  a ready market may not
exist for their sale.  Factors  beyond the control of the Company may affect the
marketability  of  any  substances  discovered.  These  factors  include  market
fluctuations,  the  proximity  and  capacity  of natural  resource  markets  and
processing equipment, government regulations,  including regulations relating to
prices,  taxes,  royalties,  land tenure,  land use,  importing and exporting of
minerals and environmental protection.  The exact effect 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 or losing its
investment capital.


                                      -16-

<PAGE>


THE COMPANY'S  PROPOSED  OPERATION IN MEXICO WILL SUBJECT THE COMPANY TO FOREIGN
CURRENCY  FLUCTUATIONS  WHICH MAY INCREASE THE  COMPANY'S  EXPENSES  AND, IN THE
EVENT THE COMPANY ACHIEVES PROFITABILITY, REDUCE THE COMPANY'S PROFITABILITY.

The  Company's  proposed  operation  in Mexico  will make it  subject to foreign
currency  fluctuation and such  fluctuation  may adversely  affect the Company's
financial  position  and  results.  The  Canadian  dollar  varies  under  market
conditions. The Company maintains its cash and cash equivalent amounts primarily
in Canadian and U.S.  denominated  currencies.  The Company  does not  currently
engage in hedging activities.

CONFLICTS OF INTEREST MAY ARISE AMONG THE MEMBERS OF OUR BOARD OF DIRECTORS  AND
SUCH CONFLICTS MAY CAUSE THE COMPANY TO ENTER INTO  TRANSACTIONS  ON TERMS WHICH
ARE NOT BENEFICIAL TO THE COMPANY.

Certain of the Company's directors are also directors,  officers or shareholders
of other companies that 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. Such a conflict poses the risk that the
Company may enter into a transaction on terms which place the Company in a worse
position than if no conflict existed.  The directors and officers of the Company
are aware of the  existence of laws  governing  accountability  of directors and
officers for corporate  opportunity  and requiring  disclosures  by directors of
conflicts of interest and the Company will rely upon such laws in respect of any
directors' and officers'  conflicts of interest or in respect of any breaches of
duty by any of its directors or officers.  All such  conflicts must be disclosed
by such directors or officers in accordance with the Business  Corporations  Act
(Yukon) (the  "Corporations  Act").  Generally,  the Corporations Act requires a
director  with a direct or indirect  interest in a contract  or  transaction  to
"disclose the nature and extent of the  director's  interest at a meeting of the
directors."  A  director  which  has  an  interest  in  such  a  transaction  is
accountable to the  corporation for which the director serves for any profit the
director  receives  as a result  of the  transaction  unless  the  director  has
previously  disclosed the interest in accordance with the Corporations  Act, the
board of directors  subsequently  approves the transaction or contract,  and the
interested  director  does  not  vote  on the  approval,  or  "the  contract  or
transaction  was  reasonable  and fair to the Company at the time it was entered
into,  and after full  disclosure  of the  nature  and extent of the  director's
interest, it is approved by special resolution."

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.  In determining  whether or not the Company will participate in any
project or  opportunity,  the board of  directors  will  primarily  consider the
degree of risk to which the Company may be exposed and its financial position at
that time.

The Company has no specific internal policy governing conflicts of interest.

THE  PRICES  OF METALS  FLUCTUATE  IN THE  MARKET  AND SUCH  FLUCTUATIONS  COULD
NEGATIVELY  IMPACT THE COMPANY'S  ABILITY TO RAISE FUNDING AND MAY CAUSE CERTAIN
ACTIVITIES TO BECOME UNECONOMIC.

Factors  beyond the control of the Company may affect the  marketability  of any
substances discovered. The prices of various metals have experienced significant
movement over short periods of time, and are affected by numerous factors beyond
the control of the  Company,  including  international  economic  and  political
trends,  expectations of inflation,  currency  exchange  fluctuations,  interest
rates and global or regional consumption  patterns,  speculative  activities and
increased  production due to improved mining and production methods.  The supply
of and demand for metals are affected by various  factors,  including  political
events,  economic  conditions  and production  costs in major mineral  producing
regions.  Variations  in the market prices of metals may impact on the Company's
ability to raise funding to continue  exploration  of the properties the Company
proposes to acquire. In addition,  any significant  fluctuations in metal prices
will impact on the Company's  decision to  accelerate or reduce its  exploration
activities.

THE COMPANY DOES NOT PAY DIVIDENDS ON ITS COMMON  SHARES;  THEREFORE,  INVESTORS
SEEKING DIVIDEND INCOME SHOULD NOT PURCHASE THE COMMON SHARES.

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

                                      -17-

<PAGE>


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.

THE COMPANY'S CURRENT  CORPORATE  OPERATIONS ARE PERFORMED BY OTHER THAN COMPANY
PERSONNEL AND IF SUCH PERSONNEL ARE NOT AVAILABLE IN THE FUTURE, THE COMPANY MAY
INCUR SIGNIFICANT  EXPENSES TO FIND SUITABLE  REPLACEMENTS  AND/OR TO HIRE OTHER
PERSONNEL.

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 labour  staffing  at any of the
Company's  projects will be unionized,  which may result in  potentially  higher
operating costs.

THE  COMPANY'S  SHARES ARE  SUBJECT TO THE SEC'S PENNY  STOCK  RULES,  WHICH MAY
RESTRICT  THE  ABILITY  OF BROKERS TO SELL THE  COMPANY'S  COMMON  STOCK AND MAY
REDUCE THE SECONDARY MARKET FOR THE COMMON STOCK.

The SEC has adopted  rules that regulate  broker-dealer  practices in connection
with  transactions  in  "penny  stock".  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 per share,  as they 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 shares are traded for less
than $5.00 per share,  the Company's  common stock is subject to the penny stock
rules. Therefore,  the holders of the Common Stock may find it difficult to sell
the Common Stock of the Company. These rules may restrict the ability of brokers
to sell the  common  stock and may reduce  the  secondary  market for the common
stock. A limited  secondary  market may result in a decrease in the value of the
shares and/or a partial or total loss of an investor's investment.

IT MAY BE DIFFICULT TO OBTAIN  SERVICE OF PROCESS ON THE BOARD OF DIRECTORS  AND
SENIOR MANAGEMENT OF THE COMPANY, WHICH MAY RESTRICT THE ABILITY TO COLLECT UPON
A  JUDGMENT  OBTAINED  IN THE  UNITED  STATES  AGAINST  THE  COMPANY'S  BOARD OF
DIRECTORS AND/OR SENIOR MANAGEMENT.

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.

THE COMPANY MAY BE DEEMED TO BE A "PASSIVE FOREIGN INVESTMENT  COMPANY" FOR U.S.
TAX PURPOSES WHICH COULD SUBJECT U.S. SHAREHOLDERS TO INCREASED TAX LIABILITY.

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

                                      -18-

<PAGE>


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.


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

HISTORY AND DEVELOPMENT OF THE COMPANY

NAME AND INCORPORATION

The  Company  was  incorporated  under the Company  Act  (British  Columbia)  on
September 7, 1989, as "No. 207 Sail View Ventures  Ltd." On October 2, 1989, the
Company  changed  its name from  "No.  207 Sail  View  Ventures  Ltd." to "Ingot
Properties  Ltd." On June 26,  1992,  the  Company  changed its name from "Ingot
Properties  Ltd." to "San Pedro  Resources  Ltd." On July 15, 1994,  the Company
changed its name from "San Pedro Resources Ltd." to "Hilton Petroleum Ltd."

The Company was inactive until November 30, 1994, when it acquired approximately
96.63% of the issued and outstanding  shares of Hilton Petroleum,  Inc. ("Hilton
U.S.").  The Company  subsequently  made additional  capital  contributions  and
acquired  all of the  remaining  minority  interests  and Hilton  U.S.  became a
wholly-owned subsidiary of the Company. Hilton U.S. was incorporated on June 15,
1993 pursuant to the laws of the State of Nevada.

On April 1, 1999,  pursuant to an agreement (the "Arrangement  Agreement") dated
February 5, 1999,  in which the Company  completed a merger with  Stanford Oil &
Gas Ltd. ("Stanford"), a public company with common management,  Stanford became
a wholly-owned  subsidiary of the Company.  In conjunction with the Amalgamation
with  Stanford  on April 1, 1999,  the  Company  changed  its  domicile  through
continuation  from British  Columbia to the Yukon  Territory  under the Business
Corporations Act (Yukon).

Effective  November  30,  2002,  the Company  determined  to  write-off  its net
investments  in, and cease  funding of Hilton U.S. and STB Energy.  See "Item 4.
Information on the Company - Business  Overview" and "Item 4. Information on the
Company - Principal  Properties." In May 2003, the Company terminated the option
agreement  relating to certain  resource  properties in China and Mongolia.  See
"Item 4. Information on the Company - Business Overview - Properties - China and
Mongolia   Properties."  In  October  2003,  the  Company  concluded  an  option
agreement,  subject  to  regulatory  approval,  to  acquire  an  interest  in  a
gold/silver  project  in  Mexico.  See  "Item 4.  Information  on the  Company -
Business Overview - Properties - El Nayar Properties, Mexico."

On December 30, 2002, the Company completed a consolidation of its share capital
on a one new for ten old basis.

The  Company's  registered  office is located at 3081 - 3rd Avenue,  Whitehorse,
Yukon,  Canada. The Company's principal business office is located at Suite 1305
- 1090 West Georgia  Street,  Vancouver,  British  Columbia,  V6E 3V7. The phone
number of the Company's  registered  office is (867)  668-4405 and the corporate
office is (604)  685-9316.  The Company does not have a registered  agent in the
United States.

The Company's  common shares were listed on the  Vancouver  Stock  Exchange (the
"VSE") through November 28, 1999.  Effective  November 29, 1999, the VSE and the
Alberta Stock  Exchange (the "ASE") merged and began  operations as the Canadian
Venture  Exchange  (the  "CDNX").  On April 8, 2002,  the CDNX was  renamed  the
Toronto Venture Exchange (the "TSXV"). The TSXV classifies listed companies into
two different  tiers based on  standards,  which  include  historical  financial
performance, stage of development and financial resources. The Company trades on
the TSXV under the symbol "HPM" and is classified as a Tier I company. Tier I is
the TSXV's  premier  tier and is reserved for the TSXV's most  advanced  issuers
with the most  significant  financial  resources.  Tier I issuers  benefit  from
decreased filing  requirements and improved service  standards.  The majority of
the  companies  listed on the TSXV are Tier II  companies.  The Company does not
meet the maintenance requirements of a Tier I classification.  As of the date of
the annual report, the Company has not been reclassified by the TSXV into a Tier
II company.


                                      -19-

<PAGE>


Effective  February 7, 2001, the Company's common stock was approved for trading
on the  Over-the-Counter  Bulletin Board operated by the National Association of
Securities Dealers under the symbol "HTPTF".

DISPOSITIONS

During  fiscal 2003,  the Company  abandoned  all of its  petroleum  operations.
Accordingly, it recorded a net charge of $4,550,704 for depreciation,  depletion
and impairment of its petroleum interests.

EXPLORATION EXPENDITURES

During fiscal 2001,  2002 and 2003,  the Company  incurred  $8.3  million,  $2.2
million  and  $430,000  respectively,   on  the  acquisition,   exploration  and
development of its petroleum  interests.  No exploration  expenditures have been
incurred by the Company subsequent to May 31, 2003.

BUSINESS OVERVIEW

The Company was  historically  engaged in the  business of  acquiring  leasehold
interests  in  petroleum  and natural gas rights,  and the  exploration  for and
development, production and sale of petroleum and natural gas in the continental
United States.

In fiscal 2001, the Company  continued its  participation  in the exploration of
the East Lost Hills  Project,  with the funding of the  completion of the ELH #1
well and the ongoing drilling of the ELH #2 well and the commencement of the ELH
#3, ELH #4, and ELH #9 wells,  at a cost of $5.3 million.  The Company also paid
$776,000  for its share of the gas  facility at East Lost Hills and $1.6 million
for the acquisition  and  exploration of other oil and gas prospects  located in
regional California. Production from the ELH #1 well commenced in February 2001.
In March  2001,  the  Company  completed  the sale of  substantially  all of its
non-California  petroleum  and  natural gas  interests  to Exco  Resources  Inc.
("Exco") for net proceeds of $13.5 million,  of which $12.7 million was received
as of May 31,  2001 and the  remaining  $810,000  was  subject to a  contractual
disagreement between the Company and Exco. The disputed amount was put in escrow
pending arbitration.

During fiscal 2001,  the Company raised $6.4 million from the issuance of common
shares and $3.2  million  from the  issuance of  convertible  debentures.  These
proceeds,  along with the sale of the  non-California  petroleum and natural gas
interests, enabled the Company to repay $14.9 million of debt.

During fiscal 2002, the Company was faced with significant  funding  commitments
for its  continued  participation  in the East Lost Hills and San Joaquin  Joint
Venture's  exploration  programs.  The poor  results  at East  Lost  Hills had a
negative  impact on the Company's  share price and on the  Company's  ability to
conduct either equity or debt financing. In addition, the combination of reduced
commodity  prices  and  constrained  production  at ELH #1 further  reduced  the
Company's ability to meet its funding commitments.  Due to the lack of financial
resources,  the Company ceased further funding of its share of costs at the East
Lost Hills  Prospect and San Joaquin  Joint  Venture.  As a result,  in February
2002, the Company  withdrew from  participation in the San Joaquin Joint Venture
and, in May 2002,  concluded  an  agreement  with  Anadarko  and  certain  other
participants on the ongoing  evaluation of the ELH #4 and ELH #9 wells,  whereby
the funding parties have assumed all of the unpaid amounts, estimated to be $4.9
million  at the  time of the  agreement,  and  future  costs in  completing  the
evaluation  of these wells.  In return,  they will be entitled to recover  their
costs, plus a penalty, of 300% of the costs, from production from these wells.

In April  2002,  an  arbitration  hearing  was  conducted  with  respect  to the
Company's  contractual  disagreement with Exco and a decision was made in favour
of the Company and $789,000,  representing the original  disputed  amount,  plus
associated  interest  income  and less  associated  legal and other  costs,  was
released to the Company.

During fiscal 2002, the Company identified  business  opportunities in the field
of  proprietary  software  programs  utilizing  "artificial  intelligence".  The
Company formed A.I. Solutions Ltd. to pursue these opportunities.  All research,
development and marketing activities were contracted out to arms-length parties.


                                      -20-

<PAGE>


On December 2, 2002, the Company received confirmation from the operator that it
had formally  proposed the plugging and  abandonment of the ELH #4 and #9 wells.
In light of the results and uncertainties of any further activities at East Lost
Hills by the  joint  venture,  the  Company  determined  that it would no longer
provide  further  funding  to  Hilton  U.S.  and STB  Energy  (collectively  the
"Petroleum Subsidiaries"),  two wholly-owned subsidiaries which conducted all of
the Company's petroleum and natural gas operations. The Company's remaining $3.6
million net  investment  in the Petroleum  Subsidiaries  was written off and the
Company ceased to record the activities of the Petroleum Subsidiaries.

During fiscal 2003, the Company, through A.I. Solutions Ltd. ("A.I. Solutions"),
a  wholly-owned  subsidiary  of the  Company,  funded  on a reduced  basis,  the
development of proprietary software programs using artificial intelligence.  The
Company  expended  $239,000 on the research,  development and marketing of these
products. These activities were unsuccessful in developing a marketable product.
No revenues  were  generated.  No further  expenditures  are  anticipated  to be
incurred on this business.

On December 30, 2002, the Company completed a consolidation of its share capital
on a one new for ten old basis.

During the latter part of the 2003 fiscal year, the Company reviewed a number of
business  opportunities  and asset  acquisitions.  In October 2003,  the Company
concluded an option  agreement,  subject to regulatory  approval,  to acquire an
interest in a gold/silver  project in Mexico.  See "Item 4.  Information  on the
Company - Business  Overview -  Properties  - El Nayar  Properties,  Mexico" and
"Item 5.  Operating and  Financial  Review and Prospects - Liquidity and Capital
Resources."  On November 25,  2003,  the Company  completed a private  placement
financing of 4,030,000 units,  for  approximately  $310,000 (CDN $403,000).  The
Company has also  announced that it has arranged,  subject to TSXV approval,  to
conduct a private  placement  financing of up to 750,000  units at CDN $0.20 per
unit, to raise up to CDN $150,000.  These funds will be used for working capital
purposes  and due  diligence  costs  to be  incurred  on the El  Nayar  Project.
However,  if the  Company  decides to  proceed  with the El Nayar  Project,  the
Company will require additional funds to fulfill its funding requirements on the
project.  Most  likely,  the  Company  will need to issue  additional  shares to
finance its proposed activities;  however, there are no assurances that any such
financings will be approved or completed.

