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, 2004

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

                              HILTON RESOURCES LTD.
                 (Translation of Registrant's name into English)

                            BRITISH COLUMBIA, 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.

                   18,537,355 COMMON SHARES AS OF MAY 31, 2004

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 154
                                                                            ----

                                       -1-

<PAGE>



GENERAL INFORMATION:

UNLESS OTHERWISE INDICATED, ALL REFERENCES HEREIN ARE TO CANADIAN DOLLARS.

                                    GLOSSARY

The following is a glossary of geological terms used in this report:


ANDESITE                          a  fine  grained  intermediate  volcanic  rock
                                  composed  of  andesine  and one or more  mafic
                                  constituents.

CM                                centimeter

DIAMOND DRILL                     a type of rotary drill in which the cutting is
                                  done by abrasion using diamonds  embedded in a
                                  matrix  rather than by  percussion.  The drill
                                  cuts a core of rock which is recovered in long
                                  cylindrical sections.

EPITHERMAL                        hydrothermal  mineral  deposit  formed  within
                                  about 1 kilometer  of the earth's  surface and
                                  within  a  temperature  range  of  50  to  200
                                  degrees centigrade, occurring mainly as veins.

G                                 gram

G/T                               grams per tonne.

GRADE                             the  concentration of each ore metal in a rock
                                  sample, usually given as weight percent. Where
                                  extremely low concentrations are involved, the
                                  concentration  may be given in grams per tonne
                                  (g/t) or ounces per ton  (oz/t).  The grade of
                                  an ore  deposit  is  calculated,  often  using
                                  sophisticated  statistical  procedures,  as an
                                  average of the  grades of a very large  number
                                  of  samples   collected  from  throughout  the
                                  deposit.

INDUCED POLARIZATION
   (I.P.) METHOD                  the method used to measure various  electrical
                                  responses   to  the  passage  of   alternating
                                  currents  of  different   frequencies  through
                                  near-surface rocks or to the passage of pulses
                                  of electricity.

INTRUSION                         general term for a body of igneous rock formed
                                  below the surface.

KM                                kilometer

M                                 meters

PETROGRAPHIC                      the description and classification of rocks.

PORPHYRY                          rock  type  with  mixed  crystal  sizes,  i.e.
                                  containing   phenocrysts   of  one   or   more
                                  minerals.


PROBABLE (INDICATED) RESERVES     reserves  for which  quantity and grade and/or
                                  quality are computed from information  similar
                                  to that used for proven  (measured)  reserves,
                                  but the sites for  inspection,  sampling,  and
                                  measurement are farther apart or are otherwise
                                  less   adequately   spaced.   The   degree  of
                                  assurance, although lower than that for proven
                                  (measured) reserves,  is high enough to assume
                                  continuity between points of observation.


                                       -2-

<PAGE>



PROVEN (MEASURED) RESERVES        reserves  for which (a)  quantity  is computed
                                  from   dimensions    revealed   in   outcrops,
                                  trenches,   workings  or  drill  holes;  grade
                                  and/or  quality are computed  from the results
                                  of  detailed  sampling;  and (b) the sites for
                                  inspection,   sampling  and   measurement  are
                                  spaced so closely and the  geologic  character
                                  is so well defined that size, shape, depth and
                                  mineral   content   of   reserves   are  well-
                                  established.

PYRITE                            iron sulphide

RESERVES                          that part of a mineral  deposit which could be
                                  economically and legally extracted or produced
                                  at the time of the reserve determination.

RHYOLITE                          a   fine-grained   extrusive   volcanic  rock,
                                  similar to granite in composition.

SHEAR ZONE                        where a fault  affects a width of rock  rather
                                  than being a single clean break,  the width of
                                  affected  rock  is  referred  to as the  shear
                                  zone.   The  term   implies   movement,   i.e.
                                  shearing.

STRIKE                            the  direction  of a  horizontal  line  on the
                                  surface of the bed, or other planar feature.

TAILINGS                          material    rejected   from   a   mill   after
                                  recoverable   valuable   minerals   have  been
                                  extracted.

FORWARD LOOKING STATEMENTS

The Company cautions readers regarding  forward looking  statements found in the
following  discussion  and  elsewhere  in this  annual  report  and in any other
statement  made by, or on the  behalf of the  Company,  whether or not in future
filings  with  the  Securities  Exchange  Commission  ("SEC").  Forward  looking
statements are statements not based on historical  information  and which relate
to future  operations,  strategies,  financial  results  or other  developments.
Forward looking  statements are necessarily based upon estimates and assumptions
that are inherently  subject to significant  business,  economic and competitive
uncertainties and contingencies,  many of which are beyond the Company's control
and many of which,  with respect to future  business  decisions,  are subject to
change.  See "Item 3. Key Information - Risk Factors".  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.


                                       -3-

<PAGE>



                                     PART I


ITEM 1.  IDENTITY OF 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,  2004,
2003 and 2002,  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, 2001 and 2000, are
derived  from the  Company's  audited  consolidated  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 US GAAP, and their effect
on the Company's financial statements.

<TABLE>
<CAPTION>

                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)

                                                          2004         2003         2002         2001          2000
                                                          ----         ----         ----         ----          ----
<S>                                                  <C>         <C>           <C>         <C>            <C>

Revenues                                                     -         $128         $362       $7,906        $6,735
Interest Income and Other                                  $95          $58       $1,339         $153          $411
Production Costs                                             -         $(84)       $(264)     $(2,877)      $(3,404)
General and Administrative                               $(288)       $(821)     $(1,280)     $(1,954)      $(1,692)
Stock-Based Compensation                                 $(154)           -            -            -             -
Interest Expense                                         $(234)       $(641)     $(1,079)     $(2,184)      $(2,981)
Depreciation, Depletion and Impairment                     $(2)     $(6,881)    $(39,482)     $(2,200)      $(2,269)
Legal and Litigation                                         -            -            -            -         $(352)
Research Development & Marketing                             -        $(364)       $(793)           -             -
Property investigations                                      -        $(247)           -            -             -
Gain on Sale of Petroleum Interests                          -            -            -         $321             -
Gain (Loss) on Sale of Marketable Securities                 -            -        $(115)         $37          $254
Impairment of Investment and Advances                        -        $(938)     $(1,101)     $(1,470)            -
Operating Income (Loss)                                  $(444)     $(8,023)    $(41,458)        $875         $(981)
Net Income (Loss)                                        $(582)     $(9,791)    $(42,414)     $(2,268)      $(3,298)
Earnings (Loss) Per Share                               $(0.06)      $(2.17)     $(11.65)      $(0.70)       $(1.40)
Weighted Average Number of Shares                       10,251        4,502        3,641        3,170         2,398