2003 - 2004 EXPLORATION BUDGET

As of the date of the annual  report the Company  does not maintain any interest
in oil and gas  properties.  The Company,  has  however,  entered into an option
agreement to acquire an interest in mineral  concessions in Mexico.  There is no
budget proposed for exploration  activities as of the date of the annual report.
See  "Item 4.  Information  on the  Company  -  Business  Overview  -  Principal
Properties  - El Nayar  Properties,  Mexico"  and  "Item 4.  Information  on the
Company - Principal Properties - El Nayar Project, Mexico."

SALES AND REVENUE DISTRIBUTION

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.  As of the date of the annual report, the Company does not
generate any petroleum, natural gas and natural gas liquids revenue.

Total  revenues,  interest and other income  reported for fiscal 2003,  2002 and
2001, were as follows:

                                      -21-

<PAGE>

                                                       ($ in 000)
                                         --------------------------------------
                                                   Years Ended May 31,
                                         --------------------------------------
                                            2003          2002          2001
   Petroleum and Natural Gas Sales
     - United States                     $       84    $      231    $    5,229
                                         ----------    ----------    ----------
   Interest and Other Income
     - United States                             10           823            60
     - Canada                                    28            31            41
                                         ----------    ----------    ----------
                                                 38           854           101
                                         ----------    ----------    ----------
   Total Revenue, Interest and
      Other Income                       $      938    $    1,085    $    5,330
                                         ==========    ==========    ==========

GOVERNMENT REGULATIONS

The  Company's  proposed  operations  will be  conducted by  subsidiaries  to be
established outside of Canada, in Mexico. The Company's business will be exposed
to various  levels of  political,  economic  and other risks and  uncertainties.
These  risks and  uncertainties  include,  but are not  limited  to,  terrorism,
hostage taking, military repression,  expropriation,  changing tax laws, extreme
fluctuations  in currency  exchange  rates,  high rates of inflation  and labour
unrest.

Changes,  if any,  in  mining or  investment  policies  or  shifts in  political
attitude  in  Mexico  may   adversely   affect  the   Company's   operations  or
profitability.  Operations  may be  affected  in varying  degrees by  government
regulations  with respect to, but not limited to,  restrictions  on  production,
price   controls,   export   controls,   currency   remittance,   income  taxes,
expropriation   of  property,   foreign   investment,   maintenance  of  claims,
environmental legislation,  land use, land claims of local people, water use and
mine safety.

Failure to comply strictly with applicable laws, regulations and local practices
relating  to  mineral  right  applications  and  tenure,  could  result in loss,
reduction,  or expropriation  of  entitlements,  or the imposition of additional
local or  foreign  parties  as joint  venture  partners  with  carried  or other
interests.

The occurrence of these various factors and  uncertainties  cannot be accurately
predicted  and could  have an  adverse  effect on the  Company's  operations  or
profitability.

PROPERTIES

EAST LOST HILLS JOINT VENTURE AND SAN JOAQUIN JOINT VENTURE, CALIFORNIA

During fiscal 2002, the Company was faced with significant  funding  commitments
for its  continued  participation  in the East Lost Hills and San Joaquin  Joint
Venture's exploration programs. The continued complications  encountered at East
Lost Hills had a negative impact on the Company's  common share price and on the
Company's ability to conduct either equity or debt financing.  In addition,  the
combination of reduced  commodity  prices and  constrained  production at ELH #1
further reduced the Company's  ability to meet its funding  commitments.  Due to
the lack of financial resources, the Company ceased further funding of its share
of costs at the East Lost Hills  Prospect and San Joaquin  Joint  Venture.  As a
result,  in February 2002, the Company  withdrew from  participation  in the San
Joaquin  Joint  Venture and, in May 2002,  concluded  an agreement  with Berkely
Petroleum,  Inc.  ("Berkley"),  (a  subsidiary  of Anadarko)  and certain  other
participants on the ongoing  evaluation of the ELH #4 and ELH #9 wells,  whereby
the funding parties have assumed all of the unpaid amounts, estimated to be $4.9
million  at the  time of the  agreement,  and  future  costs in  completing  the
evaluation of these wells. In return, they were entitled to recover their costs,
plus a penalty, of 300% of the costs, from production from these wells.

On December 2, 2002, the Company received  confirmation from Berkley that it had
formally  proposed the plugging and  abandonment of the ELH #4 and ELH #9 wells.
At this time the Company  determined to cease  further  funding of its petroleum
operations.  Accordingly,  the Company wrote off all of its remaining  petroleum
and natural gas interests and ceased to record the petroleum activities.


                                      -22-

<PAGE>


REGIONAL CALIFORNIA

The Company  participated in a regional  exploration  program in the San Joaquin
Basin of California.  The prospects had much shallower  target horizons than the
East Lost Hills Joint  Venture and the San Joaquin  Joint  Venture.  The Company
originally held  approximately a 32% capital interest before payout (24% working
interest after payout) in the prospects tested.  During fiscal 2002, the Company
increased its ownership interest in the Basil Prospect to a 48% working interest
on the  side-track.  The  prospects  were all  drilled  without  success.  These
interests  were also  written off as part of the  Company's  termination  of its
petroleum  operations.  See  "Item 4.  Information  on the  Company  - Oil & Gas
Properties - Regional California".

CHINA AND MONGOLIA PROPERTIES

On June 24,  2002,  the  Company  entered  into an  agreement  to acquire a 100%
interest,  subject to a 7.5% net revenues  interest  payable to the vendors,  in
certain resource  properties  located in China and Mongolia.  Under the terms of
the agreement the Company agreed to issue up to 800,000 common shares and pay up
to CDN  $3.2  million  to  make  the  acquisitions.  In May  2003,  the  Company
terminated the agreement as the vendors were unable to  demonstrate  valid title
on the resource  properties.  No shares were issued by the Company.  The Company
wrote-off $159,708 of due diligence costs incurred.

EL NAYAR PROPERTIES, MEXICO

On October 1, 2003, the Company  finalized a heads of agreement for an option to
acquire  a  60%  interest  in  the  El  Nayar  Properties,  which  includes  the
Guanajuatillo   Mine,  La  Castellana  and  Los  Limones  Properties   totalling
approximately  6,722  hectares  in the State of  Nayarit,  Mexico.  See "Item 4.
Information  on the  Company  -  Principal  Properties  - El  Nayar  Properties,
Mexico."  The  optionor  is Minera San Jorge  S.A.  de C.V.  ("MSJ"),  a private
Mexican company at arms-length to the Company.  The terms of the agreement allow
for a due  diligence  period  during  which the  Company  will  conduct  initial
exploration  programs to assess the merits of the properties and conduct further
legal  due  diligence  regarding  land  tenure  and  environmental  concerns  or
liabilities.

Under the terms of the option  agreement  the  Company  will have three years to
earn its 60% interest by funding $1 million of  expenditures  on the properties.
These  expenditures  include all land  holding  costs and option  payments.  The
Company has agreed to make a $50,000 option payment payable upon approval by the
TSXV (the  "Approval  Date").  The Company has also agreed to fund a total of $1
million in exploration and development expenditures, including underlying option
payments to concession  holders and government  concession  taxes,  over a three
year period, as follows:

          $                              Date
     ---------               -----------------------------

        40,000               4 months after Approval Date
       250,000               12 months after Approval Date
       710,000               April 1, 2005
     1,000,000

As of the date of this  report,  the Company  does not have  sufficient  working
capital to fund the $1 million  payments.  The Company  has  conducted a private
placement to raise funds for due  diligence  and working  capital,  and plans to
conduct an additional private placement in the future, subject to TSXV approval.
See "Item 4. Information on the Company - Business  Overview." Most likely,  the
Company will be required to conduct  additional  financings to raise  additional
funds.

The Company has also  agreed to issue a total of 1.1  million  shares,  over the
next three years, as follows:

                                      -23-

<PAGE>


      Number
     of Shares                              Date
     ---------               --------------------------------------
       100,000               Approval Date
       200,000               First anniversary after Approval Date
       300,000               Second anniversary after Approval Date
       500,000               hird anniversary after Approval Date
     1,100,000

Upon  earning  the 60%  interest  in the El Nayar  Properties,  the  Company may
purchase the remaining 40% interest from MSJ, at a price to be determined (based
on a discounted net present value  calculation)  once production is initiated on
the El Nayar  Properties  and a  bankable  feasibility  study is  produced.  The
Company will also have a first right of refusal  should an outside party bid for
MSJ's 40% interest.

The Company has sought TSXV approval to the  transaction  and final  approval is
pending  completion  of  a  geological  report.  The  Company  has  retained  an
independent  geological consultant to prepare the necessary report. The TSXV has
limited the Company's  expenditures  on the El Nayar  Properties to CDN $100,000
until the report is completed.

ARTIFICIAL INTELLIGENCE TECHNOLOGY

During the  fiscal  2002  year,  the  Company  identified  a number of  business
opportunities  in  the  further  development  of  certain  proprietary  software
technologies - called OE2 and NFN - with Eyekon Technologies Inc. ("Eyekon"),  a
private  company at arms-length to the Company.  The Company agreed to work with
Eyekon  to  identify  and  develop  software  programs  using  the  OE2  and NFN
technologies,  which  could be used in a number  of  business  applications  and
industries.

The  Company  formed  A.I.  Solutions  Ltd.  ("A.I.  Solutions"),  an 80%  owned
subsidiary,  to pursue this business  activity.  During fiscal 2003, the Company
funded,  on a reduced basis,  the development of proprietary  software  programs
using  artificial  intelligence  in  which it  expended  $239,000  on  research,
development and marketing.  These  activities were  unsuccessful in developing a
marketable  product.  No revenues were generated.  No further  expenditures  are
anticipated  to be  incurred  on this  business.  A.I.  Solutions  is  currently
inactive.

EMPLOYEES

As of the date of the annual report,  the Company has no employees.  The Company
has retained Chase Management Ltd. ("Chase") to provide  management,  financial,
accounting and administrative  services. Chase provides its services to a number
of public and private companies and currently  employs five full-time  employees
and is a private company  wholly-owned by Nick DeMare, the interim President and
Chief  Executive  Officer  and a  director  of the  Company.  See "Item 7. Major
Shareholders and Related Party  Transactions - Related Party  Transactions." The
Company also retains  consultants to handle specific  projects on a case by case
basis.

During part of fiscal 2003, the Company's business was administered  principally
from its former head office in  Bakersfield,  California,  United  States.  This
office was used by Donald  Busby,  the former  Chairman  and CEO of the Company.
With the  disappointing  results from its  petroleum  interests  and its current
level of working capital, the Company closed the head office in Bakersfield. See
"Item 7. Major  Shareholders  and Related  Party  Transactions  - Related  Party
Transactions."  The Company  maintains its corporate  office,  through Chase, in
Vancouver, British Columbia, Canada.

ORGANIZATIONAL STRUCTURE

The following chart sets forth the names of the significant  subsidiaries of the
Company,  their  respective  jurisdictions  of  incorporation  and the Company's
ownership  interests therein as of December 1, 2003. Unless otherwise  indicated
herein, the term "Company" means collectively the Company and its subsidiaries.


                                      -24-

<PAGE>


                               ORGANIZATION CHART


              -----------------------------------------------------
                              HILTON PETROLEUM LTD.
                                (Yukon Territory)
              -----------------------------------------------------
                  |                                           |
                  |                                           |
                  |                                           |
      -----------------------                      -----------------------
      STANFORD OIL & GAS LTD.                        A.I. SOLUTIONS LTD.
        (Yukon Territory)                            (British Columbia)
              100%                                           80%
                                                         (Inactive)
      -----------------------                      -----------------------


SUBSIDIARIES

STANFORD OIL & GAS LTD.

Pursuant to an arrangement (the "Arrangement")  between the Company and Stanford
Oil & Gas Ltd., a Yukon Territory company ("Stanford"), the Company acquired all
of the issued and  outstanding  shares of Stanford on April 1, 1999. As a result
Stanford became a wholly-owned subsidiary of the Company.

A. I. SOLUTIONS LTD.

The Company  owns 80% of the issued and  outstanding  shares of A. I.  Solutions
Ltd. ("A. I. Solutions"),  a British Columbia  corporation formed on November 5,
2001. A. I. Solutions was  incorporated  to pursue the business of  identifying,
developing and marketing of proprietary software technologies. A.I. Solutions is
currently inactive.

OTHER

Effective  November  30,  2002,  the  Company  wrote off its  investment  in its
wholly-owned  subsidiaries.  Hilton  Petroleum,  Inc.  ("Hilton  U.S.")  and STB
Energy, Inc. ("STB Energy"), which were engaged in the petroleum and natural gas
operations in the United States.  Accordingly,  the Company ceased to record the
activities of these companies.

PRINCIPAL PROPERTIES

PETROLEUM AND NATURAL GAS PROPERTIES

The Company had engaged in the  business of  acquiring  leasehold  interests  in
petroleum  and natural  gas rights,  and the  exploration  for and  development,
production  and sale of  petroleum  and  natural gas in the  continental  United
States.  Effective  November  30,  2002,  the Company  wrote-off  its  remaining
interests in its petroleum properties and ceased all activities in the petroleum
industry.

EAST LOST HILLS JOINT VENTURE AND SAN JOAQUIN JOINT VENTURE, CALIFORNIA

LOCATION AND INTEREST

The Company,  through  Hilton U.S. and STB Energy  (collectively  the "Petroleum
Subsidiaries"),  had held a 9.5% working interest (9.1% net revenue interest) in
the East Lost Hills Joint  Venture  which is situated in the San Joaquin  Basin,
approximately  45 miles northwest of Bakersfield,  California.  The Company also
previously held an additional 2.625% reversionary working interest which was, as
a result of the Company's  withdrawal  from the San Joaquin Joint Venture,  been
returned to Armstrong  Resources LLC ("Armstrong").  With the abandonment of the
Petroleum  Subsidiaries,  the Company no longer  records the  activities  of the
Petroleum Subsidiaries.



                                      -25-
<PAGE>


PROPERTY DESCRIPTION

The Lost Hills Field is an anticlinal  structure  formed by what appears to be a
combination  of  compressional  forces from the west,  as well as  right-lateral
motion  associated  with movement of the San Andreas fault system.  The Monterey
and Temblor  formations are broken by a high angle thrust fault on the east side
of the Lost Hills Structure. The East Lost Hills Joint Venture lands were in the
footwall side of this thrust fault,  directly east of and structurally below the
existing Lost Hills field.

The  geological  objectives  of the East Lost Hills Joint  Venture  were stacked
sands (layers of sand stacked one over the other) within the Temblor Group which
are buried between 16,500 to 19,000 feet.

EXPLORATION

EAST LOST HILLS JOINT VENTURE WORK PROGRAM

The initial test well, the Bellevue #1-17,  commenced  drilling in May 1998, and
was designed to test  prospective  Miocene  sandstone  reservoirs in the Temblor
formation at depths to an anticipated  18,500 feet. On November 23, 1998,  while
drilling at 17,640 feet,  the well blew out and ignited.  An expert well control
team was engaged to contain the fire.

A relief well,  the Bellevue  #1R-ST-3,  was  commenced on December 18, 1998, in
order to "kill" the flow of water and  hydrocarbons  flowing out of the Bellevue
#1-17 well.  On May 29, 1999,  the kill  operation was  successfully  completed.
After the successful kill operation, the Bellevue #1R-ST-3 relief well continued
with drilling  towards a bottom hole location  approximately  800 feet away from
the bottom hole  location of the Bellevue  #1-17 well.  On August 24, 1999,  the
operator  announced  that the well would be  completed,  having  reached a total
depth of 17,428 feet, approximately 180 feet into the Temblor formation. Between
October 1, 1999, and October 22, 1999,  the Bellevue  #1R-ST-3 well was prepared
for a completion  test. On October 23, 1999, the completion test was implemented
by perforating the casing and establishing  communication  with the pay zones so
that gas could flow from the pay zones into the  casing.  Initial  results  were
positive and the well flowed gas,  albeit at restricted  rates.  The gas flowed,
but  only  for a short  period  of  time  as the  flow  was  cut  off  when  the
perforations  were  plugged  off. In an attempt to  re-establish  communication,
larger  perforations  were made but this too was  unsuccessful and the well bore
was plugged with formation sand,  shale, and perforating  debris.  The well bore
was  cleaned up and in  December  1999 was  production  tested and flowed gas at
rates  ranging  between 1.3 and 5.0 mmcfpd.  Condensate  and water was  obtained
during the test.  Pressure build-up  analysis  indicated that only the uppermost
sand unit  encountered  in the Bellevue  #1R-ST-3 well was  contributing  to the
flow.  The  operator had  considered  either a re-drill or re-entry of this well
bore.