</TABLE>



                                       -4-

<PAGE>



<TABLE>
<CAPTION>

                                                                         YEAR ENDED MAY 31,
                                                                 (IN '000S, EXCEPT PER SHARE DATA)

                                                          2004         2003         2002         2001          2000
                                                          ----         ----         ----         ----          ----
<S>                                                  <C>         <C>           <C>         <C>            <C>

Dividends per Share                                          -            -            -            -             -
Working Capital (Deficiency)                              $551      $(1,494)      $1,059       $2,762      $(18,961)
Resource Assets                                           $221            -       $7,822      $45,242       $53,548
Investment and Advances                                      -            -         $991       $1,160        $2,064
Other Assets                                               $85         $184         $341         $304          $408
Non-current Obligations                                      -            -            -            -             -
Shareholders' Equity                                      $857      $(1,310)      $4,505      $44,086       $32,622
Total Assets                                              $873         $411      $11,666      $54,937       $63,582
Capital Stock                                           70,594       67,568       61,316       58,482        45,825

</TABLE>


Adjustment to United States Generally Accepted Accounting Principles

The  consolidated  financial  statements  of the Company  have been  prepared in
accordance  with  Canadian  GAAP.  Canadian  GAAP  differs 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>

                                                                          2004            2003             2002
                                                                            $               $                $
<S>                                                                  <C>             <C>              <C>

CONSOLIDATED STATEMENTS OF OPERATIONS
    AND COMPREHENSIVE INCOME

Loss for the year
    Canadian GAAP                                                         (582,395)     (9,790,501)     (42,414,241)
    Write-down of investment (i)                                                 -          69,273          901,715
    Write-off of option interests and exploration costs (ii)              (220,582)              -                -
    Impairment expense (iii)                                                     -               -       (2,792,345)
    Other compensation expense (v)                                         (27,000)              -         (285,050)
    Accretion of liability component of long-term debt (vi)                 92,139         156,183          357,732
    Induced early conversion of convertible debt securities (vii)                -      (1,634,181)               -
                                                                      ------------    ------------     ------------
    US GAAP                                                               (737,838)    (11,199,226)     (44,232,189)
                                                                      ------------    ------------     ------------

OTHER COMPREHENSIVE INCOME

    Unrealized holding gain (loss) on
       available-for-sale marketable securities (i)                         59,520         (69,273)        (941,486)
    Reclassification adjustment for gain on available for sale
       marketable securities included in net loss (i)                            -               -            3,209
                                                                      ------------    ------------     ------------
                                                                            59,520         (69,273)        (938,277)
                                                                      ------------    ------------     ------------
Comprehensive (loss) for the year                                         (678,318)    (11,268,499)     (45,170,466)
                                                                      ============    ============     ============

    Loss per share basic and fully diluted - US GAAP                        $(0.07)         $(2.50)         $(12.41)
                                                                      ============    ============     ============

</TABLE>



                                       -5-

<PAGE>



<TABLE>
<CAPTION>

                                                                          2004            2003
                                                                            $               $

<S>                                                                  <C>             <C>

CONSOLIDATED BALANCE SHEETS

Total Assets
    Canadian GAAP                                                          872,928         411,006
    Available for sale securities (i)                                       59,520               -
    Option interests and deferred exploration costs expensed (ii)         (220,582)              -
                                                                      ------------    ------------
    US GAAP                                                                711,866         411,006
                                                                      ============    ============

Total Liabilities
    Canadian GAAP                                                           16,356       1,720,695
    Equity component of long-term debt (vi)                                      -         430,922
    Accretion of liability component of long-term debt(vi)                       -        (338,860)
                                                                      ------------    ------------
    US GAAP                                                                 16,356       1,812,757
                                                                      ============    ============

Shareholders' Equity
    Canadian GAAP                                                          856,572      (1,309,689)
    Available for sale securities (i)                                       59,520               -
    Option interests and deferred exploration costs expensed (ii)         (220,582)              -
    Equity component of long-term debt (vi)                                      -        (430,922)
    Accretion of long-term component of long-term debt (vi)                      -         338,860
                                                                      ------------    ------------
    US GAAP                                                                695,510      (1,401,751)
                                                                      ============    ============

</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)     Option interests and deferred exploration costs

         Option  interests and deferred  exploration  costs are accounted for in
         accordance  with Canadian  GAAP. The Company has determined for US GAAP
         purposes to expense the option payments and exploration  costs relating
         to unproven mineral claims as incurred.  In addition,  US GAAP requires
         that exploration costs not be capitalized until a positive  feasibility
         study is completed.  The capitalized costs of such claims would then be
         assessed  for  impairment,  on a  periodic  basis,  to ensure  that the
         carrying value can be recovered on an undiscounted  cash flow basis. If
         the  carrying  value  cannot be  recovered  on this basis,  the mineral
         claims would be written down to net  recoverable  value on a discounted
         cash flow basis.

(iii)    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
         $41,966,439 was required to be recorded.



                                       -6-

<PAGE>



(iv)     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  2004  fiscal  year,  directors,   officers  and  companies
         controlled by the directors or officers acquired 450,000 shares (2003 -
         nil;  2002 - 159,300) of the  Company,  pursuant to private  placements
         conducted  by the  Company,  for  cash  proceeds  of  $90,000  (2002  -
         $2,708,100);

(v)      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 2004 fiscal year
         would  increase by $27,000 (2003 - $nil;  2002 - $285,050) and $295,349
         (2003 - $nil; 2002 - $14,315),  respectively,  and share capital, as at
         May 31, 2004 would  increase by $3,323,078  (2003 - $3,000,729;  2002 -
         $3,000,729). There is no net change to shareholders' equity.

(vi)     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.


(vii)    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.

(viii)   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, 2004,  the Company has fully  reserved the $2,800,000 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  $150,000 is
         attributable to the 2004 fiscal year.

(ix)     Functional Currency

         The Company's functional currency is the Canadian dollar.



                                       -7-

<PAGE>



(x)      Development Stage Company

         The Company is in the  exploration  stage and,  as of June 1, 2003,  is
         considered  a  development  stage  company as defined by  Statement  of
         Financial  Accounting  Standards  ("SFAS") No. 7. To May 31, 2004,  the
         Company has  accumulated a deficit of $582,395 while in the development
         stage.

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

NEW ACCOUNTING STANDARDS

In May 2003, the Financial  Accounting Standards Board ("FASB") issued Statement
No. 150,  "ACCOUNTING FOR CERTAIN FINANCIAL  INSTRUMENTS WITH CHARACTERISTICS OF
BOTH  LIABILITIES AND EQUITY" ("SFAS No. 150"),  which addresses how to classify
and  measure  certain  financial   instruments  with   characteristics  of  both
liabilities  (or  assets in some  circumstances)  and  equity.  SFAS No.  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.  Adoption of SFAS No. 150 on July 1, 2003 had no
impact on the Company's financial position and results of operations.