On August 26, 1999,  drilling began on the ELH #1 well,  approximately two miles
northwest of the Bellevue  #1-17R well. On April 12, 2000, this well had drilled
to a total depth of 19,724 feet.  Production  testing began on May 28, 2000 and,
based on the results of the production testing and other analysis, a natural gas
discovery  was  determined  at the East Lost Hills field.  After  completion  of
production  facilities  and a connection  pipeline,  this well  commenced  first
production on February 6, 2001.  The ELH #1 well is currently  producing  from a
zone in the lower portion of the Temblor  formation.  Production from the ELH #1
well remains  constrained,  at current levels of approximately 1.8 mmcfe gas per
day,  still  requiring  water  disposal  facilities.  The Company  expects  this
production  curtailment  to  continue  until a  disposal  well is  drilled.  The
inability to demonstrate  what  production  could be, if a proper water disposal
system  were  in  place,  has  had a  negative  impact  on  this  project  and a
significant  downgrade on the estimated  proven reserves for the ELH #1 well has
been made.  It is not known when this  disposal  well will be completed or, once
completed,  the impact the  availability  of this  extra  capacity  will have on
production from the ELH #1 well.

The ELH #2 well,  located  approximately 1.5 miles northwest of the ELH #1 well,
was  drilled  and cased to a total  depth of  18,011  feet.  Initial  production
testing,  in early  March of 2000,  of the upper  Temblor  interval  in the well
resulted in limited  wellbore influx of hydrocarbons  (approximate  flow rate of
3mmcf/d),  higher than expected fluid content, and poorer than expected pressure
response.  Many of the  initial  production  test  results on the well have been
influenced  by  mechanical  difficulties  associated  with  drill  pipe that was
inadvertently cemented across the testing interval. The ELH #2 well is currently
suspended  as a  potential  producer  pending  availability  of  water  disposal
facilities.


                                      -26-

<PAGE>


The ELH #3R west flank exploration well was drilled to a total measured depth of
21,769 feet to test the Temblor  interval  in a  separate,  seismically  defined
structure from the East Lost Hills  structure.  Due to steep dips encountered in
the lower portion of the well, it was determined  that the underlying  secondary
objective,  the Point of Rocks  formation,  could not be reached in the existing
wellbore. The well was plugged back to 19,370 feet measured depth for testing of
the lower Temblor.  Multiple zones in the lower Temblor  section were perforated
and tested in the well.  Communication was established with the formation during
testing and no hydrocarbons were recovered.  The well has been suspended pending
analysis of new seismic data and additional offset well information.

The ELH #4 well commenced  drilling on November 26, 2000 and reached total depth
of 20,800 feet on August 7, 2001.  The ELH #4 well was  completed  and tested in
the Kreyenhagen  shale and Phacoides  sands. Gas and pressures began low peaking
at 1.56  MMCFPD with 16.9 BWPD and 2.3 BCPD at a flowing  tubing  pressure of 90
psi. From the peak,  rates  declined to zero and the well was dead. The well was
cleaned out of possible  plugging slugs.  Agua sands remain a promising zone for
the ELH #4 well and  remain  untested.  Significant  shows  were  observed  over
several hundred feet of the Agua sands.

The  ELH #9  well  commenced  drilling  in  early  August  2001,  at a  location
approximately  2 miles  southeast  of the ELH #4 well.  This well was drilled to
21,100  feet and was  designed to test the  continuation  of the East Lost Hills
structure in the south easterly direction.  The ELH #9 well was completed in the
Kreyenhagen  shale and Phacoides sands.  Testing  commenced with rates generally
less than 1 MMCFPD with one peak of 2.37 MMCFD. Rates continued to decline below
500  MCFPD.  The  Kreyenhagen  was  stimulated  with  acid to  attempt  improved
production.  Upon  re-testing,  rates remained well below 300 MCFGPD.  The zones
were re-perforated  with no improvement in production.  The results are negative
indicators of prolonged  economic  production  from the Kreyenhagen or Phacoides
sands. Some additional  potential remains in the upper Agua sand that remains to
be tested. Gas shows in the Agua sands are limited to a 20 foot zone.

On December 2, 2002, the Company received confirmation from the operator that it
had formally  proposed  plugging and  abandonment of the ELH #4 and #9 wells. In
light of the results and  uncertainties  of any further  activities at East Lost
Hills by the  joint  venture,  the  Company  determined  that it would no longer
provide  further funding to Hilton USA and STB Energy.  The Company's  remaining
$3.6 million net investment in the Petroleum  Subsidiaries  was  written-off and
the Company ceased to record the activities of the Petroleum Subsidiaries.

The ELH #1 well continues to produce at constrained  levels of approximately 1.5
mmcfe gas per day. The  Petroleum  Subsidiaries'  share of net revenues is being
applied  by the  operator  against  outstanding  amounts  owed by the  Petroleum
Subsidiaries.  The Company is unaware of any further  activities being conducted
on any other wells at East Lost Hills.

SAN JOAQUIN JOINT VENTURE WORK PROGRAM

With respect to the San Joaquin Joint Venture,  the operator  commenced drilling
the initial  exploratory well on the first of the three initial  prospects,  Cal
Canal,  in June 1999.  The Cal Canal well  penetrated  1,230 feet of the Temblor
formation  with 775 feet of net sand and was  drilled to a total depth of 18,100
feet.  The  well  completion  commenced  on  January  20,  2000.  Non-commercial
hydrocarbon  flow rates were obtained from the initial  perforated 10 foot zone.
The leases were ultimately terminated by the San Joaquin Joint Venture in 2002.

The participants in the San Joaquin Joint Venture, on the recommendations of the
operator, Anadarko,  determined that the Lucky Dog Prospect would not be drilled
and accordingly, the San Joaquin Joint Venture relinquished its interest in this
prospect.

Drilling of the Pyramid Hills  Prospect  commenced in December 2001. In February
2002, the Company  withdrew from  participation in the San Joaquin Joint Venture
and, accordingly, no longer has an interest in the Pyramid Hills Prospect.

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.  The prospects
have much  shallower  target  horizons and the costs to drill are  substantially
less than the East Lost Hills prospects.

                                      -27-

<PAGE>

Drilling  of  exploratory  test  wells  commenced  in  fiscal  2001 on the Mica,
Sequoia,  Parsley and the Merlot Prospects and were completed in fiscal 2002. No
hydrocarbon  bearing  sands  were  encountered  and the wells were  plugged  and
abandoned. The Company had approximately a 23% working interest in the prospects
tested.

During  fiscal  2002,  the  Company  also  participated  in the  drilling  of 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. The Company had originally held a 33.4% working
interest in the Basil Prospect.  It increased its working  interest to 48% under
the proposed side-track.

On August 19, 2002,  the operator  commenced  the sidetrack of the well from the
same  surface  location  using  the  existing  casing  down to 2,114  feet.  The
side-track  paralleled  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. An impairment charge of $1,023,371 was recorded in
fiscal 2003 for the acquisition cost and the Company's share of the costs of the
initial and side-tract wells on the Basil Project.

The Company has abandoned the prospects in the regional area of San Joaquin.

EL NAYAR PROPERTIES, MEXICO

The  El  Nayar  Properties  include  the  underground   Guanajuatillo  Mine,  La
Castellana and Los Limones Properties totalling  approximately 6,722 hectares in
the State of Nayarit,  Mexico. The Company has retained an independent geologist
to prepare a geological  technical report on the El Nayar Properties.  As of the
date of this annual report, the preparation of the technical report is ongoing.

The following  description of the El Nayar  Properties has been provided by MSJ,
the optionor.

GEOLOGY

The El Nayar Properties is in an area of extensive alteration and mineralization
related to historic mining efforts  conducted by the Spanish and, in more modern
times, by English and American mining interests.  The Guanajuatillo Mine was the
first silver and gold mine staked by the Spanish  Conquistadores  in what is now
the State of Nayarit.  This historic group of gold-silver deposits is located in
the area of  intersection  of the prolific  gold-silver  producing  belts of the
western  margin of the Sierra  Madre  Occidental  within a complex  sequence  of
pre-mineral  Lower  Volcanics  capped  by  post-mineral  Upper  Volcanics.   The
immediate  mine areas are  largely  covered  by recent  ash falls from  volcanos
located nearby in the NeoVolcanic Belt of Mexico.  The  mineralization  mined by
the Spanish  occurred  within highly  oxidized  brecciated  veins and stockworks
containing bonanza grade silver and gold mineralization.


                                      -28-

<PAGE>

The structural  preparation of the rocks in the El Nayar Properties prior to the
mineralizing  event was intense and can be linked to the fact that this historic
mining  district lies at the  intersection of two  regional-scale  deformational
trends,  one NNW, the Sierra Madre of Mexico, and the other WNW, the NeoVolcanic
Belt.

Large  portions  of the  known,  historic  silver-gold  deposits  were mined for
oxidized  ores.  Management  believes  there are  large  areas  remaining  to be
explored using modern exploration techniques to determine the extent of gold and
silver oxidized  mineralization which management believes are highly amenable to
heap leach  recovery  methods or recovery  using  standard  milling  followed by
agitation leaching in tanks.

PROPERTY DEVELOPMENT

The El Nayar  Properties are without known  reserves and the Company's  proposed
programs  will  be  exploratory  in  nature.  The  Company  plans  to  begin  an
exploration  and  development  program to expand the work of recent  exploration
programs  conducted by other companies.  Subject to the results of the Company's
initial  exploration  work,  it is  anticipated  that  mine  development  can be
initiated on a fast-track  basis given the  historical  grades mined and the ore
grades reported and processed in more recent times.

All work will be conducted  under the close  supervision of a qualified  person,
and  all  assays  will be  performed  by  laboratories  certified  to do  sample
preparation  and analyses with check blind check samples  submitted on a routine
basis.  All ore reserve  estimates  will be checked by a reputable,  independent
third party.  All further mine  development,  working capital and mine equipment
cost estimates will also have independent third party verification. At this time
it is not known if any of the mineralization  found in the old stopes and at the
surface is amenable to modern heap leaching techniques.  Part of the early-stage
testing  will  be  checking   highly   oxidized,   ore  grade  silver  and  gold
mineralization  to see if it can be processed using run-of mine ("ROM") leaching
of ore.  Under  ROM  leaching,  ore is mined  and  transported  to the leach pad
without being crushed.

Historical  production went from bonanza grade oxidized material to rich sulfide
ores  processed in a mill in the region.  The Company's  objective is to restart
the mill after sufficient  information regarding ore grades remaining in situ or
as back fills in the old mines is gathered and analyzed.

PRINCIPAL OFFICES

The Company's corporate and principal business office is located at Suite #1305,
1090 West  Georgia  Street,  Vancouver,  British  Columbia,  Canada.  The office
facility is provided on a month-to-month basis by Chase as part of its agreement
with the Company. See "Item 7. Major Shareholders and Related Party Transactions
- Related Party Transactions."


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


The  following  discussion  of the results of  operations of the Company for the
fiscal  years ended May 31,  2003,  2002 and 2001 should be read in  conjunction
with the  consolidated  financial  statements  of the Company and related  notes
included therein.

The Company's  consolidated 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 periods  presented  with US GAAP except for the
differences  referred to in Note 12 of the consolidated  financial statements of
the  Company  included  herein.  The noon rate of  exchange on December 1, 2003,
reported  by the  United  States  Federal  Reserve  Bank  of New  York,  for the
conversion  of Canadian  dollars  into  United  States  dollars  was  CDN$1.2973
(US$0.7708 = CDN$1.00).  The effects of inflation and price changes have not had
a material impact on the Company's  income or net sales revenues during the past
three years.

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



                                      -29-

<PAGE>

OVERVIEW

Since  inception the Company was primarily  engaged in the business of exploring
for and  developing oil and gas  prospects.  Over the past number of years,  the
Company's  financial and managerial  focus had been directed towards the funding
and  participation in the drilling of exploratory  wells on the East Lost Hills,
Greater San Joaquin and Regional California Joint Ventures.  The outcomes of the
projects have been very disappointing.  Effective November 30, 2003, the Company
determined that it could no longer fund its U.S. subsidiary companies which held
these  interests.  Accordingly,  the Company's  remaining net  investment in the
subsidiary  companies  were  written  off and the  Company  ceased to record the
activities of the  subsidiary  companies.  As of the date of this annual report,
the Company no longer has any petroleum interests.

In fiscal 2002, in an effort to generate operating cash flow, the Company funded
the  development  of  proprietary  software  programs which would use artificial
intelligence.   The  development  of  these  programs  were  contracted  out  to
arm's-length parties. Although a number of programs were developed and marketed,
no  revenues  materialized.  With the lack of  operating  cash  flow  from  this
segment,  combined with the Company's lack of financial resources, it has ceased
to operate this business. No further expenditures are anticipated.

During  the  course  of fiscal  2003,  the  Company  reviewed  its  alternatives
available  to it. It has  determined  that it needed  to  restructure  its share
capital in order to attract  additional  equity  financing.  It has completed an
initial step whereby it consolidated  its share capital on a one new for ten old
basis.  The Company is also  proposing to make an offer to settle  approximately
CDN$1.8  million of  debentures  through the  issuance of common  shares.  These
debentures mature on January 24, 2004.

In October  2003,  the Company also  finalized an option  agreement,  subject to
final TSXV  approval,  whereby it could earn an initial  60%  interest in the El
Nayar Properties in Mexico. Upon TSXV approval, the Company will become a junior
mineral exploration company.

RESULTS OF OPERATIONS

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

During fiscal 2003,  the Company  recorded a loss  $6,454,088  ($1.43 per share)
compared to a loss of  $27,984,522  ($7.69 per share) for the 2002 fiscal  year.
The primary  factor for the  results in fiscal 2003 and 2002 was the  impairment
charges  recorded on the Company's  petroleum and natural gas interests.  During
fiscal 2002,  the Company  recorded a charge of  $26,110,753  for  depreciation,
depletion and impairment,  which primarily reflected a significant  reduction in
the Company's  economic  reserves  resulting from a combination of a significant
decrease in estimated  proven  reserves due to the problems  encountered at East
Lost Hills,  significant drop in oil and gas prices,  the impairment charge as a
result of the  Company's  withdrawal  from the Greater San Joaquin Joint Venture
and  unsuccessful   drilling  results  in  exploration   prospects  in  Regional
California.  The $4,550,704 charge for fiscal 2003 for  depreciation,  depletion
and  impairment was made for the  unsuccessful  side-track at the Basil Prospect
and the write-off of the Company's remaining net investment in its petroleum and
natural gas operations.

Petroleum and natural gas revenues,  and production costs during fiscal 2003 are
not  comparable to fiscal 2002, as production  for fiscal 2003 was  attributable
only to the  constrained  production at the ELH #1 well.  In addition,  with the
abandonment  of its  Petroleum  Subsidiaries  at the end of November  2002,  the
Company ceased to record its petroleum activities.

General and administrative  costs decreased by $277,963,  approximately 34% from
$816,455 in fiscal 2002 to $538,492 in fiscal 2003.  The decrease in general and
administrative  costs in the 2003  fiscal  year  occurred  primarily  due to the
reduced  operations  as a result of the  Company's  termination  of its  current
petroleum  and natural  gas  operations,  reduced  financial  resources  and the
closure of the Bakersfield  office. All discretionary costs are being reduced or
eliminated where possible.

During fiscal 2003, the Company identified a number of business opportunities in
the  development  of  certain  proprietary   software   technologies   employing
"artificial  intelligence".  The research  and  development  of the  proprietary
software

                                      -30-

<PAGE>

programs  were  contracted  out to  arm's-length  parties.  During  fiscal 2003,
$238,938 was  expended in relation to this  business.  To date,  the Company has
been  unable  to  generate  any  revenues  from  these  activities.  No  further
expenditures are anticipated to be incurred in this business activity.

Interest  expense on long-term  debt  decreased by  $279,126,  from  $694,244 in
fiscal 2002 to $415,118 in fiscal 2003,  reflecting the retirement of $2,847,827
of debentures  through the issuance of common shares.  The interest  expense for
fiscal 2003 includes  $161,710 of bonus interest which was paid to the Company's
debenture  holders who  converted  their  debentures  into common  shares of the
Company.

Since June 2002, the Company had been  investigating  possible  acquisitions  of
mineral  properties in China and Mongolia.  The vendors were ultimately not able
to provide  satisfactory  evidence  of title and,  in fiscal  2003,  the Company
wrote-off   $159,708  of  due   diligence   costs   incurred  on  the   property
investigations.

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

During the year ended May 31, 2002,  the Company  recorded a loss of $27,984,522
($7.69 per share)  compared  to a loss of  $1,518,858  ($0.48 per share) for the
comparable 2001 period.