In  January  2003,  the FASB  issued  Interpretation  No. 46  "CONSOLIDATION  OF
VARIABLE  INTEREST  ENTITIES" ("FIN No. 46") (revised December 2003). FIN No. 46
clarifies the application of Accounting  Research  Bulletin No. 51 "CONSOLIDATED
FINANCIAL  STATEMENTS" to only certain entities in which equity investors do not
have the  characteristics  of a  controlling  financial  interest or do not have
sufficient  equity at risk for the  equity to  finance  its  activities  without
additional subordinated financial support from other parties. FIN No. 46 applies
immediately to variable  interest  entities  created after January 31, 2003, and
the variable  interest  entities obtained after that date. It applies at the end
of the first annual  reporting period beginning after June 15, 2003, to variable
interests in which an enterprise  holds a variable  interest  which was acquired
before  February  1,  2003.  Adoption  of FIN No. 46 on January 1, 2004 will not
materially impact the Company's financial position or results of operations.

A similar  guideline  has been  introduced  in Canada,  Accounting  Guideline 15
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES".  This guideline applies to annual
and interim  periods  beginning  on or after  November  1, 2004.  The Company is
continuing to evaluate the potential impact of Accounting Guideline 15.

In July 2003,  the CICA released  Section 1100  "GENERALLY  ACCEPTED  ACCOUNTING
PRINCIPLES".  This new section establishes  standards for financial reporting in
accordance  with generally  accepted  accounting  principles.  It describes what
constitutes  Canadian  GAAP  and its  sources,  replacing  "FINANCIAL  STATEMENT
CONCEPTS"  paragraph  1000.59-61.  Also, in July 2003, the CICA released Section
1400,  "GENERAL  STANDARDS OF FINANCIAL  STATEMENT  PRESENTATION".  This section
clarifies what constitutes  fair  presentation in accordance with Canadian GAAP.
Both these sections are effective for fiscal years beginning on or after October
1, 2003 and the Company is currently evaluating their impact.

EXCHANGE RATE HISTORY

The following table sets forth the average exchange rate for one Canadian dollar
expressed  in terms of one US dollar for the fiscal  years  ended May 31,  2004,
2003, 2002, 2001, and 2000.

        PERIOD                                                    AVERAGE
        ------                                                    -------

        June 1, 2003 - May 31, 2004                                0.7443
        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



                                       -8-

<PAGE>



The  following  table sets forth high and low  exchange  rates for one  Canadian
dollar  expressed  in terms of one US  dollar  for the  six-month  period  ended
October 31, 2004.

        MONTH                                HIGH                   LOW
        -----                                ----                   ---

        October 2004                        0.8201                 0.7858
        September 2004                      0.7906                 0.7651
        August 2004                         0.7714                 0.7506
        July 2004                           0.7644                 0.7489
        June 2004                           0.7459                 0.7261
        May 2004                            0.7364                 0.7158

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 November  24, 2004,  reported by the United  States
Federal  Reserve Bank of New York for the  conversion  of Canadian  dollars into
United States dollars was CDN$1.1813 (US$0.8465 = 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 resulted in the Company  conducting  mineral  exploration
activities.  See "Item 4. Information on the Company.  Principal Properties - El
Nayar  Project,  Mexico".  The  following  risk factors  apply to the  Company's
mineral exploration activities.

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
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 is presently  carrying 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.

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 TSX Venture Exchange ("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.

                                       -9-

<PAGE>


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 $0.37 to a low of $0.05  during the  12-month  period
ending October 31, 2004.  Continued price  fluctuations  will have a significant
impact on the Company's ability to complete equity financings.

THE COMPANY'S  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 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  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 existing 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.

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

The project in which the  Company has 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

                                      -10-

<PAGE>



achieved in restructuring  the Mexican  political  institutions 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 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  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  Company's  exploration  projects 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  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 the Company's option interests 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  EXPLORATION  PROGRAMS MAY INCREASE,  WHICH MAY CAUSE THE COMPANY TO
HAVE TO ABANDON SUCH PROGRAMS.

The Company's 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 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.

                                      -11-

<PAGE>



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  Company's   property  interests  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  in which  the  Company  has an
interest, the Company may not be able to conduct its 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 HAVE PROPER TITLE TO ITS  PROPERTIES  AND, AS A RESULT,  MAY
INCUR  SIGNIFICANT  EXPENSES TO OBTAIN PROPER TITLE,  OR MAY HAVE TO ABANDON ANY
SUCH PROPERTIES.

The Company owns,  leases or has under option,  unpatented  and patented  mining
claims,  mineral claims or concessions  which 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 property  interests,  the Company
makes 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  in which the
Company has an interest,  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  Company's  property  interests  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  in which the  Company  has
acquired an interest.

IF THE COMPANY IS UNABLE TO EFFECTIVELY  COMPETE AGAINST OTHER COMPANIES,  OR IF
THE COMPANY CANNOT MARKET ANY MINERALS DISCOVERED ON THE PROPERTIES IN WHICH THE
COMPANY HAS AN INTEREST, 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.

THE COMPANY'S  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  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 Company's foreign  subsidiary  comprises a direct and
integral extension of the Company's operations.  The subsidiary is also entirely
reliant  upon the Company to provide  financing  in order for it to continue its
activities.   Consequently,   the  functional  currency  of  the  subsidiary  is
considered  by  management to be the Canadian  dollar and  accordingly  exchange
gains and losses are included in net income.  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.



                                      -12-

<PAGE>



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.

Several of the Company's directors are also directors,  officers or shareholders
of other  companies.  Some of the  directors  and  officers are engaged and will
continue to be engaged in the search for additional  business  opportunities  on
behalf of other corporations, and situations may arise where these directors and
officers will be in direct  competition with the Company.  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 could place
the Company in a worse position than if no conflict existed.  Conflicts, if any,
will be dealt with in  accordance  with the relevant  provisions of the BUSINESS
CORPORATIONS ACT (British Columbia) (the "BCBCA").  The directors of the Company
are  required by law to act  honestly  and in good faith with a view to the best
interests of the Company and to disclose  any  interest  which they many 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.  In order to avoid the possible  conflict of interest  which may arise
between  the  directors'  duties to the  Company  and their  duties to the other
companies on whose boards they serve,  the directors and officers of the Company
have agreed to the following:

1.       participation in other business  ventures offered to the directors will
         be allocated  between the various companies and on the basis of prudent
         business judgment and the relative financial abilities and needs of the
         companies to participate;

2.       no commissions  or other  extraordinary  consideration  will be paid to
         such directors and officers; and

3.       business  opportunities  formulated  by or through  other  companies in
         which the  directors  and officers are involved  will not be offered to
         the Company  except on the same or better terms than the basis on which
         they are offered to third party participants.