A  number  of   significant   transactions   have  occurred   which  affect  the
comparability of the Company's performance to prior periods. Over the past three
years the Company's  focus has been on the  exploration  and  development of its
East Lost Hills San Joaquin  Joint  Venture  Prospects.  Due to this focus,  the
Company,  on March 8,  2001,  completed  the  sale of  substantially  all of its
non-California petroleum and natural gas interests (the "Enserch Properties") to
Exco  Resources  Inc.  ("Exco").  Throughout  fiscal 2000, and until the sale in
March  2001,  the  Enserch  Properties  represented  substantially  all  of  the
Company's producing properties.  Production commenced from the ELH#1 on February
6, 2001.  Production from the ELH #1 well, during fiscal 2002, was significantly
curtailed as a result of water disposal problems.  As a result of the production
curtailment  in ELH #1 and the sale of the  Enserch  Properties,  petroleum  and
natural gas revenues  decreased by 96%, from $5,228,674  during 2001 to $230,624
in 2002.  Revenue from oil and liquids  production  decreased  97% to $57,609 in
2002 from  $1,774,758 in 2001.  Production of oil and liquids in 2002  decreased
95% to 17,423 MCFE in 2002 from 383,537 MCFE in 2001. The average price received
for oil and liquids in 2002 was  $3.31/MCFE  compared to  $4.63/MCFE  in 2001, a
decrease of 29%.  Revenue from natural gas production  decreased 97% to $173,015
in 2002 from $5,638,478 in 2001. Natural gas production  decreased 94% to 54,931
MCF in 2002 from  925,635 MCF in 2001.  The average  price  received in 2002 was
$3.15/MCF,  a decrease of 48% from  $6.09/MCF in 2001. A significant  portion of
the  Company's  fiscal  2001 oil and natural gas  production  was hedged.  These
hedges reduced revenues for the year ended May 31, 2001 by $2,180,341.

On an MCFE basis,  production  costs  increased 60%, from  $1.45/MCFE in 2001 to
$2.32/MCFE in 2002.  The  depreciation  and depletion  rate  increased 51%, from
$1.11/MCFE  in 2001 to  $1.68/MCFE  in  2002,  due to  unsuccessful  exploration
results in Regional  California and the abandonment of the Company's interest in
the San Joaquin Joint Venture.  In addition,  the Company recorded an impairment
of $25,907,079  in 2002 as a result of the ceiling test performed  effective May
31,  2002.  The  impairment  charge in 2002  reflects  a number  of  significant
developments  which  occurred.  Production at the ELH #1 well was  significantly
curtailed  during  2002 as a  result  of the  lack of  adequate  water  disposal
facilities.  In addition,  there was an inability to demonstrate what production
could be,  if a water  disposal  facility  was put in  place.  As a result,  the
estimated proven reserves at ELH #1 were  significantly  downgraded based on the
production  levels at the time.  Estimated  proved reserves for ELH #1 (assuming
success with water disposal  facility),  discounted at 10%, was $18.1 million at
May 31, 2001, compared to $175,000 (based on then current production) at May 31,
2002.  During 2002, the Company  withdrew from  participation in the Greater San
Joaquin Joint Venture.  The Company had recorded a total of $3,893,186  relating
to its costs for the  Greater  San  Joaquin  Joint  Venture.  The  Company  also
participated  in the drilling of  exploratory  wells on four  prospects  namely,
Mica, Sequoia,  Paisley and Merlot.  Drilling was completed in 2002. These wells
were plugged and abandoned.  Costs totaling $1,564,927 were incurred relating to
these prospects. The ceiling test is a cost recovery test and is not intended to
result in an estimate of fair market value.

General and administrative  costs decreased by $475,976,  approximately 37% from
$1,292,431   in  2001  to  $816,455  in  2002.   The  decrease  in  general  and
administrative  costs in 2002  occurred  primarily  due to reduction of expenses
resulting  from the  closure of the Tulsa  office  after the sale of the Enserch
Properties to Exco Resources Inc. subsequent

                                      -31-

<PAGE>

to February 28, 2001,  reduced  office  personnel at the  Bakersfield  office in
2002,  and a  general  decrease  of  activities  due  to the  Company's  reduced
financial resources..

During fiscal 2002, the Company identified a number of business opportunities in
the  development  of  certain  proprietary   software   technologies   employing
"artificial  intelligence".  The  research,  development  and  marketing  of the
proprietary  software  programs were contracted out to arm's-length  parties.  A
total of $505,827 was expended in 2002  relating to this  business.  The Company
determined that, as at May 31, 2002, these activities did not satisfy all of the
criteria required under Canadian  generally accepted  accounting  principles for
deferment and charged the costs to operations.

During fiscal 2002, the Company recorded a $575,000 write-down of its investment
in Trimark  Energy Ltd.  ("Trimark") in recognition of a decline in the value of
the Trimark shares.  A further  $125,000  write-down was made in fiscal 2002 for
other investments. In fiscal 2001, the Company recorded an initial write-down of
$956,253 relating to its investment in Trimark.

Interest expense on long-term debt decreased by $786,047, approximately 53% from
$1,480,291 in fiscal 2001 to $694,244 in fiscal 2002, reflecting the decrease in
long-term  debt during fiscal 2001 on the  retirement of the balance of the Bank
One credit facility.

During  fiscal 2002,  the Company  recorded  $2,177,765 in  expenditures  on its
petroleum  interests  compared to  $8,332,486  in 2001.  Additions  recorded for
fiscal 2002  comprised of $1,399,385 on the East Lost Hills Project and $778,380
for the exploration of the Regional California Prospects.  Overall, the level of
capital  expenditures  in  fiscal  2002  decreased  as a  result  of the lack of
progress at East Lost Hills and the resulting  negative  impact on the Company's
ability to raise  financing  to  continue  funding of its share of costs.  As at
result,  in May  2002,  the  Company  concluded  an  agreement  on  the  ongoing
evaluation  of the ELH #4 and #9 wells,  whereby the funding  participants  have
assumed all of the unpaid  amounts and future costs in completing  evaluation of
these  wells.  Unpaid  billings  for the ELH #4 and #9  wells at the time of the
agreement  totalled  $4,868,716,  of  which  $713,674  was  billed  and had been
recorded as accounts  payable at May 31, 2001.  During fiscal 2002,  the Company
reversed the $713,674,  with an  offsetting  credit to petroleum and natural gas
interests.

LIQUIDITY AND CAPITAL RESOURCES

As at May 31, 2003, the Company had a working capital  deficiency of $1,097,521,
which  included  $1,248,093 of debentures  which become due in January 2004. See
"Item 6.  Directors,  Senior  Management and Employees - Share Ownership - Other
Convertible  Securities  -  Debentures."  The Company  has sought the  debenture
holders' consents to settlement of all their outstanding debt via common shares.
A formal proposal has not been made but the Company has been conducting  ongoing
correspondence  with  the  debenture  holders.  The  Company  is  currently  not
generating cash flow from its operations to meet ongoing corporate  overhead and
to discharge its liabilities as they come due. In addition,  on October 1, 2003,
the Company  entered  into an agreement  to acquire the El Nayar  Properties  in
Mexico. See "Item 4. Information on the Company - Business Overview - Properties
- El Nayar Properties,  Mexico." The exploration of the concessions will require
significant  funds.  On  November  25,  2003,  the  Company  completed a private
placement financing of 4,030,000 units, at CDN $0.10 per unit, for CDN $403,000.
The Company has also announced  that it has arranged,  subject to TSXV approval,
to conduct a private placement financing of up to 750,000 units at CDN $0.20 per
unit, to raise up to CDN $150,000.  These funds will be used for working capital
purposes and due diligence costs to be incurred on the El Nayar Project.  If the
Company decides to proceed with exploration on the proposed El Nayar Properties,
the Company,  most likely,  will need to issue additional  shares to finance its
proposed activities;  however,  there are no assurances that any such financings
will be approved or completed.

The Company holds its cash and cash equivalents  primarily in Canadian currency.
The Company  will also hold a portion of its funds in U.S.  currency as required
to fund its exploration programs.



                                      -32-

<PAGE>


RESEARCH AND DEVELOPMENT

During  fiscal 2001,  2002 and 2003,  the Company  incurred  $8.3 million , $2.2
million  and  $430,000  respectively,   on  the  acquisition,   exploration  and
development of its petroleum interests. During fiscal 2002 and 2003, the Company
also incurred $506,000 and $239,000,  respectively, on research, development and
marketing costs related to the development of its software programs.


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(1)          Interim President                   July/03 to present
                        Chief Executive Officer             July/03 to present
                        Director                            Oct/89 to present

WILLIAM LEE(1)          Director                            Sept/95 to present

ANDREW CARTER(1)        Director                            July/03 to present

HARVEY LIM              Corporate Secretary                 Jun/97 to present

(1)   Member of the Audit Committee.

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 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 (AGE 49), DIRECTOR, INTERIM PRESIDENT AND CHIEF EXECUTIVE OFFICER

Mr.  DeMare 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  Management  Ltd., 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  - Related Party  Transactions  -
Conflicts of Interest."

WILLIAM LEE (AGE 50), DIRECTOR

Mr. Lee 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.  He has been a financial officer or controller
of several public and private  companies since 1986 and, prior,  thereto,  was a
Senior Audit  Manager at Deloitte & Touche.  Prior to March,  1995,  Mr. Lee was
employed as the Chief Financial Officer of Sanctuary Woods Multimedia Corp. From
March 1995 to June 1996, Mr. Lee was employed as the Chief Financial  Officer of
Wildwood Interactive

                                      -33-

<PAGE>


Inc. Since June, 1996, Mr. Lee has been employed as the Chief Financial  Officer
of IMA Exploration  Inc., a public company engaged in the exploration of mineral
properties.  Mr. Lee currently serves as an officer and director of other public
reporting  companies.   See  "Item  7.  Major  Shareholders  and  Related  Party
Transactions - Related Party Transactions - Conflicts of Interest."

ANDREW CARTER (AGE 56), DIRECTOR

Mr. Carter  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  - Related Party  Transactions  -
Conflicts of Interest".

HARVEY LIM (AGE 45), CORPORATE SECRETARY

Mr. Lim 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  - Related Party  Transactions  -
Conflicts of Interest."

COMPENSATION

During the fiscal year ended May 31, 2003, the current and former  directors and
officers of the Company, as a group, had received or charged the Company a total
of $210,661 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,   which
information has been disclosed to the Company's  shareholders in accordance with
applicable Canadian law.

"Named  Executive  Officers"  means the Chief  Executive  Officer ("CEO") of the
Company, regardless of the amount of compensation of that individual and each of
the Company's four most highly compensated  executive  officers,  other than the
CEO, who were serving as executive officers at the end of the most recent fiscal
year and whose  total  salary and bonus  amounted  to  CDN$100,000  or more.  In
addition, disclosure is also required for any individuals whose total salary and
bonus during the most recent fiscal year was CDN$100,000 whether or not they are
an executive officer at the end of the fiscal year.

EXECUTIVE COMPENSATION

During the fiscal year ended May 31, 2002,  the Company had one Named  Executive
Officer,  Donald W. Busby,  the Company's  former  Chairman and Chief  Executive
Officer.  Mr. Busby resigned as a director and the Chairman and Chief  Executive
Officer on July 4, 2003.  The table  below  sets forth the  compensation  of the
Named Executive Officer:


                                      -34-

<PAGE>

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>
Donald W. Busby,       2003       Nil          Nil        Nil             Nil             Nil          Nil        122,049 (1)
former Chairman        2002       Nil          Nil        Nil           40,000            Nil          Nil         99,438
and Chief              2001       Nil          Nil        Nil           35,000            Nil          Nil        103,342
Executive Officer

</TABLE>

(1)  $120,000 paid to Boone Petroleum Inc. ("Boone"), a private company owned by
     Mr. Busby for consulting services and $2,049 for health premiums paid.

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 shares but does not include option or stock appreciation  rights plans
or plans for compensation  through  restricted shares or units". The Company has
not granted any LTIP's to the Named  Executive  Officer or the directors  during
the fiscal year ended May 31, 2003.

STOCK APPRECIATION RIGHTS

Stock appreciation rights ("SAR's") means a right, granted by the Company 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  shares.  No SAR's were granted to or exercised by the Named Executive
Officer or the directors during the past fiscal year ended May 31, 2003.

OPTION GRANTS IN LAST FISCAL YEAR

The Company did not grant options to the Named Executive Officer during the past
fiscal year ended May 31, 2003.

OPTIONS EXERCISED IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

The following  table sets forth  details of all exercises of options  during the
past fiscal year ended May 31, 2003 and the value of  unexercised  options on an
aggregated basis as at 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
---------------    -----------    ---------    -------------      -------------
Donald W. Busby        Nil           N/A        75,000/Nil           Nil/Nil

NOTES:

(1)  Number of common shares acquired on the exercise of 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.


                                      -35-

<PAGE>


(3)  As  freestanding  SARs have not been  granted,  the number of common shares
     relate solely to the options.
(4)  Value using the closing  price of the common  shares on the TSXV on May 31,
     2003 of CDN$0.14 per share, less the exercise price of the options.

PENSION PLANS

The Company  does not provide  retirement  benefits  for its  directors or Named
Executive Officer.

TERMINATION OF EMPLOYMENT, CHANGE IN RESPONSIBILITIES AND EMPLOYMENT CONTRACTS

During  the  fiscal  year  ended May 31,  2003,  Mr.  Donald W.  Busby  received
consulting  fees from the Company of $120,000 paid directly to Boone,  a private
company  which is  wholly-owned  by Mr.  Busby.  Boone  provided  marketing  and
financial  management services to the Company. The Company also paid Mr. Busby's
health insurance premiums of $2,049. Mr. Busby ceased to receive consulting fees
from the Company upon his resignation on July 4, 2003.

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

TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL

Other than as described in the Summary Compensation Table and above, the Company
has no plans or arrangements in respect of remuneration  received or that may be
received by the Named Executive Officer in the Company's most recently completed
financial year or current  financial year in view 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.

PROPOSED COMPENSATION

The Company has no bonus,  profit  sharing or similar plans in place pursuant to
which cash or non-cash compensation is proposed to be paid or distributed to the
Named Executive Officer in the current or subsequent fiscal year.

COMPENSATION OF DIRECTORS

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

The following  table sets forth  details of all exercises of options  during the
past  fiscal  year  ended May 31,  2003 by the  directors  who are not the Named
Executive  Officers and the value of unexercised  options on an aggregated basis
as at 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
---------------    -----------    ---------    -------------      -------------
Nick DeMare            Nil           N/A        31,400/Nil           Nil/Nil
William Lee            Nil           N/A        11,500/Nil           Nil/Nil


NOTES:

(1)  Number of common shares acquired on the exercise of options.
(2)  Calculated using the difference between the closing price on theTSXV on the
     date of exercise and the exercise price of the options.


                                      -36-

<PAGE>


(3)  As  freestanding  SARs have not been  granted,  the number of common shares
     relate solely to the options.
(4)  Value using the closing  price of common shares on the TSXV on May 31, 2003
     of CDN$0.14 per share, less the exercise prices of the options.

During the fiscal year ended May 31, 2003,  Chase,  a private  company  which is
indirectly wholly-owned by Mr. Nick DeMare, was paid CDN$113,475. Chase provides
management,  administrative and accounting services to the Company.  The Company
also paid CDN$6,500 to DNG Capital Corp. ("DNG"), a private company owned by Mr.
DeMare, for professional  services provided.  The Company also paid CDN$4,500 to
Mr. William Lee for directors' fees.

EMPLOYMENT AGREEMENTS

The  Company  has an  arrangement  with Chase,  a company  owned by Mr.  DeMare,
whereby  the  Company  pays  Chase  CDN  $3,000  per  month,   for   accounting,
administrative, professional and management services provided to the Company. In
addition,  the Company may engage Chase to perform extra  services in which case
Chase will charge the Company for its employees at competitive rates. Commencing
July,  2003,  the Company is also paying Mr.  DeMare CDN $3,000 per month in his
capacity as interim President of the Company.

BOARD PRACTICES

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 Mr. DeMare, Mr. Carter and Mr. Lee.

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.

REMUNERATION COMMITTEE

The Company does not have a separate Remuneration Committee.

EMPLOYEES

As of May 31,  2003,  the  Company  had no  full-time  employees  in the area of
management  and  administration.  As at May 31,  2002,  there were no  full-time
employees in the area of  management  and  administration  compared with 3 full-
time employees as at May 31, 2001.  Exploration  activities will be conducted by
consultants,  laborers and technicians hired for the duration of the exploration
program. Mr. DeMare provides his time as required by the Company's activities.

SHARE OWNERSHIP

The following table sets forth certain  information  regarding  ownership of the
Company's shares by the Company's officers and directors as of December 1, 2003.

                                               Shares and
                                                 Rights
                                              Beneficially
Title                                           Owned or            Percent
of Class        Name and Address of Owner     Controlled (1)      of Class (1)
------------    -------------------------     --------------      ------------

Common Stock    Nick DeMare                    298,212(2)(3)          3.08 %
                Burnaby, British Columbia

Common Stock    William Lee                      1,500                0.02 %
                Delta, British Columbia


                                      -37-

<PAGE>

                                               Shares and
                                                 Rights
                                              Beneficially
Title                                           Owned or            Percent
of Class        Name and Address of Owner     Controlled (1)      of Class (1)
------------    -------------------------     --------------      ------------

Common Stock    Andrew Carter                       Nil                N/A
                North Vancouver,
                British Columbia

Common Stock    Harvey Lim                          Nil                N/A
                Burnaby, British Columbia

(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 through the conversion of debentures,  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  9,558,981  shares of common stock  outstanding  as of December 1,
     2003.
(2)  Includes 48,312 common shares held by DNG Capital Corp.  ("DNG"), a private
     company  wholly-owned  by Mr. DeMare and 114,500 shares held by 888 Capital
     Corp. ("888")a private company 50% owned by Mr. DeMare.
(3)  Includes  warrants held directly to acquire 29,150 common shares,  warrants
     held by DNG to acquire an  additional  100,000  common  shares and warrants
     held by 888 to acquire 6,250 common shares.

STOCK OPTIONS

The Company has a rolling stock option plan (the "Plan"), which makes a total of
10% of the issued and outstanding  shares of the Company  available for issuance
thereunder.  In accordance with the policies of the TSXV, a rolling plan,  which
is the type of plan the  Company  has  adopted,  requires  the  approval  of the
shareholders  of  the  Company  on an  annual  basis.  The  Company's  Plan  was
re-approved  by the  shareholders  at the last annual  general  meeting  held in
November 2003.

The purpose of the Plan is to provide the Company with a share related mechanism
to enable the  Company to  attract,  retain and  motivate  qualified  directors,
officers, employees and other service providers, to reward directors,  officers,
employees and other service  providers  for their  contribution  toward the long
term  goals of the  Company  and to enable and  encourage  such  individuals  to
acquire shares of the Company as long term investments.

The Plan  provides  that it is  solely  within  the  discretion  of the Board to
determine who should receive options and in what amounts. The Board of Directors
of the Company (the  "Board") may issue a majority of the options to insiders of
the Company.  However,  the Plan  provides  that in no case will the Plan or any
existing share  compensation  arrangement of the Company result, at any time, in
the  issuance to any option  holder,  within a one year  period,  of a number of
shares exceeding 5% of the Company's issued and outstanding share capital.

The following  information is intended to be a brief description of the Plan and
is  qualified  in its  entirety by the full text of the Plan which is  available
from the Company and is filed as an exhibit to this report:

1.   The maximum  number of common  shares  that may be issued upon  exercise of
     stock options granted under the Plan will be that number of Shares which is
     10% of the issued and outstanding shares of the Company. The exercise price
     of the stock  options,  as determined by the Board in its sole  discretion,
     shall not be less than the closing  price of the  Company's  shares  traded
     through the  facilities of the TSXV on the date prior to the date of grant,
     less allowable  discounts,  in accordance with the policies of the TSXV or,
     if the shares are no longer listed for trading on the TSXV, then such other
     exchange or quotation  system on which the shares are listed and quoted for
     trading.

2.   The  Board  will not grant  options  to any one  person  which  will,  when
     exercised, exceed 5% of the issued and outstanding shares of the Company.

3.   Upon  expiry  of the  option,  or in  the  event  an  option  is  otherwise
     terminated  for any reason,  without  having been  exercised  in full,  the
     number of shares in respect of the expired or terminated option shall again
     be available  for the purposes of the Plan.  All options  granted under the
     Plan may not have an expiry date exceeding ten years,

                                      -38-

<PAGE>



     as long as the Company is classified as a Tier I company, or five years, as
     long as the Company is  classified  as a Tier II company,  from the date on
     which the Board grant and announce the granting of the option.

4.   If the option holder ceases to be a director of the Company or ceases to be
     employed  by the Company  (other than by reason of death),  as the case may
     be, then the option  granted must expire within 30 days  following the date
     that the option  holder ceases to be a director or ceases to be employed by
     the Company, subject to the terms and conditions set out in the Plan.

The Plan may be  administered  by the  Company's  secretary or such other senior
officer or employee as may be  designated  by the Board from time to time.  Upon
the approval of the Plan by the  Company's  shareholders,  shareholder  approval
will not be  required or sought on a  case-by-case  basis for the purpose of the
granting of options to and the  exercise of options by  employees of the Company
regularly  employed on a full-time or part-time basis,  directors of the Company
and persons who perform services for the Company on an ongoing basis or who have
provided, or are expected to provide, services of value to the Company.

As of December 1, 2003, the Company had no incentive  stock options  outstanding
to purchase shares of the Company's common stock.

WARRANTS

As of  December  1, 2003,  there were  non-transferable  common  share  purchase
warrants  exercisable for the purchase of 4,470,025 common shares,  which expire
at various times until  November 25, 2005 and may be exercised at various prices
ranging from CDN $0.14 per share to CDN $18.88 per share, as follows:

COMMON SHARES ISSUABLE        EXERCISE PRICE/SHARE
ON EXERCISE OF WARRANTS               CDN$                       EXPIRY

      226,000                        13.50                    December 18,2003
        3,500                        14.80                    December 7, 2003
       26,875                        13.50                    January 24, 2004
       83,650                        18.80                    July 6, 2004
    4,130,000                         0.14                    November 25, 2005
    ---------
    4,470,025
    =========

As of December 1, 2003, the directors and officers of the Company, as a group (4
persons),  held  warrants to purchase  135,400  shares of the  Company's  common
stock.

OTHER CONVERTIBLE SECURITIES

DEBENTURES

In fiscal 2001, the Company issued $2,163,000 Series A and CDN $1,500,000 Series
B debentures (the "10%  Debentures").  An aggregate of $300,000 principal amount
of Series A were  issued to the  Donald W.  Busby  1999  Irrevocable  Trust (the
"Busby  Trust") which Mr. Donald W. Busby,  a former officer and director of the
Company,  is the settlor,  an aggregate of $450,000 principal amount of Series A
were issued to Boone Petroleum Inc. ("Boone"), a private company wholly-owned by
Mr. Busby and an aggregate of $263,000  principal amount of Series A were issued
to DNG, a private  company owned by Mr. Nick DeMare,  a director of the Company.
The 10% Debentures bear interest at 10% per annum, payable quarterly, and mature
on January 24, 2004. The 10% Debentures  are  convertible,  at the option of the
holders,  into common  shares of the Company at CDN$15.60 per share on or before
January 24, 2004.

During  the year  ended  May 31,  2002,  the  Company  amended  the terms of its
debentures, such that, for a limited period, the debenture holders would be able
to convert  their  debentures  into  common  shares of the Company at a price of
CDN$5.00 per share (the "Conversion Price"). In addition,  in order to encourage
the debenture  holders to convert the  debentures  when the common shares of the
Company were trading at a price  significantly  below the Conversion  Price, the
Company paid, as a bonus,  interest on the  converted  debentures  from the last
interest payment date through

                                      -39-

<PAGE>

December 31, 2002.  Holders of $1,569,251  Series A and CDN$900,000  Series B of
the 10%  Debentures  elected to convert their  debentures and the Company issued
876,150 common shares and paid $161,750 interest.

As of December 1, 2003,  $870,000  principal  amount of Series A and CDN$600,000
principal  amount of Series B remain  outstanding,  of which $100,000  principal
amount of Series A is held by Boone.


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


PRINCIPAL HOLDERS OF VOTING SECURITIES

The following table sets forth certain  information  regarding  ownership of the
Company's shares by the Company's  officers and directors as a group, as well as
all persons who own greater than five percent (5%) of the Company's  outstanding
shares, as of December 31, 2003.


                                                  Shares and
                                                    Rights
                                                 Beneficially
Title                                              Owned or           Percent
of Class        Name and Address of Owner        Controlled (1)     of Class (1)
------------    -------------------------        --------------     ------------

Common Stock    Bristol Investment Fund, Ltd.     1,253,250(2)         12.30%
                Grand Cayman, Cayman, Islands

Common Stock    The MacLachlan Investments          980,000(3)          9.75%
                Corporation
                Vancouver, British Columbia

Common Stock    Officers & Directors,               299,712(6)(7)       3.09%
                as a group (4 persons)

(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 through the conversion of debentures,  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  9,558,981  shares of common stock  outstanding  as of December 1,
     2003.
(2)  Includes  warrants  held by Bristol  Investment  Fund,  Ltd.  to acquire an
     additional 626,625 common shares.
(3)  Includes warrants held by the Maclachlan Investments Corporation to acquire
     an additional 490,000 common shares.

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

CHANGES IN SHAREHOLDINGS

Since October 31, 2002,  Mr. Donald  Busby's  beneficial  ownership has declined
from 18.3% of the Company's issued and outstanding shares to less than 5% of the
Company's  issued and  outstanding  shares at December 31, 2003. The decrease in
Mr.  Busby's  beneficial  ownership  is  attributable  to sales of shares by Mr.
Busby,  dilution due to shares  issued by the  Company,  and the  expiration  of
options held by Mr. Busby.

On November 25, 2003, Bristol Investment Fund, Ltd. ("Bristol") acquired 626,625
Units at a price of CDN $0.10 per Unit.  Each Unit consisted of one share of the
Company's  Company's  common  stock and one warrant to purchase  one  additional
share of the Company's  common stock.  Each warrant is  exercisable  at any time
until November 25, 2005 at a price of CDN $0.14.  As a result of the acquisition
of the Units,  Bristol became the beneficial owner of 1,253,250 shares (12.3% as
of December 1, 2003) of the Company's common stock,  based upon its ownership of
626,625  common  shares and  warrants to acquire an  additional  626,625  common
shares.

On November 25, 2003, MacLachlan Investments Corporation ("MacLachlan") acquired
490,000 Units at a price of CDN $0.10 per Unit. Each Unit consisted of one share
of the  Company's  Company's  common  stock  and one  warrant  to  purchase  one
additional share of the Company's  common stock.  Each warrant is exercisable at
any time until

                                      -40-

<PAGE>

November 25, 2005 at a price of CDN $0.14. As a result of the acquisition of the
Units,  MacLachlan  became the  beneficial  owner of 980,000 shares (9.75% as of
December 1, 2003) of the  Company's  common  stock,  based upon its ownership of
490,000  common  shares and  warrants to acquire an  additional  490,000  common
shares.

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 December 1, 2003, there were  approximately 769 registered  holders of the
Company's common shares in the United States,  with combined holdings of 652,273
shares, representing 6.82% of the issued shares of the Company.

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

Other than as  disclosed  below,  for the year ended May 31, 2003 and the period
from June 1, 2003 to  December 1, 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.   The Company had retained  Boone, a private  company  wholly-owned by Donald
     Busby, the former Chairman,  Chief Executive  Officer and a former director
     of the Company, to provide marketing,  consulting and management  services.
     See "Item 6. Directors, Senior Management and Employees - Compensation." In
     consideration  therefor,  Boone  was  paid  a  monthly  fee of  $7,000  and
     out-of-pocket  disbursements  incurred  by Boone on behalf of the  Company.
     Management  believes  the  arrangement  with Boone was fair to the Company.
     During the year  ended May 31,  2003,  the  Company  paid  Boone  $120,000,
     comprising of $84,000 for services provided pursuant to the arrangement and
     $36,000 for reimbursement of expenses.  During the period from June 1, 2003
     to December 1, 2003,  the Company paid Boone $7,000 for the services of Mr.
     Busby  until his  resignation  as  Chairman,  Chief  Financial  Officer and
     director of the Company on July 4, 2003.

2.   The Company has retained Chase, a company  wholly-owned by Mr. Nick DeMare,
     the interim  President  and Chief  Executive  Officer and a director of the
     Company,  to  provide  office  premises,  administrative,   accounting  and
     management services.  In consideration  therefor,  Chase was paid a monthly
     fee of CDN$8,000 until April 30, 2003 and CDN $3,000  afterwards.  Chase is
     also reimbursed for out-of-pocket  disbursements  incurred on behalf of the
     Company.  In addition,  Chase also provides the Company additional services
     which are billed at rates which Chase charges to unrelated  third  parties.
     Management  believes the arrangement  with Chase is fair to the Company and
     similar to terms which  could be obtained  from  unrelated  third  parties.
     During  the year  ended May 31,  2003 and the  period  from June 1, 2003 to
     December 1, 2003,  the Company  paid Chase CDN  $113,475  and CDN  $18,835,
     respectively.

3.   Commencing July 4, 2003, the Company paid Chase a monthly fee of CDN $3,000
     for  the  services  of Mr.  Nick  DeMare  in his  capacity  as the  interim
     President and Chief Executive Officer of the Company.  Management  believes
     the  arrangement  with  Chase  for  Mr.  DeMare's  services  is fair to the
     Company.  During  the period  from June 1, 2003 to  December  1, 2003,  the
     Company paid Chase CDN $15,000 for these services.


                                      -41-

<PAGE>


4.   During the year ended May 31,  2003,  the Company  paid DNG  Capital  Corp.
     ("DNG  Capital"),  a  company  wholly-owned  by  Mr.  DeMare,  $11,262  for
     professional  service  provided by DNG  Capital.  Management  believes  the
     payments  to DNG Capital are fair to the Company and similar to terms which
     could be obtained from unrelated  third  parties.  No payments were made to
     DNG Capital during the period from June 1, 2003 to December 1, 2003.

INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT

During the fiscal year ended May 31,  2000,  the Company  provided a  relocation
loan of  $125,000  to Mr.  Busby to assist  him in  relocating  to  Bakersfield,
California from Conifer,  Colorado.  The loan originally bore interest at 5% per
annum,  compounded monthly, and was to mature on March 27, 2002. During the year
ended May 31, 2002, the Company agreed to extend the term of the loan to January
24, 2004.  In addition,  the loan now bears  interest at 10% per annum,  payable
quarterly.  During the year ended May 31, 2002,  $25,000 of principal was repaid
to the Company.  Interest  income of $10,000 was received for the year ended May
31, 2003. As of December 1, 2003, $100,000 principal remained outstanding.

Other than as described above during the fiscal year ended May 31, 2003, none of
the  directors,  officers,  promoters or other  members of  management  or their
associates or affiliates of the Company was indebted to the Company.

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 or the United States,  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
                     California Exploration Ltd.          Director                           October 2002 - 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
                     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
                     Trimark Energy Ltd.                  Director                           January 1996 - present
                     Tinka Resources Limited              Director & Secretary               October 2003 - present
                     Tumi Resources Limited               Director                           January 2000 - present

William Lee          Aladdin Resources Corp.              Director                           January 2001 - present
                     IMA Exploration Inc.                 Director                           June 1996 to present
                     Tinka Resources Limited              Director                           October 2002 - present

</TABLE>


                                      -42-

<PAGE>


<TABLE>
<CAPTION>

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

Andrew Carter        California Exploration Ltd.          Director                           September 2003 - present
                     Tinka Resources Ltd.                 Director, President & CEO          February 2003 - present

Harvey Lim           Aladdin Resources Corp.              Director & Secretary               October 2003 - present
                     California Exploration Ltd.          Director & Secretary               September 2003 - 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                                                        PAGE

Audited Consolidated Financial Statements
for the Years Ended May 31, 2003, 2002 and 2001                             F-1

SIGNIFICANT CHANGES

On October 1, 2003,  the Company  entered  into an option  agreement  to earn an
interest in the El Nayar  Properties in Mexico.  See "Item 4. Information on the
Company. Properties - El Nayar Properties, Mexico".

In  November  2003,  the  Company  completed a private  placement  financing  of
4,030,000 units for CDN $403,000.

DIVIDEND POLICY

The Company has not paid any  dividends on its common shares and does not intend
to pay dividends on its common shares in the immediate  future.  Any decision to
pay  dividends  on its common  shares in the future will be made by the board of
directors on the Company on the basis of earnings,  financial  requirements  and
other such conditions that may exist at that time.

LEGAL PROCEEDINGS

The Company knows of no material,  active or pending legal  proceedings  against
it; nor is the Company  involved as a plaintiff  in any material  proceeding  or
pending litigation.

The Company knows of no active or pending  proceedings against anyone that might
materially adversely affect an interest of the Company.