See "Item 7. Major  Shareholders and Related Party  Transactions - Related Party
Transactions - Conflicts of Interest".  As of the date of this annual report all
material  conflicts of interests which have arisen since June 1, 2003, have been
described in "Item 7. Major Shareholders and Related Party Transactions."

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,  and the minutes of the meeting will  reflect such  disclosure  and
abstention  from  voting.  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  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 its properties. 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
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.


                                      -13-

<PAGE>



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 the President,  Chief Executive  Officer and Chief Financial  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 subsidiary  operates.
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 US $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 US $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 US $5,000,000  during the Company's  first
three years of continuous  operations or US $2,000,000 after the Company's first
three years of continuous operations; or (2) the Company has had average revenue
of at least US  $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 US $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.

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  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 for in Section 1296 of the Code.

THIS ANNUAL REPORT CONTAINS STATEMENTS ABOUT FUTURE EVENTS AND RESULTS WHICH MAY
NOT BE ACCURATE.

Statements  contained in this annual  report that are not  historical  facts are
forward-looking statements that involve risks and uncertainties. Such statements
may not prove to be accurate as actual  results and future  events  could differ
materially  from those  anticipated  in such  statements.  Without  limiting the
generality of the foregoing, such risks and uncertainties include interpretation
of results and geology,  results of  pre-feasibility  and  feasibility  studies,
recovery, accidents, equipment breakdowns, labor disputes or other unanticipated
difficulties  with  or  interruptions  in  production,   delays  in  exploration
activities,  political  risks  involving doing business in other nations and the
policies  of  these  other  nations,  the  inherent  uncertainty  of  production
fluctuations and failure to obtain adequate financing on a timely basis.


                                      -14-

<PAGE>



THE  COMPANY  IS  DEPENDENT  UPON  ITS  MANAGEMENT  AND  THE  LOSS OF ANY OF ITS
MANAGEMENT AND/OR IF THE COMPANY IS UNABLE TO RECRUIT ADDITIONAL  MANAGERS COULD
NEGATIVELY IMPACT THE COMPANY'S ABILITY TO CONTINUE ITS OPERATIONS.

The success of the  operations  and  activities of the Company is dependent to a
significant  extent on the efforts and  abilities of its key  officer,  Mr. Nick
DeMare,  a  director  and the  President,  Chief  Executive  Officer  and  Chief
Financial Officer of the Company.  The loss of services of Mr. DeMare could have
a material  adverse  effect on the  Company.  The Company  has not entered  into
employment  agreements  with any of its officers and is not expected to do so in
the foreseeable  future.  The Company has not obtained key-man life insurance on
any of its officers or directors.  The  Company's  ability to recruit and retain
highly  qualified  management  personnel  is critical to its  success;  if it is
unable to do so this may materially affect the Company's financial performance.

INVESTORS  IN THE  UNITED  STATES  MAY  NOT  BE  ABLE  TO  ENFORCE  THEIR  CIVIL
LIABILITIES AGAINST THE COMPANY OR ITS DIRECTORS AND OFFICERS.

It may be difficult to bring and enforce suits against the Company.  The Company
is a corporation domiciled in British Columbia.  None of the Company's directors
are residents of the United  States,  and all or a substantial  portion of their
assets  are  located  outside  of the  United  States.  As a  result,  it may be
difficult for U.S.  holders of the Company's  common shares to effect service of
process  on these  persons  within the  United  States or to enforce  judgements
obtained in the U.S. based on the civil liability provisions of the U.S. federal
securities laws against the Company or its officers and directors.  In addition,
a  shareholder  should  not assume  that the courts of Canada (i) would  enforce
judgments of U.S. courts  obtained in actions against the Company,  its officers
or directors  predicated upon the civil liability provisions of the U.S. federal
securities  laws or other laws of the United States,  or (ii) would enforce,  in
original  actions,  liabilities  against the Company,  its officers or directors
predicated  upon the U.S.  federal  securities  laws or other laws of the United
States.

However, U.S. laws would generally be enforced by a Canadian court provided that
those laws are not contrary to Canadian  public  policy,  are not foreign  penal
laws or laws that deal with  taxation  or the  taking of  property  by a foreign
government  and provided that they are in compliance  with  applicable  Canadian
legislation regarding the limitation of actions.  Also, a judgment obtained in a
U.S.  court would  generally  be  recognized  by a Canadian  court  except,  for
example:

         a)       where the U.S.  court where the  judgment  was rendered had no
                  jurisdiction according to applicable Canadian law;

         b)       the judgment was subject to ordinary remedy (appeal,  judicial
                  review and any other  judicial  proceeding  which  renders the
                  judgment not final,  conclusive or enforceable  under the laws
                  of  the  applicable   state)  or  not  final,   conclusive  or
                  enforceable under the laws of the applicable state;

         c)       the judgment  was obtained by fraud or in any manner  contrary
                  to natural justice or rendered in contravention of fundamental
                  principles of procedure;

         d)       a dispute between the same parties,  based on the same subject
                  matter  has given rise to a  judgment  rendered  in a Canadian
                  court or has been decided in a third  country and the judgment
                  meets the necessary  conditions for  recognition in a Canadian
                  court;

         e)       the outcome of the judgment of the U.S. court was inconsistent
                  with Canadian public policy;

         f)       the judgment enforces  obligations  arising from foreign penal
                  laws or laws that deal with taxation or the taking of property
                  by a foreign government; or

         g)       there has not been  compliance  with  applicable  Canadian law
                  dealing with the limitation of actions.




                                      -15-

<PAGE>



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


HISTORY AND DEVELOPMENT OF THE COMPANY

NAME AND INCORPORATION

The Company was incorporated under the British Columbia Company Act ("BC Company
Act") 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." On March 2, 2004,  the  Company  changed its name from  "Hilton  Petroleum
Ltd." to "Hilton Resources 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 the Company changed its domicile through continuation from British
Columbia to the Yukon Territory under the BUSINESS CORPORATIONS ACT (Yukon) (the
"YBCA").

Effective  November  30,  2002,  the Company  determined  to  write-off  its net
investments  in, and cease  funding of Hilton U.S.  and STB Energy,  Inc.  ("STB
Energy").  See "Item 4.  Information  on the  Company - Business  Overview".  On
December 30, 2002, the Company completed a consolidation of its share capital on
a one new for ten old basis.

In May 2003,  the Company  terminated the option  agreement  relating to certain
resource  properties  in China  and  Mongolia.  Under the  agreement,  which was
entered  into in June 2002,  the Company  could  acquire a 100%  interest in the
properties by paying $3.2 million and issuing  common  shares.  In October 2003,
the  Company  concluded  an  option  agreement,  to  acquire  an  interest  in a
gold/silver  project  in  Mexico.  See  "Item 4.  Information  on the  Company -
Principal Properties - El Nayar Project, Mexico."