                                      -43-

<PAGE>


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

PRICE HISTORY

The  TSXV  classifies  listed  companies  into  two  different  tiers  based  on
standards, including historical financial performance, stage of development, and
financial  resources.  Tier I is the TSXV's premier tier and is reserved for the
TSXV's most advanced issuers with the most significant financial resources. Tier
I issuers  benefit from  decreased  filing  requirements  and  improved  service
standards.  The majority of companies  listed on the TSXV are Tier II companies.
The Company is  classified  as a Tier I company and trades on the TSXV under the
symbol "HPM". On December 30, 2002, the Company reflected a consolidation of its
share  capital  on a one new for ten old  basis.  As of the date of this  annual
report,   the  Company   believes  that  it  no  longer  meets  the  maintenance
requirements  of  a  Tier  I  classification.  However,  it  has  not  yet  been
reclassified by the TSXV into a Tier II company.

The following tables set forth,  reflecting the share consolidation,  the market
price  ranges and the  aggregate  volume of trading of the common  shares of the
Company on the TSXV for the periods indicated:

                   TSX VENTURE EXCHANGE STOCK TRADING ACTIVITY

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

May 31, 2003                 1,596,791              $ 4.20               $ 0.09
May 31, 2002                 2,467,607              $17.10               $ 1.40
May 31, 2001                 5,723,110              $42.50               $10.00
May 31, 2000                 6,085,660              $56.00               $12.00
May 31, 1999                 1,966,200              $51.00               $18.00


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

November 30, 2003            1,102,994              $ 0.30               $ 0.05
August 31, 2003                233,455              $ 0.14               $ 0.05
May 31, 2003                   341,106              $ 0.17               $ 0.09
February 28, 2003              427,238              $ 0.60               $ 0.15
November 30, 2002              482,897              $ 2.10               $ 0.30
August 31, 2002                345,550              $ 4.20               $ 1.60
May 31, 2002                   441,531              $ 3.70               $ 1.40
February 28, 2002              454,854              $ 5.20               $ 2.60
November 30, 2001              863,415              $ 7.20               $ 2.50
August 31, 2001                707,808              $17.10               $ 4.30



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

November 30, 2003              353,185              $0.27                 $0.17
October 31, 2003               375,051              $0.30                 $0.10
September 30, 2003             374,758              $0.12                 $0.06
August 31, 2003                 49,084              $0.10                 $0.05
July 31, 2003                   77,929              $0.13                 $0.06
June 30, 2003                  106,442              $0.14                 $0.08

On February 7, 2001, the Company's  common shares were approved for quotation on
the  Over-the-Counter  Bulletin  Board  system  (the  "OTC-BB")  operated by the
National  Association  of  Securities  Dealers  under the  symbol  "HPMPF".  The
following tables set forth, reflecting the share consolidation, the market price
ranges and the  aggregate  volume of trading of the common shares of the Company
on the OTC-BB for the periods indicated:



                                      -44-

<PAGE>


                             OTC-BB TRADING ACTIVITY

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

May 31, 2003                   291,004               $2.90                $0.11
May 31, 2002                   842,020              $10.90                $1.00
May 31, 2001(1)                248,840              $10.90                $3.20

(1)  Period from February 7, 2001 through February 28, 2001


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

November 30, 2003              100,307               $0.15                $0.12
August 31, 2003                  3,024               $0.06                $0.05
May 31, 2003                    94,719               $0.10                $0.06
February 28, 2003               39,775               $0.35                $0.11
November 30, 2002               63,090               $1.45                $0.20
August 31, 2002                 93,420               $2.90                $1.00
May 31, 2002                   142,460               $2.30                $1.00
February 28, 2002              201,560               $3.00                $1.60
November 30, 2001              291,300               $3.80                $1.60
August 31, 2001                173,570              $10.90                $3.20


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

November 30, 2003               21,850               $0.15                $0.12
October 31, 2003                74,900               $0.21                $0.15
September 30, 2003               3,557               $0.05                $0.05
August 31, 2003                    734               $0.05                $0.05
July 31, 2003                    1,466               $0.06                $0.05
June 30, 2003                      824               $0.06                $0.06

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 the Company's 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
September 7, 1989 by  registration  of its Memorandum and Articles with the B.C.
Registrar of  Companies  (the "BC  Registrar")  under the  incorporation  number
372193.  On April 4, 1999,  the Company was  continued  to the Yukon  Territory,
Canada  by the  registration  of its  Articles  of  Continuance  with the  Yukon
Registrar of Corporations under the access number 27053 (the "Yukon Registrar").

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:


                                      -45-

<PAGE>


Paragraph 5 of the Company's Articles of Continuance,  restrict the Company from
carrying  on  the  business  of a  railway,  steamship,  air  transport,  canal,
telegraph, telephone or irrigation 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
     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.   DIRECTORS'  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, By-laws or the Yukon Act.


                                      -46-

<PAGE>


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

     A director of the Company is not be 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 9,558,981  common shares
were issued and  outstanding as of December 1, 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 and vote at
such  meetings.  The  directors of the Company do not stand for  re-election  at
staggered  intervals.  Shareholders are not entitled to cumulative voting.  Each
common  share  carries with it the right to one vote.  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 or voting 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, 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  outside of the Yukon  Territory in
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.

                                      -47-

<PAGE>


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 are material  contracts entered into by the Company during the two
years preceding the date of this annual report:

1.   10% Convertible Debentures.  See "Item 6. Directors,  Senior Management and
     Employees - Other Convertible Securities - Debentures."

2.   Heads  of  Agreement  by and  among  Hilton  Petroleum  Ltd.  and  Logistic
     Resources Ltd.,  Delta Rich Resources Ltd.,  Equity World  Resources,  Wing
     Hong Ng, Terry Wong and Anthony C.Y. Chow dated June 24, 2002.  See"Item 4.
     Information  on the Company - Business  Overview -  Properties  - China and
     Mongolia Properties."

3.   Agreement between Berkley Petroleum,  Inc., Hilton Petroleum, Inc., Trimark
     Resources Inc., STB Energy, Inc. and KOB Energy, Inc., dated June 10, 2002.
     See "Item 4.  Information  on the  Company - Business  Overview,"  "Item 4.
     Information  on the Company - Business  Overview -  Properties  - East Lost
     Hills Joint Venture and San Joaquin Joint Venture, California" and "Item 4.
     Information  on the Company - Principal  Properties - Petroleum and Natural
     Gas  Properties  - East Lost Hills  Joint  Venture  and San  Joaquin  Joint
     Venture, California."

4.   Heads of Agreement by and among Hilton  Petroleum Ltd. and Minera San Jorge
     S.A. de C.V. dated October 1, 2003.  See"Item 4. Information on the Company
     - Business Overview - Properties - El Nayar Properties, Mexico."

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."

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 material  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.

                                      -48-


<PAGE>


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 $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
     $152,000,000 or more by an American investor;

(3)  indirect  acquisitions of control of Canadian  businesses with assets of $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
     $152,000,000 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 $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

                                      -49-

<PAGE>


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 Investment  Canada 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 Revenue  Canada,
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.

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)
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 Company is listed on 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
Canada-U.S. Income Tax Convention (1980) (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, and shareholders

                                      -50-

<PAGE>

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.

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.

                                      -51-

<PAGE>

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 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.  Please note that the
application of the PFIC provisions of the Code to resource companies is somewhat
unclear.

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's  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.

                                      -52-

<PAGE>

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.
--------------------------------------------------------------------------------

Not applicable


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

Not applicable.


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.



                                      -53-

<PAGE>

                                    PART III


Item 17. Financial Statements.
--------------------------------------------------------------------------------

See pages 57 through 80.


Item 18. Financial Statements.
--------------------------------------------------------------------------------

Not applicable.


Item 19.  Exhibits.
--------------------------------------------------------------------------------

EXHIBIT
NUMBER                 DESCRIPTION                                         PAGE

 1.1     Certificate of Continuance and Certificate of
         Registration for Hilton Petroleum Ltd. (1)                         N/A

 1.2     By-Laws for Hilton Petroleum Ltd. (1)                              N/A

 2.1     8% Convertible Debenture (1)                                       N/A

 2.2     9% Hilton Convertible Debenture (1)                                N/A

 2.3     9% Stanford Convertible Debenture (1)                              N/A

 4.1     Documents Relating to the Acquisition of Interest
         in East Lost Hills Joint Venture and Greater San
         Joaquin Basin Joint Venture (1)                                    N/A

 4.2     Agreement dated September 12, 1997, between STB
         Energy Inc. and Trimark Resources, Inc. and
         Trimark Oil & Gas, Inc. (1)                                        N/A

 4.3     Documents Relating to the Acquisition of
         Mississippi Prospects (1)                                          N/A

 4.4     Operating Agreement of Hilton Petroleum Greater
         San Joaquin Basin Joint Venture LLC (1)                            N/A

 4.5     Agreement between Kern County Oil & Gas Inc.,
         STB Energy, Inc., Trimark Resources, Inc. and
         Valley Oil & Gas, L.L.C. dated January 13, 2000,
         as amended (3)                                                     N/A

 4.6     East Blossom Property Agreement (3)                                N/A

 4.7     Employment Agreement with DWB Management Ltd. (4)                  N/A

 4.8     Purchase and Sale Agreement between STB Energy, Inc.
         and EXCO Resources, Inc. dated February 21, 2001 (5)               N/A

 4.9     Agreement between Berkley Petroleum, Inc., Hilton
         Petroleum, Inc., Trimark Resources Inc., STB Energy, Inc.
         and KOB Energy, Inc., dated June 10, 2002 (7)                      N/A

 4.10    Heads of Agreement by and among Hilton Petroleum Ltd.
         and Logistic Resources Ltd., Delta Rich Resources Ltd.,
         Equity World Resources, Wing Hong Ng, Terry Wong and
         Anthony C.Y. Chow dated June 24, 2002 (7)                          N/A


                                      -54-

<PAGE>


EXHIBIT
NUMBER                 DESCRIPTION                                         PAGE

 4.11    Heads of Agreement by and among Hilton Petroleum Ltd.
         and Minera San Jorge S.A. de C.V. dated October 1, 2003             81

 4.20    10% Convertible Debentures (6)                                      N/A

 4.21    Stock Option Plan                                                   86

 8.1     List of Subsidiaries                                               108

12.1     Certification of Nick DeMare Pursuant to Rule 13a-14(a)            110

13.1     Certification of Nick DeMare Pursuant to 18 U.S.C.
         Section 1350                                                       112

(1)  Previously filed as an exhibit to the Company's  registration  statement on
     Form 20-F,  filed with the  Commission  on November 26,  1999.  File number
     000-30390.

(2)  Previously filed as an exhibit to the Company's  registration  statement on
     Form 20-F/A  Amendment No. 1, filed with the  Commission on March 30, 2000.
     File number 000-30390.

(3)  Previously filed as an exhibit to the Company's  Registration  Statement on
     Form 20-F/A  Amendment  No. 3, filed with the  Commission  on September 28,
     2000. File number 000-30390.

(4)  Previously filed as an exhibit to the Company's Annual Report on Form 20-F,
     filed with the Commission on December 9, 2000. File number 000-30390.

(5)  Previously  filed with the  Company's  Form 6-K  Report of Foreign  Private
     Issuer, filed with the Commission on April 9, 2001. File number 000-30390.

(6)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the Commission on December 10, 2001. File number 000-30390.

(7)  Previously filed as an exhibit to the Company's annual Report on Form 20-F,
     filed with the Commission on December 2, 2002. File number 000-30390.


                                      -55-

<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.


                                            HILTON PETROLEUM LTD.


Dated:   December 15, 2003                  / s / Nick DeMare
--------------------------                  -----------------------------------
                                            Nick DeMare, President and Director


                                      -56-

<PAGE>




                              HILTON PETROLEUM LTD.


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

          (Expressed in United States Dollars, unless otherwise stated)


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













                                       F-1

                                      -57-

<PAGE>


AUDITOR'S REPORT




To the Shareholders of
Hilton Petroleum Ltd.


We have audited the  consolidated  balance sheets of Hilton Petroleum Ltd. as at
May 31, 2003 and 2002 and the consolidated statements of operations, deficit and
cash  flow for the years  ended May 31,  2003,  2002 and 2001.  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  statements
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,  liabilities and shareholders'  equity as at May 31,
2003 and 2002 and results of operations  for the years ended May 31, 2003,  2002
and  2001 to the  extent  summarized  in Note 12 to the  consolidated  financial
statements.

On September 340, 2003,  except as to Note 15 which is as of October 9, 2003, we
reported separately to the shareholders of Hilton Petroleum Ltd. on consolidated
financial  statements  as at,  and for the years  ended,  May 31,  2003 and 2002
audited in accordance with Canadian generally accepted auditing standards.


                                                    /s/ D&H Group

Vancouver, BC
September 30, 2003, except as to Note 15            CHARTERED ACCOUNTANTS
which is as of October 9, 2003






                                    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

                                      -58-

<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,  except as to Note 15 which is as of October  9, 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, except as to Note 15            CHARTERED ACCOUNTANTS
which is as of October 9, 2003










                                    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

                                      -59-


                              HILTON PETROLEUM LTD.
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)



                                                     2003              2002
                                                                     (Note 3)
                                                       $                 $
                                     ASSETS

CURRENT ASSETS

Cash                                                  107,315         1,484,021
Amounts receivable (Note 9(b))                         23,552            40,717
Prepaid expenses and deposits                          34,467           119,175
                                                 ------------      ------------
                                                      165,334         1,643,913

PETROLEUM AND NATURAL GAS INTERESTS (Note 4)                -         5,078,959

INVESTMENT AND ADVANCES (Note 5)                       15,382           641,691

OTHER ASSETS (Note 6)                                 117,362           224,749
                                                 ------------      ------------
                                                      298,078         7,589,312
                                                 ============      ============

                                  LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities               14,762           950,940
Current portion of long-term debt (Note 7)          1,248,093                 -
                                                 ------------      ------------
                                                    1,262,855           950,940
LONG-TERM DEBT (Note 7)                                     -         3,737,010
                                                 ------------      ------------
                                                    1,262,855         4,687,950
                                                 ------------      ------------

                              SHAREHOLDERS' EQUITY

SHARE CAPITAL (Note 8)                             47,076,360        43,003,256

EQUITY COMPONENT OF LONG-TERM DEBT (Note 7(a))        278,788           694,310

DEFICIT                                           (48,319,925)      (40,796,204)
                                                 ------------      ------------
                                                     (964,777)        2,901,362
                                                 ------------      ------------
                                                      298,078         7,589,312
                                                 ============      ============

NATURE OF OPERATIONS AND GOING CONCERN (Note 1)



APPROVED BY THE BOARD

/s/ Nick DeMare , Director
--------------------------

/s/ William Lee , Director
--------------------------



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

                                       F-4
                                      -60-

<PAGE>


                              HILTON PETROLEUM LTD.
                CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)


<TABLE>
<CAPTION>

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

REVENUES

Petroleum and natural gas sales                        83,780           230,624         5,228,674
                                                 ------------      ------------      ------------

OTHER EXPENSES

Production                                             54,817           168,061         1,902,642
General and administrative                            538,492           816,455         1,292,431
Depreciation, depletion and impairment (Note 4)     4,550,704        26,110,753         1,455,087
Research, development and marketing (Note 1)          238,928           505,827                 -
                                                 ------------      ------------      ------------
                                                    5,382,941        27,601,096         4,650,160
                                                 ------------      ------------      ------------
OPERATING INCOME (LOSS)                            (5,299,161)      (27,370,472)          578,514
                                                 ------------      ------------      ------------

OTHER INCOME (EXPENSES)

Interest and other income                              37,732           853,678           101,354
Interest expense on long-term debt                   (415,118)         (694,244)       (1,480,291)
Gain on sale of petroleum and natural gas
   interests                                                -                 -           212,473
Gain on sale of marketable securities                       -                 -            25,345
Impairment of investment, advances and other         (617,833)         (700,000)         (956,253)
Loss on sale of investment                                  -           (73,484)                -
Property investigations                              (159,708)                -                 -
                                                 ------------      ------------      ------------
                                                   (1,154,927)         (614,050)       (2,097,372)
                                                 ------------      ------------      ------------
NET LOSS FOR THE YEAR                              (6,454,088)      (27,984,522)       (1,518,858)
                                                 ============      ============      ============
BASIC AND DILUTED LOSS PER SHARE                      $ (1.43)          $ (7.69)          $ (0.48)
                                                 ============      ============      ============
WEIGHTED AVERAGE NUMBER OF
     COMMON SHARES OUTSTANDING                      4,502,312         3,641,015         3,170,235
                                                 ============      ============      ============

</TABLE>








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

                                       F-5
                                      -61-

<PAGE>

                              HILTON PETROLEUM LTD.
                       CONSOLIDATED STATEMENTS OF DEFICIT
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)

<TABLE>
<CAPTION>


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

DEFICIT - BEGINNING OF YEAR                       (40,796,204)      (12,811,682)      (11,292,824)

CONVERSION OF LONG-TERM DEBT (Note 7(b))           (1,069,633)                -                 -
                                                 ------------      ------------      ------------
                                                  (41,865,837)      (12,811,682)      (11,292,824)

NET LOSS FOR THE YEAR                              (6,454,088)      (27,984,522)       (1,518,858)
                                                 ------------      ------------      ------------
DEFICIT - END OF YEAR                             (48,319,925)      (40,796,204)      (12,811,682)
                                                 ============      ============      ============

</TABLE>














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

                                       F-6

                                      -62-



                              HILTON PETROLEUM LTD.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE YEARS ENDED MAY 31
              (Expressed in U.S. Dollars, unless otherwise stated)

<TABLE>
<CAPTION>

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

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Net loss for the year                              (6,454,088)      (27,984,522)       (1,518,858)
Items not involving cash
   Depreciation, depletion and impairment           4,550,704        26,110,753         1,455,087
   Amortization of deferred financing charges          29,591            71,068            76,336
   Accretion of liability component of
      long-term debt                                  101,045           231,436            77,145
   Gain on sale of petroleum and natural
      gas interests                                         -                 -          (212,473)
   Gain on sale of marketable securities                    -                 -           (25,345)
   Loss on sale of investment                               -            73,484                 -
   Write-down of investments                          617,833           700,000           956,253
   Unrealized foreign exchange loss (gain)             27,032            24,370           (59,203)
                                                 ------------      ------------      ------------
                                                   (1,097,115)         (773,411)          748,942
Decrease (increase) in amounts receivable               2,825         2,354,586        (1,529,900)
Decrease in prepaid expenses and deposits              84,708            93,269           106,466
Decrease (increase) in inventories                          -           631,789          (631,789)
(Decrease) increase in accounts payable
   and accrued liabilities                            (65,731)       (1,873,431)          718,316
                                                 ------------      ------------      ------------
                                                   (1,075,313)          432,802          (587,965)
                                                 ------------      ------------      ------------
FINANCING ACTIVITIES

Issuance of common shares, net of issue costs               -         1,851,265         6,361,338
Issuance of long-term debt                                  -                 -         3,160,871
Retirement of long-term debt                                -                 -       (14,903,857)
Decrease in other assets                                    -            25,000          (214,498)
                                                 ------------      ------------      ------------
                                                            -         1,876,265        (5,596,146)
                                                 ------------      ------------      ------------
INVESTING ACTIVITIES

Investments and advances                               28,574          (705,890)          (58,765)
Proceeds from sale of investment                            -            98,116                 -
Petroleum and natural gas interests expenditures     (429,967)       (2,177,765)       (8,332,486)
Proceeds from sale of petroleum and natural
   gas interests                                      100,000                 -        12,695,208
Capital asset additions                                     -                 -           (24,498)
Purchases of marketable securities                          -                 -          (175,568)
Proceeds from sale of marketable securities                 -                 -         1,644,291
                                                 ------------      ------------      ------------
                                                     (301,393)       (2,785,539)        5,748,182
                                                 ------------      ------------      ------------
DECREASE IN CASH FOR THE YEAR                      (1,376,706)         (476,472)         (435,929)

CASH - BEGINNING OF YEAR                            1,484,021         1,960,493         2,396,422
                                                 ------------      ------------      ------------
CASH - END OF YEAR                                    107,315         1,484,021         1,960,493
                                                 ============      ============      ============

</TABLE>

Supplemental disclosure with respect to the consolidated
statements of cash flows (Note 14).




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

                                       F-7
                                      -63-


<PAGE>

                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


1.   NATURE OF OPERATIONS AND GOING CONCERN

     Hilton  Petroleum Ltd. (the "Company") has been engaged in the acquisition,
     exploration  for and development of crude oil and natural gas properties in
     the  United  States.  In  November  2002,  the  Company  wrote-off  its net
     investment in its petroleum and natural gas interests, as described in Note
     4. As of May 31, 2003,  the Company does not hold any petroleum and natural
     gas  interests,  and is  continuing  to  identify  and  evaluate  potential
     resources acquisitions or business opportunities.

     During the 2002 fiscal year the Company commenced the research, development
     and marketing of proprietary software programs. During the 2003 fiscal year
     the  Company  incurred  $238,928  (2002  -  $505,827)   relating  to  these
     activities.  These  activities  did not satisfy all the  criteria  required
     under   Canadian   generally   accepted   principles   for  deferment  and,
     accordingly,  the Company has charged the costs to operations. To date, the
     Company has not generated any revenues from these activities.

     During the 2003 fiscal year the Company  incurred a loss of $6,454,088 and,
     as of May 31, 2003,  had a working  capital  deficiency of  $1,097,521  and
     accumulated  a  deficit  of  $48,319,925.  The  Company  is  currently  not
     generating cash flow from its operations to meet ongoing corporate overhead
     and discharge its liabilities as they come due. The future viability of the
     Company is dependent upon its ability to generate  additional  financing to
     satisfy future working capital requirements and debt repayment  obligations
     and, in the longer term,  the  generation  of profit and positive cash flow
     from business operations.

     These  consolidated  financial  statements  have been  prepared  on a going
     concern basis which assumes that the Company will be able to realize assets
     and  discharge  liabilities  in the  normal  course  of  business  for  the
     foreseeable  future.  Accordingly,  the  financial  statements  do not give
     effect to adjustments,  if any, that would be necessary  should the Company
     be unable to continue as a going  concern  and,  therefore,  be required to
     realize its assets and liquidate its  liabilities  in other than the normal
     course of business and at amounts  which may differ from those shown in the
     financial statements.

     See also Note 15.


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.

     As  permitted  by Section  3870,  the  Company did not adopt the fair value
     method  for  certain  stock-based  compensation  granted to  employees  and
     directors.  The Company is required to provide  pro-forma  information with
     regards to its net income as if  compensation  cost for the Company's stock
     option plan had been  determined  in  accordance  with the fair value based
     method prescribed in Section 3870.

     During the 2003 fiscal  year the  Company did not grant any stock  options.
     The  adoption  of  Section  3870 did not have any  impact on the  Company's
     financial statements.

                                       F-8
                                      -64-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


3.   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 12.

     The  consolidated  financial  statements for the 2002 and 2001 fiscal years
     included  the  accounts of the Company and its  wholly-owned  subsidiaries,
     which included Hilton  Petroleum Inc.  ("Hilton USA") and STB Energy,  Inc.
     (STB USA"). As described in Note 4, during the 2003 fiscal year the Company
     abandoned its net investment in Hilton USA and STB USA.

     USE OF ESTIMATES

     The  preparation  of  financial  statements  in  conformity  with  Canadian
     generally  accepted  accounting  principles  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 period. Actual results may differ from those estimates.

     PETROLEUM AND NATURAL GAS INTERESTS

     The Company  follows the full cost method of  accounting  for petroleum and
     natural  gas  operations.  Under  this  method  all  costs  related  to the
     exploration  for and  development of petroleum and natural 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  of  exploration  and  development   costs  and  depreciation  of
     production equipment is provided using the unit-of-production  method based
     upon  estimated  proven  petroleum and natural gas  reserves.  The costs of
     significant  unevaluated  properties  are  excluded  from costs  subject to
     depletion.  For depletion and  depreciation  purposes,  relative volumes of
     petroleum  and natural gas  production  and  reserves  are  converted  into
     equivalent units based upon relative energy content.

     In  applying  the full cost  method,  the Company  performs a ceiling  test
     whereby the  carrying  value of  petroleum  and natural gas  interests  and
     production  equipment,  net of  future  income  taxes  and the  accumulated
     provision  for  site   restoration  and  abandonment   costs,  is  compared
     periodically  to an estimate of future net cash flow from the production of
     proven reserves.  Net cash flow is estimated using period 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.

     Substantially  all of the Company's  petroleum and natural gas exploration,
     development and production  activities  were conducted  jointly with others
     and, accordingly, the accounts reflect the Company's proportionate interest
     in such activities.

                                       F-9
                                      -65-


<PAGE>

                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


3.   ACCOUNTING POLICIES (continued)

     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-10
                                      -66-


<PAGE>

                             HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


4.   PETROLEUM AND NATURAL GAS INTERESTS

                                                     2003              2002
                                                       $                 $
     Evaluated Properties
         Acquisitions and leasehold costs                   -         5,830,622
         Exploration and development costs                  -        18,375,485
         Gathering facility                                 -           805,410
                                                 ------------      ------------
                                                            -        25,011,517
                                                 ------------      ------------
     Unevaluated Properties
         Acquisitions and leasehold costs                   -           445,548
         Exploration costs                                  -         7,077,093
                                                 ------------      ------------
                                                            -         7,522,641
                                                 ------------      ------------
                                                            -        32,534,158
     Less: accumulated depreciation,
         depletion and impairment                           -       (27,455,199)
                                                 ------------      ------------
                                                            -         5,078,959
                                                 ============      ============

     (a)  During  the  2003   fiscal  year  the   Company   incurred   petroleum
          expenditures  totalling  $429,967,  principally  on  the  unsuccessful
          drilling of a side-track  well on the Basil Project.  As a result,  an
          impairment  charge of $1,023,371 was recorded for the acquisition cost
          and the  Company's  share of the costs of the initial  and  side-track
          wells on the Basil Project.

          During the 2003 fiscal year the  Company  did not  participate  in the
          funding of any exploration activities or holding costs relating to the
          East Lost Hills  Project.  On December 2, 2002,  the Company  received
          confirmation  from the operator of the East Lost Hills Project that it
          had formally  proposed the plugging and  abandonment of the ELH #4 and
          #9 wells.  In light of the  results and  uncertainties  of any further
          activities  at East  Lost  Hills by the  joint  venture,  the Board of
          Directors  of the Company  has  determined  that the  Company  will no
          longer provide further funding to Hilton USA and STB USA (collectively
          the "Petroleum  Subsidiaries"),  two wholly-owned  subsidiaries  which
          hold the Company's  petroleum and natural gas interests.  Accordingly,
          the  Company has  recorded a further  charge of  $3,562,782,  net of a
          reversal  of $870,477  of  accounts  payable  and accrued  liabilities
          recorded  on  expenditures  previously  recognized,  representing  the
          Company's  remaining net  investments  in the Petroleum  Subsidiaries.
          Effective  November  30,  2002,  the  Company  ceased  to  record  the
          activities of the Petroleum Subsidiaries.

     (b)  During May 2002,  the  Company,  the  operator  of the East Lost Hills
          Project and certain  other  participants  in the East Lost Hills joint
          venture,  concluded an agreement on the ongoing  evaluation of the ELH
          #4 and #9 wells, whereby the funding parties assumed all of the unpaid
          amounts and future costs in completing  the evaluation of these wells.
          In return,  they were  entitled  to recover  their  costs plus 300% of
          their  costs,  from the future  production  from these  wells.  Unpaid
          billings  for the ELH #4 and #9  wells  at the  time of the  agreement
          totalled  $4,868,716,  of  which  $713,674  was  billed  and had  been
          recorded by the Company as "accounts payable and accrued  liabilities"
          at May 31,  2001.  During the 2002 fiscal  year the  Company  reversed
          $713,674  of  "accounts  payable  and  accrued  liabilities"  with  an
          offsetting credit to "petroleum and natural gas interests".

          As a result of the ceiling test performed  effective May 31, 2002, the
          Company  recorded an  impairment  of  $25,907,079  for the 2002 fiscal
          year. The ceiling test is a cost-recovery  test and is not intended to
          result in an estimate of fair market value.  F-1 -67- HILTON PETROLEUM
          LTD. NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS FOR THE YEARS ENDED
          MAY 31,  2003,  2002  AND  2001  (Expressed  in U.S.  Dollars,  unless
          otherwise stated)

                                      F-11
                                      -67-


<PAGE>

                             HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)



5.   INVESTMENT AND ADVANCES

                                                     2003              2002
                                                       $                 $

     Investment in Trimark Energy Ltd.
        ("Trimark") (a)                                15,382            60,801
     Loan to Trimark (b)                                    -           211,896
     Receivable from California
         Exploration Ltd. ("Calex") (c)                     -           179,958
     Other                                                  -           189,036
                                                 ------------      ------------
                                                       15,382           641,691
                                                 ============      ============

     (a)  The Company holds 234,286  common shares of Trimark,  a public company
          which has common  officers and directors.  During the 2003 fiscal year
          the Company recorded a $45,419  impairment to reflect Trimark's quoted
          market value at May 31, 2003.

     (b)  During the 2002 fiscal year the Company loaned $211,896 (CDN $300,000)
          to  Trimark.  The loan bears  interest  at 10% per annum with no fixed
          term of repayment.  Due to the uncertainty of collection from Trimark,
          during  the  2003  fiscal  year,  the  Company   recorded  a  $232,741
          impairment of the principal and accrued interest.

     (c)  During  the 2002  fiscal  year the  Company  acted  as  operator  of a
          drilling program to test certain  prospects in California on behalf of
          Calex, a public company in which certain officers and directors of the
          Company are  shareholders.  Due to the  uncertainty of collection from
          Calex,  during the 2003 fiscal  year the  Company  recorded a $136,295
          impairment of unpaid joint interest billings.


6.   OTHER ASSETS

                                                     2003              2002
                                                       $                 $

     Deferred financing charges                        17,362           112,524
     Loan to former officer                           100,000           100,000
     Other                                                  -            12,225
                                                 ------------      ------------
                                                      117,362           224,749
                                                 ============      ============

     The loan to the former  Chairman of the Company  bears  interest at 10% per
     annum,  payable  quarterly,  and matures on June 30, 2004.  During the 2003
     fiscal year interest  income of $10,000 (2002 - $3,793;  2001 - $6,215) was
     received.  As at May 31, 2003,  the principal  balance of $100,000  remains
     unpaid.  The former Chairman is also a holder of $100,000  principal of the
     10% Debentures. See Note 7(a).

                                      F-12

                                      -68-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)



7.   LONG-TERM DEBT
                                                     2003              2002
                                                       $                 $

     10% Debentures                                 1,248,093         2,759,269
     9% Debentures                                          -           977,741
                                                 ------------      ------------
                                                    1,248,093         3,737,010
     Less current portion                          (1,248,093)                -
                                                 ------------      ------------
                                                            -         3,737,010
                                                 ============      ============

     (a)  The 10%  Debentures  are  comprised  of $870,000  (2002 -  $2,163,000)
          Series  A and CDN  $600,000  (2002 -  $1,500,000)  Series  B.  The 10%
          Debentures  bear  interest at 10% per annum,  payable  quarterly,  and
          mature on January 24, 2004. The 10% Debentures are convertible, at the
          option of the holders,  into common shares of the Company,  at a price
          of CDN $15.60 per share before maturity.

          In accordance with Canadian generally accepted  accounting  principles
          relating to the presentation of convertible debt instruments,  the 10%
          Debentures  were  segregated,  on  their  date  of  issuance,  between
          long-term  debt and equity  components  of  $2,439,124  and  $694,310,
          respectively.  The debt  component  reflects the present  value of the
          principal  after factoring out the conversion  option value.  The debt
          component is being accreted over the life of the 10% Debentures to the
          principal amount payable by periodic charges to earnings.

          The debt component,  representing the value allocated to the liability
          at  inception,  is recorded as a long- term  liability.  The remaining
          component,  representing  the value ascribed to the holders' option to
          convert the  principal  balance into common  shares,  is classified in
          shareholders' equity as "equity component of long-term debt". Over the
          term of the 10% Debentures, the debt component will be accreted to the
          face  value  of the 10%  Debentures  by the  recording  of  additional
          interest expense.

     (b)  In May 2002, in order to induce early  conversion  of the  debentures,
          the  Company  offered to pay  interest to December  31,  2002,  on all
          debentures  which were  converted by June 30, 2002, and to also reduce
          the conversion price of the debentures to CDN $5.00 per share. In June
          2002,  holders of $1,569,251 of the 10%  Debentures  and all of the 9%
          Debentures  elected to convert and the Company  issued  876,150 common
          shares and paid  $161,750 of bonus  interest.  The bonus  interest was
          recorded as part of interest  expense on long-term  debt. In addition,
          Canadian generally accepted  accounting  principles require a non-cash
          calculation  be made of the  inducement  resulting  from  reducing the
          conversion  price.  Accordingly,  $1,069,633  has been  recorded  as a
          credit to share capital with an offsetting charge to deficit.