On March 29,  2004,  the  British  Columbia  legislature  enacted  the BCBCA and
repealed  the BC Company  Act. At the  Company's  annual and special  meeting of
shareholders  held on  November  18,  2004,  the  Company  received  shareholder
approval to continue its corporate  jurisdiction into British Columbia under the
BCBCA.  See "Item 10.  Additional  Information  -  Memorandum  and  Articles  of
Association".  Effective  November  23, 2004,  the Company  changed its domicile
through  continuation  from the Yukon  Territory to British  Columbia  under the
BCBCA.

The Company's  registered and principal business office is located at Suite 1305
- 1090 West Georgia Street,  Vancouver,  British Columbia,  V6E 3V7. The contact
person is Nick DeMare, President. The telephone number is (604) 685-9316 and the
facsimile number is (604) 683-1585. 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 TSX
Venture Exchange.  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 on January 28, 2004, was  re-classified as a Tier 2 company for
not  maintaining  the  requirements  for a Tier 1 company.  Tier 1 is the TSXV's
premier tier and is reserved for the TSXV's most advanced  issuers with the most
significant  financial  resources.  Tier 1 issuers benefit from decreased filing
requirements  and improved  service  standards.  The  majority of the  companies
listed on the TSXV are Tier 2 companies.


                                      -16-

<PAGE>



Effective  February 7, 2001, the Company's common stock was approved for trading
on the  Over-the-Counter  Bulletin Board (the "OTC Bulletin  Board") operated by
the National  Association  of Securities  Dealers.  The Company's  common shares
currently trade on the OTC Bulletin Board under the symbol "HPMOF".

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.

During 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 $7.8 million.  The Company also paid
$1.1  million  for its share of the gas  facility  at East  Lost  Hills and $2.4
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 $19.9 million.

During fiscal 2001,  the Company raised $9.5 million from the issuance of common
shares and $4.7  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 $21.9 million of debt.

During fiscal 2002, the Company was faced with significant  funding  commitments
for its continued  participation  in the East Lost Hills and Greater 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  Project  and  Greater San Joaquin  Joint  Venture.  As a result,  in
February  2002,  the  Company  withdrew  from  participation  in the Greater San
Joaquin  Joint  Venture and, in May 2002,  concluded an agreement  with Anadarko
Petroleum  Corporation 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 $7.2 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.

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.  ("A.I.   Solutions")  to  pursue  these
opportunities.   All  research,   development  and  marketing   activities  were
contracted out to arms-length parties.

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 $5.3
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,  funded on a reduced
basis,  the  development  of  proprietary  software  programs  using  artificial
intelligence.  The Company  expended  $364,000 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 to acquire an interest in a gold/silver project in
Mexico.  See "Item 4.  Information  on the Company - Principal  Properties  - El
Nayar  Project,  Mexico"  and  "Item  5.  Operating  and  Financial  Review  and
Prospects". During the 2004 fiscal year, the Company completed a

                                      -17-

<PAGE>



number  of  private  placement  financings  for  6,130,000  common  shares,  for
$865,750.  These funds were used for working  capital  purposes and  exploration
activities on the El Nayar Project. However, the Company will require additional
funds to fulfill its funding requirements on the El Nayar 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.

Effective May 31, 2004, the Company abandoned Stanford and A.I. Solutions.

DISPOSITIONS

During  fiscal 2003,  the Company  abandoned  all of its  petroleum  operations.
Accordingly, it recorded a net charge of $6,881,119 for depreciation,  depletion
and  impairment of its petroleum  interests.  The Company did not dispose of any
property  interests  during  fiscal  2004,  nor did the  Company  dispose of any
property interests during fiscal 2002. However,  during fiscal 2002, the Company
recorded a charge of $39,482,069  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 resources 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. Effective May 31, 2004,
the Company formally abandoned A.I. Solutions and Stanford. These companies were
inactive throughout fiscal 2004.

EXPLORATION EXPENDITURES

During  fiscal  2004,  the  Company  incurred   $103,971  for  mineral  property
acquisition  costs and $116,611 for  exploration  costs on its mineral  property
interests.  During  fiscal 2003 and 2002,  the  Company  incurred  $655,786  and
$3,169,417 respectively, on the acquisition,  exploration and development of its
petroleum  interests.  The Company also  incurred  $364,413 and $793,237  during
fiscal 2003 and 2002,  respectively,  on research,  development and marketing of
software.

No mineral property acquisitions or exploration expenditures were made in fiscal
2003 or 2002.

2005 EXPLORATION BUDGET

As of the date of this  annual  report,  the  Company  anticipates  that it will
undertake a surface exploration program and completion of geological mapping and
reconnaissance and prospecting on the El Nayar Project. The Company's budget for
this exploration work is US $60,000.  The Company intends to finance the planned
exploration from existing working capital.

SALES AND REVENUE DISTRIBUTION

As of the date of this annual report, the Company has not generated any revenues
from its mineral properties.

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 this 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 2004,  2003 and
2002, were as follows:

                                      -18-

<PAGE>

<TABLE>
<CAPTION>

                                                                  ($ IN 000)
                                                 --------------------------------------------
                                                             YEARS ENDED MAY 31,
                                                 --------------------------------------------
                                                    2004            2003             2002

<S>                                            <C>             <C>              <C>

Petroleum and Natural Gas Sales
     - United States                             $         -     $       128      $       362
                                                 -----------     -----------      -----------
Interest and Other Income
     - United States                                       -               -            1,290
     - Canada                                             95              58               49
                                                 -----------     -----------      -----------
                                                          95              58            1,339
                                                 -----------     -----------      -----------
Total Revenue, Interest and Other Income         $        95     $       186      $     1,701
                                                 ===========     ===========      ===========
</TABLE>

PRINCIPAL PROPERTIES

EL NAYAR PROJECT, MEXICO

[MAP 1 - Map of Mexico  from PGS  Pacific  Geological  Services  indicating  the
location  of the El Nayar  Concessions,  with a close-up  inset map  showing the
location  of the El Nayar  Project in  relationship  to the city of  Guadalajara
taken from the December 18, 2003 report by John Nebocat,  P. Eng.,  entitled the
"Report on the Geology and Mineral Deposits on the El Nayar Project,  Ixtlan del
Rio, Nayarit, Mexico" ]

Property Agreements

On October 1, 2003, the Company  finalized a heads of agreement for an option to
acquire a 60% interest in the El Nayar Project, which included the Guanajuatillo
Mine and La  Castellana,  San Jorge  Properties  totalling  approximately  6,766
hectares in the State of Nayarit,  Mexico. The optionor is Minera San Jorge S.A.
de C.V. ("MSJ"), a private Mexican company at arms-length to the Company.

The Company may earn an initial 60% interest,  in consideration of making option
payments to MSJ  totaling US $50,000  (paid) and the  issuance of a total of 1.1
million  common  shares  and  funding  US $1  million  of  expenditures,  on the
following basis:

        DATE                                  SHARE ISSUANCES     EXPENDITURES
                                                                      US $

        January 27, 2004                             100,000                 -
        May 27, 2004 (incurred)                            -            40,000
        January 27, 2005                             200,000           250,000
        July 27, 2005                                      -           710,000
        January 27, 2006                             300,000                 -
        January 27, 2007                             500,000                 -
                                                ------------      ------------
                                                   1,100,000         1,000,000
                                                ============      ============

Issuance of the initial  100,000  common  shares was  pending  clarification  of
certain  property  titles.  This  has  now  been  resolved  and the  Company  is
proceeding with the issuance of the 100,000 common shares.

The Company has paid  $19,741 (US  $15,000) of  underlying  option  payments and
$18,966 land holding costs required of the optionor. The Company has also agreed
to pay  land  holding  costs  totaling  approximately  $137,428.  Future  option
payments to the concession holders are as follows:

                                      -19-

<PAGE>



                                                             US $

        December 2004                                         25,000
        June 2005                                             30,000
        December 2005                                         35,000
        June 2006                                             40,000
        December 2006                                         80,000
                                                        ------------
                                                             210,000
                                                        ============

These option  payments  and land  holding  costs will be included as part of the
expenditure commitment for the Company's earn-in.

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.

Introduction

The property  which forms the basis of the Company's El Nayar Project is located
in the State of Nayarit, in thinly populated, rugged terrain some 120 kilometers
northwest of  Guadalajara,  in the Los Mezquites  sector of the  Hostotipaquillo
Mining  District.  As of the date of this  annul  report  the El  Nayar  Project
consists of four contiguous claims (concesiones  mineros) with an aggregate area
of 6,745 hectares.  Initially,  the El Nayar Project comprised five claims,  but
the tiny Los  Limones  claim,  separate  from the main  claim  group  and  lying
approximately 4.5 kilometers to the south, was judged too small and isolated for
rational exploration and was returned to the owner after cursory examination

The claim statistics are as follows:
<TABLE>
<CAPTION>

CLAIM                 CLAIM              LICENSE          TITLE HOLDER                         CLAIM AREA
NAME                  TYPE                 NO.                100%                             (HECTARES)
<S>                 <C>                 <C>             <C>                                   <C>    <C>    <C>

San Jorge IV          Exploration         206265           MSJ                                   6,575.07
La Castellana         Mining              161793           Pablo Antonio Fitch Parent               32.00
San Jorge VII         Mining              209418           Francisco Javier Azpeitia J. &           93.96
                                                           Lourdes del C. Mercado Maraveles
Guanajuatillo         Mining              596762           MSJ                                      44.20
                                                                                                 --------
                                                           TOTAL AREA                            6,745.23
                                                                                                 ========
</TABLE>

The El Nayar  Projecty is without  known  reserves  and the  Company's  proposed
program is exploratory in nature.

The following  discussion is partly based on a geological report written for the
Company.  The  "Report  on the  Geology  and  Mineral  Deposits  on the El Nayar
Project, Ixtlan del Rio, Nayarit, Mexico" (the "El Nayar Report") was written by
John Nebocat,  P. Eng., on December 18, 2003. Mr.  Nebocat  visited the El Nayar
Project  in the  preparation  of the El Nayar  Report.  The El Nayar  Report  is
available on the SEDAR website, www.sedar.com.

Property Description and Location

The El Nayar  group of  claims  lies  immediately  north of the  village  of Los
Mezquites  and is bisected by the Rio Grande de  Santiago  (hereafter  "Santiago
River"),  which  flows  from SE to NW  through  the  property.  The  terrain  is
characterized  by a profusion of steep sided  conical  hills and deeply  incised
river  valleys.  The greater  part of the  project  area is hilly  upland  where
scattered  tiny  communities  engage  in  subsistence  farming.  Access to these
communities is by bridle-path, and mule the main mode of transport. In the south
of the claims,  a rough  all-weather  road about six  kilometers  long links Los
Mezquites with the hamlet of La Playa,  on the east bank of the Santiago  River.
Los Mezquites is reached from the

                                      -20-

<PAGE>



main Guadalajara - West Coast Highway by 19 kilometers of  well-maintained  dirt
road which leaves the highway at San Antonio,  a village  between the population
centers Magdalena and Ixtlan del Rio.

The La Castellana Mine (and concession) is owned by Pablo Antonio Fitch Parente.
MSJ has a  pre-existing  agreement  with Mr. Fitch  whereby MSJ has the right to
purchase 100% of the La Castellana concession for US $150,000.  The terms of the
agreement  stipulate a US $5,000 payment on December 13, 2003 (paid),  a further
US $10,000 on June 13, 2004 (paid),  US $15,000 On December 13, 2004, US $20,000
on June 13, 2005,  US $25,000 on December 13, 2005,  US $30,000 on June 13, 2006
and a final payment of US $45,000 on December 16, 2006.

The San Jorge VII concession is owned by Francisco Javier Azpeitia Jaramillo and
Lourdes  del  Carmen  Mercado  Maraveles.  MSJ has an option  to  acquire a 100%
interest  in the  property  by  paying  the owner US  $90,000.  The terms of the
underlying  agreement with Mr. Azpeitia  require MSJ to make a US $5,000 payment
on December 11, 2003 (paid), a payment of US $10,000 on June 11, 2004 (paid), US
$10,000  on  December  11,  2004,  US $10,000  on June 11,  2005,  US $10,000 on
December  11,  2005,  US $10,000 on June 11, 2006 and US $35,000 on December 11,
2006.

Taxes are due every six (6)  months,  on or before  January  31st and July 31st.
These taxes are for exploration and mining rights only. Surface rights taxes are
paid only by the surface owner;  mining rights to do not entitle surface rights.
In the case of exploitation  titles,  an additional tax is owed according to the
amount of ore that has been mined.

Before,  or on,  May 30th of each  year,  a proof of the work that has been done
during the last year has to be presented  in Direccion de Minas.  The report has
to  indicate  the type of work  that has been done in the  mining  claim and the
amounts of the expenses  that have been  incurred.  The invoices and receipts of
such  expenses  must  exist  and can cover  surveying  works,  roads,  sampling,
geology,  lab invoices,  etc. The report is called  "Comprobacion de Obras".  It
contains a description of the different works  accomplished,  copies of the main
invoices and small descriptions of the mineral reserves (if that is the case).

Exploration  titles are given after presenting an application for an exploration
concession  and the  assessment  work  done  by a  Registered  Surveyor  (Perito
Minero).  They are good for six years and before the expiration  date, they have
to be changed for an  exploitation  title.  The assessment  work has to show the
exact location of the claim, surface, and claims around it.