                                      F-13
                                      -69-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


8.   SHARE CAPITAL

Authorized:  Unlimited common shares without par value
Issued:
<TABLE>
<CAPTION>
                                           2003                         2002                         2001
                                --------------------------   --------------------------   --------------------------
                                   Shares        Amount         Shares        Amount         Shares        Amount
                                                    $                            $                            $
<S>                             <C>          <C>            <C>           <C>            <C>           <C>

Balance, beginning of year         3,657,516    43,003,256     3,490,215     41,151,991      2,750,396    32,687,210
                                ------------  ------------   ------------  ------------   ------------  ------------
Issued during the year
    Private placements                     -             -        167,300     1,858,403        232,250     1,968,525
    Rights offering                        -             -              -             -        200,000     3,035,413
    Exercise of warrants                   -             -              -             -        134,638     1,698,270
    Retirement of other
       liabilities                         -             -              -             -        155,873     1,966,740
    Conversion on long-term
       debt (Note 7(b))              876,150     4,042,336              -             -              -             -
    For debenture interest           343,255        30,768              -             -         17,059       153,206
Less:  Share issue costs                   -             -              -        (7,138)             -      (357,373)
                                ------------  ------------   ------------  ------------   ------------  ------------
                                   1,219,405     4,073,104        167,300     1,851,265        739,820     8,464,781
                                ------------  ------------   ------------  ------------   ------------  ------------
Balance, end of year               4,876,921    47,076,360      3,657,516    43,003,256      3,490,216    41,151,991
                                ============  ============   ============  ============   ============  ============
</TABLE>

     (a)  On December 30, 2002,  the Company  completed a  consolidation  of its
          share capital on a one new for ten old basis.  All  comparative  share
          balances have been adjusted accordingly.

     (b)  The Company has  established a rolling stock option plan (the "Plan"),
          in which the maximum number of common shares which can be reserved for
          issuance under the Plan is 10% of the issued and outstanding shares of
          the Company. The exercise price of the options is set at the Company's
          closing share price on the day before the grant date,  less  allowable
          discounts in accordance with the policies of the TSX Venture  Exchange
          ("TSX Venture"). The options have a maximum term of ten years.

          A summary of the Company's  options at May 31, 2003 and 2002,  and the
          changes for the fiscal 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       186,825     13.60         236,375     21.90
          Granted                                -         -         100,000      4.50
          Cancelled/expired                   (625)    27.00        (149,550)    20.40
                                        ----------                ----------
          Balance, end of year             186,200     11.38         186,825     13.60
                                        ==========                ==========
</TABLE>


                                      F-14
                                      -70-

<PAGE>

                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


8.   SHARE CAPITAL (continued)

     (c)  As at May 31,  2003,  the  Company  had  outstanding  warrants  issued
          pursuant to private placements,  rights offering, special warrants and
          debentures,  which may be exercised to purchase  340,025  shares.  The
          warrants  expire at various  times until 2004 and may be  exercised at
          prices ranging from CDN $13.50 per share to CDN $18.80 per share.

          Details of warrants outstanding are as follows:

                                                       2003             2002
                                                      Number           Number
                                                   of Warrants      of Warrants

          Balance, beginning of year                   705,559          837,191
          Issued pursuant to private placement               -          116,170
          Expired                                     (365,534)        (247,802)
                                                   -----------      -----------
          Balance, end of year                         340,025          705,559
                                                   ===========      ===========

     (d)  See also Notes 7(b) and 15.


9.   RELATED PARTY TRANSACTIONS

     (a)  During the 2003 fiscal year companies  controlled by certain directors
          and officers of the Company charged $210,661 (2002 - $185,572;  2001 -
          $197,241) for  accounting,  management,  professional  and  consulting
          fees.

     (b)  As at May 31, 2002, $17,530 remained  outstanding on account of unpaid
          amounts due from  Trimark.  During the 2003 fiscal  year,  the Company
          recorded an impairment of $14,340  representing  the remaining  unpaid
          amounts due from Trimark.

     (c)  Other related  party  transactions  are  disclosed  elsewhere in these
          consolidated financial statements.


10.  INCOME TAXES

     As at May 31,  2003,  the Company has  accumulated  non-capital  losses for
     income tax purposes of approximately  CDN $8.5 million,  expiring from 2004
     to 2010, which are available for application against future taxable income,
     the related  benefits of which have not been  recognized in these financial
     statements.


                                      F-15

                                      -71-


<PAGE>

                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


11.  SEGMENTED INFORMATION

     During the 2003 fiscal year the Company operated in two industry  segments,
     the  exploration  for, and the  development and production of petroleum and
     natural gas and the  research,  development  and  marketing of  proprietary
     software  programs.  In November 2002, the Company  abandoned its petroleum
     and natural gas operations,  as described in Note 4.  Identifiable  assets,
     revenues and net loss in each of these industry segments are as follows:

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

     Petroleum and natural gas                -          93,790      (4,785,846)
     Software                            21,203             945        (573,736)
     Corporate                          276,875          26,777      (1,094,506)
                                   ------------    ------------    ------------
                                        298,078         121,512      (6,454,088)
                                   ============    ============    ============

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

     Petroleum and natural gas        5,253,847       1,040,536     (25,657,293)
     Software                                 -               -        (505,827)
     Corporate                        2,335,465          31,287      (1,821,402)
                                   ------------    ------------    ------------
                                      7,589,312       1,071,823     (27,984,522)
                                   ============    ============    ============

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

     Petroleum and natural gas       35,045,041       5,289,381         301,014
     Corporate                        1,010,121          40,647      (1,819,872)
                                   ------------    ------------    ------------
                                     36,055,162       5,330,028      (1,518,858)
                                   ============    ============    ============

                                      F-16

                                      -72-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


12.  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
Loss for the year
    Canadian GAAP                                      (6,454,088)    (27,984,522)     (1,518,858)
    Write-down of investment (i)                           45,419         575,000         956,253
    Impairment expense (ii)                                     -      (1,846,667)              -
    Stock option plan (iii)                                     -               -        (213,116)
    Other compensation expense (vi)                             -        (181,769)       (151,495)
    Accretion of liability component of
       long-term debt (vii)                               101,045         231,436          77,145
    Beneficial conversion feature on
       convertible debt securities (viii)                       -               -        (377,814)
    Induced early conversion of
       convertible debt securities (ix)                (1,069,633)              -               -
                                                     ------------    ------------    ------------
    US GAAP                                            (7,377,257)    (29,206,522)     (1,227,885)
                                                     ------------    ------------    ------------
Other Comprehensive Income
    Unrealized holding gain (loss) on
       available-for-sale marketable securities (i)       (45,419)       (600,361)     (1,216,041)
    Reclassification adjustment for gain (loss)
       on available for sale marketable securities
       included in net loss(i)                                  -           2,046         (25,345)
                                                     ------------    ------------    ------------
                                                          (45,419)       (598,315)     (1,241,386)
                                                     ------------    ------------    ------------
Comprehensive (loss) for the year                      (7,422,676)    (29,804,837)     (2,469,271)
                                                     ============    ============    ============
    Loss per share basic and
       fully diluted - US GAAP                             $(1.65)         $(8.00)         $(0.40)
                                                     ============    ============    ============

</TABLE>


                                      F-17

                                      -73-

<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


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

                                                       2003            2002
                                                         $               $

     Consolidated Balance Sheets

     Total Assets
        Canadian GAAP                                   298,078       7,589,312
        Available for sale securities (i)                     -         (23,315)
                                                   ------------    ------------
        US GAAP                                         298,078       7,565,997
                                                   ============    ============

     Total Liabilities
        Canadian GAAP                                 1,262,855       4,687,950
        Equity component of long-term debt (vii)        278,788         694,310
        Accretion of liability component of
           long-term debt(vii)                         (219,228)       (308,581)
                                                   ------------    ------------
        US GAAP                                       1,322,415       5,073,679
                                                   ============    ============

     Shareholders' Equity
        Canadian GAAP                                  (964,777)      2,901,362
        Available for sale securities (i)                     -         (23,315)
        Equity component of long-term debt (vii)       (278,788)       (694,310)
        Accretion of long-term component of
           long-term debt (vii)                         219,228         308,581
                                                   ------------    ------------
        US GAAP                                      (1,024,337)      2,492,318
                                                   ============    ============

          (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) Ceiling test on petroleum interests

               US GAAP  requires  that the net book  value of  proved  petroleum
               interests  not exceed the sum of the present  value of  estimated
               future net revenues (determined using current prices of petroleum
               production less estimated  future  expenditures to be incurred in
               developing and producing the proved  reserves,  discounted at ten
               percent).  This ceiling test was performed effective May 31, 2002
               and an impairment of $27,753,746 was required to be recorded.

          (iii)Stock options granted to consultants and non-employees

               The Company  grants stock options which reserve common shares for
               issuance to consultants and other  non-employees.  Under Canadian
               GAAP,  such  stock  options  are not  recognized  for  accounting
               purposes. Under US GAAP the Company has adopted the provisions of
               Statements  of  Financial   Accounting   Standards  ("SFAS")  123
               "Accounting  for Stock  Based  Compensation"  for  stock  options
               granted  to  consultants  and  non-employees.

                                      F-18
                                      -74-


<PAGE>


                             HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


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

               Accordingly,  the Company has recognized stock based compensation
               for these stock option grants using the fair value method.

               The fair value of each option  granted to a  consultant  or other
               non-employee  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 2001 fiscal years:

                                                       2002            2001
                                                       ----            ----
               Risk-free interest rate                 3.69%           4.50%
               Expected volatility                      125%            107%
               Expected lives                        3 years         3 years

               No options were granted to  consultants  and other  non-employees
               during the 2003 fiscal year.

          (iv) 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.  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 GAAP                    (29,206,522)     (1,227,885)
Loss - proforma                                     (29,352,135)     (1,918,509)

Loss per share - as reported under US GAAP                (8.00)          (0.40)
Loss per share - proforma                                 (8.10)          (0.60)

               No options  were granted to employees  and  directors  during the
               2003 fiscal year.

               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 2001 fiscal years.

                                                       2002            2001

               Risk-free interest rate                  3.69%          4.79%
               Expected volatility                       125%           109%
               Expected lives                         3 years        3 years


                                      F-19
                                      -75-


<PAGE>


                             HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


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

          (v)  Private  Placements  of Common  Stock and Special  Warrants  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 2002 fiscal year,  directors,  officers
               and companies  controlled  by the directors or officers  acquired
               1,593,000  shares (2001 - 2,250,000) of the Company,  pursuant to
               private placements conducted by the Company, for cash proceeds of
               $1,769,537 (2001 - $1,893,684);

          (vi) Private Placements of Common Stock

               The  Company  conducts  the  majority  of its  equity  financings
               pursuant  to private  placements.  Under the  policies of the TSX
               Venture,  on which the  Company's  common  stock is  listed,  the
               Company  may  provide  a  discount  off the  market  price of the
               Company's  common stock.  US GAAP does not permit a discount from
               the market price.  US GAAP requires the recognition of the 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 the 2003 fiscal
               year would  increase by $nil (2002 -  $181,769;  2001 - $148,800)
               and $nil (2002 - $9,128;  2001 - $nil),  respectively,  and share
               capital,  as at May 31, 2003 would increase by $1,913,486 (2002 -
               $1,913,486;  2001  -  $1,731,717).  There  is no  net  change  to
               shareholders' equity.

          (vii)Accretion of Liability Component of Long-term Debt

               Under  Canadian  GAAP,  compound  financial  instruments  such as
               convertible  debentures  are required to be accounted  for at the
               fair value of their components.  Such accounting is not permitted
               under US GAAP unless the  components are  detachable,  which they
               are not in this case.

          (viii)Beneficial Conversion Feature on Convertible Debt Securities

               Under US GAAP,  additional  interest expense is recognized when a
               convertible  debt  security  is  issued  with  an "in  the  money
               conversion rate". This additional  interest expense is recognized
               in the year of issue when,  as in the  Company's  case,  the debt
               security is convertible  at the time of issue.  No such charge is
               required under Canadian GAAP.

          (ix) Induced Early Conversion of Convertible Debt Securities

               US GAAP  requires  a charge to  operations  on an  induced  early
               conversion of convertible debentures,  equal to the fair value of
               all securities issued in excess of the securities  issuable under
               the original terms. Canadian GAAP provides similar treatment, but
               requires the charge to be made to retained earnings as opposed to
               operations.  There is no net change to shareholders'  equity.

                                      F-20
                                      -76-


<PAGE>


                             HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


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

          (x)  Income Tax

               Under  Canadian  GAAP,  future income tax assets  relating to the
               potential  benefit  of income  tax loss  carry  forwards  are not
               recognized unless  realization of the benefit is more likely than
               not. US GAAP provides similar treatment, but requires the benefit
               be  recognized  and a valuation  allowance be recognized to fully
               offset the future incomes tax assets.

               As at May 31,  2003,  the  Company  has  fully  reserved  the CDN
               $3,390,000  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 CDN $529,000 is attributable to the 2003 fiscal year.

          (xi) Functional Currency

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

     (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

                                      F-21
                                      -77-

<PAGE>

                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


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

          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  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.


13.  FINANCIAL INSTRUMENTS

     The fair  value of  financial  instruments  at May 31,  2003 and 2002,  was
     estimated based on relevant market  information and the nature and terms of
     financial  instruments.  Management is not aware of any factors which would
     significantly  affect the  estimated  fair market  amounts,  however,  such
     amounts  have not  been  comprehensively  revalued  for  purposes  of these
     financial statements.  Disclosure subsequent to the balance sheet dates and
     estimates  of fair  value at dates  subsequent  to May 31,  2003 may differ
     significantly from that presented.

     Fair Value of Other Financial Instruments

     Fair value  approximates the amounts reflected in the financial  statements
     for cash, amounts receivable,  investments and advances,  loans to officer,
     accounts payable and accrued liabilities and long-term debt.

                                      F-22
                                      -78-
<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)


14.  SUPPLEMENTARY CASH FLOW INFORMATION

     Non-cash  investing and financing  activities were conducted by the Company
     as follows:
<TABLE>
<CAPTION>

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

Operating activities
    Decrease in amounts receivable                                      -         125,000               -
    Increase in prepaid expenses and deposits                           -               -        (153,206)
    Reversal of accounts payable and accrued liabilities                -        (713,674)              -
    Accounts payable and accrued liabilities on
         abandonment of Petroleum Subsidiaries (Note 4(a))       (870,447)              -               -
                                                             ------------    ------------    ------------
                                                                 (870,477)       (588,674)       (153,206)
                                                             ============    ============    ============

Financing activities
    Increase in other assets                                            -        (125,000)              -
    Decrease in liability component of long-term debt
         on conversion                                            225,075               -               -
    Decrease in equity component of long-term debt
         on conversion                                           (415,522)              -               -
    Decrease in deferred financing charges on conversion           65,571               -               -
    Capital distribution on early conversion of
         long-term debt                                        (1,069,633)              -               -
    Issuance of common shares for capital distribution          1,194,509               -               -
    Issuance of common shares on conversion of
         long-term debt                                         2,847,827               -               -
    Conversion of long-term debt                               (2,847,827)              -               -
    Deferred debenture charges                                          -               -          16,503
    Common share issue costs                                            -               -         (16,503)
    Issuance of common shares for debenture interest                    -               -         153,206
    Issuance of common shares on retirement of
       other liabilities                                                -               -       1,966,740
    Retirement of other liabilities                                     -               -      (1,966,740)
                                                             ------------    ------------    ------------
                                                                        -        (125,000)        153,206
                                                             ============    ============    ============
Investing activities
    Reversal of petroleum and natural gas interests
       expenditures                                                     -         713,674               -
    Petroleum and natural gas interests on abandonment
       of Petroleum Subsidiaries (Note 4(a))                      870,447               -               -
                                                             ------------    ------------    ------------
                                                                  870,447         713,674               -
                                                             ============    ============    ============

Other supplementary cash flow information:

                                                                 2003            2002            2001
                                                                   $               $               $

Interest paid in cash                                             259,220         391,740       1,326,811
                                                             ============    ============    ============
Income taxes paid in cash                                               -               -               -
                                                             ============    ============    ============
</TABLE>


                                      F-23
                                      -79-
<PAGE>


                              HILTON PETROLEUM LTD.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2003, 2002 AND 2001
              (Expressed in U.S. Dollars, unless otherwise stated)



15.  SUBSEQUENT EVENT

     Subsequent to May 31, 2003,  the Company  entered into an option  agreement
     whereby the Company  could  acquire up to a 100%  interest in four  mineral
     concessions  in Mexico  (the "El Nayar  Project"),  covering  approximately
     6,722   hectares.   The  Company  may  earn  an  initial  60%  interest  in
     consideration  of making an initial option payment of US $25,000 by October
     21, 2003, a further US $25,000 option payment upon  regulatory  approval of
     the  agreement,  and the issuances of a total of 1.1 million  common shares
     and funding US $1 million of  expenditures,  which include all land holding
     costs and  underlying  option  payments to concession  holders,  all over a
     three year period. Upon having earned the initial 60% interest, the Company
     may purchase the  remaining 40% interest in the El Nayar Project by payment
     in cash or issuances of common shares for an amount to be determined  based
     on the net present value of the El Nayar Project.





                                      F-24
                                      -8O-
<PAGE>