All the claims  described  within this report,  with the  exception of the newly
applied-for Guanajuatillo concession, have been legally surveyed.

Exploitation  titles are good for 50 years.  They are given after presenting the
application for exploitation and the assessment work.

An explorer  must submit an  environmental  impact  report to the  Environmental
Secretary and also apply for a change of soil use permit before  exploration can
commence.

Permits that are required before  exploration or exploitation  can start include
the aforementioned  environmental impact report and change of soil use report, a
land  use  permit  from  the  surface  owners,  and  where  applicable,  use  of
explosives, use of water and use of electricity permits.

MSJ  provided  Mr.  Nebocat  with a copy of an  application  to perform  mineral
exploration, presented to the Secretaria del Medio Ambiente y Recursos Naturales
(SEMARNAT).  This is called  "Permiso  de  Impacto  Ambiental".  It  contains  a
description of the roads, drill zones, reforestation if needed, etc., and a copy
of  the  permit  allowing  MSJ  to  perform  exploration,  issued  by  the  same
department.

Accessibility, Climate, Local Resources, Infrastructure and Physiography

The El Nayar  Project  is  accessible  by either a four lane  highway  west from
Guadalajara,  the third largest city in Mexico, or via an older two-lane highway
that passes through the town of Magdalena on to the community of San Antonio,  a
distance  of about 118 km.  From San  Antonio  the  property  is  accessed by an
all-weather gravel road which heads north through the community of Mezquites,  a
distance of 19 km. A rough gravel road, best used in 4-wheel-drive,  heads north
and descends into and crosses  Quebrada Los Limones,  about 5 km from Mezquites.
The road climbs steeply for another

                                      -21-

<PAGE>



2.5  kilometers.  The  community  of La Playa is located on the east bank of Rio
Santiago located just a few hundred meters from the road to El Nayar.  Access to
La Playa is via a cable car or a cable ferry boat (passengers only).

The topography on and around the property is fairly steep,  but no cliff-forming
features were observed in the areas  visited.  Elevations on the property  range
from around 300 meters above sea level ("ASL") to 800 meters ASL.  Vegetation is
sparse,  consisting of thorn bushes,  scrub oaks,  cacti and assorted shrubs and
vines.   The  landscape  looks  fairly  bleak  during  the  dry  season  between
mid-October  and mid-June,  but it lushes up with the advent of the rainy season
during the summer months.  The climate is typically  semi-arid to  sub-tropical;
temperatures are hot in the summer months and mild in the winter. It is possible
to work on the property on a year-round  basis,  but seasonal  rains may inhibit
local access occasionally.  Access to major towns is quite good: Magdalena, with
a population of around 26,000,  is about 60 kilometers  away, and Guadalajara is
about  145  kilometers  from the  property.  Road/vehicular  travel  is the only
expedient means of access to the property.

History and Geology

The entire project area is underlain by volcanic  rocks of Tertiary age.  Thick,
flat-lying  flows of andesite are penetrated by rhyolite,  which forms dome-like
structures  which  correspond  to the conical  hills.  An episode of  epithermal
mineralization  led to the  district-wide  formation  of quartz  veins  which in
instances  carry  significant  silver  values,  accompanied by modest amounts of
gold.  Management believes much of the El Nayar property's 6,745 hectares should
be considered prospective for silver mineralization.

Silver has been mined in the  Hostotipaquillo  Mining  District  since  Colonial
times,  but the main period of activity  embraced  the last  decades of the 19th
century and the first decades of the 20th  century.  The Cinco Minas mining camp
and Monte del Favor mine were the  principal  producers  in the district and are
quite well documented. The Los Mezquites area was rather less productive.  There
is  evidence  of a  number  of small  underground  operations  in the  vicinity;
however,  of these,  only three appear to have been  sufficiently  profitable to
allow  the  construction  of ore  concentrating  facilities.  The  three  are La
Castellana,  Guanajuatillo  and Buenos  Aires.  Whereas all lie within the outer
boundary of the El Nayar  claims,  the Buenos  Aires mine is on claims which are
owned by other  interests and excluded from the Project.  No production  records
for these mines have been found and the names of prior operators are unknown.

The La  Castellana  mine has been a principal  focus of interest in the project.
Unlike the Buenos Aires mine,  which can only be reached  after several hours on
mule-back, La Castellana is accessible by vehicular traffic.  Driving north from
Los Mesquites, the final 2.5 kilometers of the road hug the south bank of the El
Limon creek.  Near the  beginning of this road sector a zigzag bridle path leads
down to the Guanajuatillo mine site in the creek bed, approximately 200 vertical
meters  below.  The  Santiago  River is crossed by a cable  ferry - often out of
service.  A few hundred  meters  short of the river  crossing,  scattered  ruins
hidden  in the bush are all that  remains  of the  historic  community  El Limon
where,  a  century  ago,  ore  from  the La  Castellana  mine  was  crushed  and
concentrated. A rough but drivable road winds up the slope north of the El Limon
creek to the mine site. The only installation  remaining is an open-fronted shed
beside the portal of an adit.  There is no  electrical  power line or  telephone
service  nearer than Los  Mezquites  and the nearest water supply is from the El
Limon creek or the  Santiago  River,  about 200  vertical  meters below the mine
portal.

A dam being  constructed on the Santiago  River north of the project area,  when
completed in the next year or two,  will cause the water level  upstream to rise
to the 400 meter  contour,  which means that the  reservoir  will extend about a
kilometer  up the El Limon  creek.  This will  interrupt  road  access to the La
Castellana  mine site (and to the El Norte  vein.) The  Guanajuatillo  "mine" is
above the 400 meter contour level and should not be affected.

The La Castellana  mine was  developed on a single vein,  which crops out on the
steep hillside.  The vein has a general ENE strike, an average dip of 53 degrees
to the NNW and an average  thickness of 1.2 meters. It is surmised that the vein
was initially  mined in a small way by burrowing down from the surface  outcrop.
Subsequently  an adit was driven on the vein; this working came to be called the
La Castellana level.  Another level, about 100 meters vertically lower, also has
adit access. This level, known as the Buenaventura  level,  follows the vein for
about 300 meters.  It was likely  developed in the 1880s (a stone-built  housing
for an overshot  waterwheel at El Limon is dated 1889). This working is still in
good condition, with track remaining.

It is thought that the main  production  period of the mine ended  between 60-90
years ago. As is usual in Mexico,  it is very likely that small scale  informal,
undisciplined mining by gambusinos (informal miners) continued sporadically

                                      -22-

<PAGE>



thereafter.  From  time  to time a few  tonnes  of ore are  scavenged  from  the
remaining pillars by operators engaged by the underlying claim owner (Mr. Fitch)
and taken to a small mill at La Pupa, 12 kilometers away.

It is estimated that over the centuries some 140,000 tonnes have been mined from
the La  Castellana  vein.  There are no  official  records  of the grade of this
material. Mr. Nebocat tabulates the following statistics of sampling carried out
by him, by Cia.  Minera  Cuevas,  a Mexican  subsidiary  of  Noranda,  and by A.
Hurtado,  a geologist of the Mineral Resources branch of the Mexican  Geological
Survey:
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                        AVERAGE    NUMBER OF      AG        AU         CU         PB        ZN
LOCATION             SAMPLER           WIDTH (M)    SAMPLES      G/T        G/T         %         %          %
-------------------------------------------------------------------------------------------------------------------
<S>                <C>                 <C>          <C>        <C>       <C>         <C>       <C>       <C>

Buenaventura         Las Cuevas          1.25          98        123        n/a       0.08       0.56      0.90
La Castellana        Las Cuevas          1.20          34        191        n/a       0.05       0.31      0.46
Buenaventura         J. Nebocat          1.23          10        220       0.71       0.15       1.28      2.04
Buenaventura         A. Hurtado          1.20         n/a        120       1.15       0.25       0.69      1.20
La Castellana        A. Hurtado          1.12         n/a        295       1.05       0.08       0.91      0.98

</TABLE>

Note:    Mr.  Nebocat did not sample the La Castellana  level which is no longer
         readily or safely accessible

Mr. Nebocat notes that certain trends are suggested by the data:

   i)    silver values are substantially higher in the upper level;

  ii)    base metal values tend to be higher in the lower level; and

 iii)    manganese  values tend to be higher  toward the east,  i.e.  nearer the
         surface.

These apparent trends in the  distribution of metals would  correspond well to a
systematic  fall in silver  grade and a  corresponding  increase  in base  metal
values  with  increasing  depth  within  the vein.  Such a  pattern  is usual in
epithermal veins and reflects depth-related chemical and physical gradients that
prevailed at the time the vein was formed.

Another type of trend to be considered is one that develops at a later time when
the vein is exposed at surface and subjected to weathering. As metallic minerals
oxidize in the  near-surface  environment,  acid is  produced  which  percolates
downward,  carrying  dissolved  silver,  gold, and other metals. On reaching the
water table,  the  dissolved  metals  precipitate,  and a zone enriched in these
elements forms. The profile of the weathered vein from surface downward consists
of:

   1.    a zone of  leaching  in  which  silver,  gold,  etc.  are  considerably
         depleted;

   2.    a zone of enrichment which eventually grades downward into;

   3.    the original, unaffected ore, with normal values.

A  concentration  of manganese is typical of epithermal  silver veins which have
been subjected to prolonged weathering.

The process  described  above,  known as  "supergene  enrichment"  or "secondary
enrichment"  can be a  critical  factor in making a silver  deposit  economical.
During  early  Colonial  times  most of  Mexico's  silver  production  came from
enriched,  near surface  lodes.  High values were  necessary to  compensate  for
primitive recovery technology and difficult logistics.

Comparison of the La Castellana  vein with other silver  deposits in the Mexican
cordilleran  ranges  suggests the  likelihood  that ore mined in the past was of
substantially higher grade that the values shown by sampling.  In recent decades
narrow veins such as La Castellana  typically  have required  grades of at least
400 g/t Ag for economic exploitation; in Colonial times and the earlier years of
the Republican  era, say before about 1840, the inefficient  milling  technology
prevalent called for even higher grades - commonly above 1,000 g/t Ag.

A vein is  shown  between  250  meters  and 500  meters  to the  north of the La
Castellana  vein on a map produced by Cia.  Minera Las Cuevas in 1980. This vein
has not been mined and - prior to the Company's entry on the scene - had

                                      -23-

<PAGE>



received  only minor  exploration  sampling.  Strike is ENE and there is a steep
inclination  to the NNW.  The vein is over 500 meters long,  horizontally.  This
vein has been named "El Norte" by the Company.

The Las Cuevas map shows a third vein,  at the site of the  Guanajuatillo  mine,
located at the bottom of the El Limon creek, about 2.5 kilometers  upstream from
El Limon. No information about this "mine" has been found.

Exploration Activities by the Company

Exploration  of the property began in February,  2004. The principal  activities
consisted  of  systematic  mapping and  sampling  of the old  workings on the La
Castellana  vein, and  delineation  and surface  sampling of the nearby El Norte
vein. The old  Guanajuatillo  mine site was cleared of  vegetation,  and various
ruined buildings located; the vein is not at present accessible for evaluation.

The La  Castellana  vein is  accessible  from the  Buenaventura  adit and from a
number of openings along the outcrop of the vein. The vein outcrop forms a minor
cliff  feature on the steep wooded  hillside NW of the  Buenaventura  portal.  A
total of eight  openings  occur along the foot of the cliff,  giving  precarious
access to the underground workings and providing  ventilation.  One such opening
was the exit of an inclined  shaft which  likely was the  principal  haulage way
prior to  development  of the adits.  On the  hillside  below this  opening  the
remains of a stone chute  testify to how ore was tumbled down to primitive  mill
facilities on the banks of the El Limon creek.

Channel samples were taken on the vein outcrop and on the sides of the openings.
Access to parts of the  interior of the mine was  established  with  ladders and
ropes from a surface opening.  The old stopes mostly remain open, as no backfill
was employed;  in a few places there has been collapse of the roof. Pillars show
evidence of being under  considerable  stress. In general,  pillars are of small
diameter and typically restricted to narrower, lower grade parts of the vein. It
is probable that generations of gambusinos (informal miners) have pecked away at
the pillars,  reducing them to a size  inconsistent with safety. A sector of the
La Castellana  level was encountered,  underground,  and followed north to where
the vein appears to be cut off by a fault.

The part of the vein  between  the La  Castellana  and  Buenaventura  levels  is
generally  very steep and unsafe for  sampling.  In  contrast,  sampling  on the
Buenaventura  level was  readily  achieved.  There are no mine  workings  of any
significance on the vein below this level.

The majority of the samples from the La  Castellana  vein display  values in the
range  100-350 g/t Ag and rather  less than 1.0 g/t Au. An average  value of the
samples  would  not be  meaningful.  It is  thought  that  these  values  do not
represent the grade of the ore mined here over an extended  period but,  rather,
characterize  the  grade of  material  which  the old  time  miners  would  have
considered below economic grade, and consequently left behind.

Dumps, stockpiles or other accumulations of broken ore material on site total no
more than a few hundred tonnes.

To  facilitate  exploration  of the Veta Norte,  an access road was built on the
north side of the vein outcrop. As the terrain steepens the road adopts a zigzag
course.  The  road  has  been  advanced  to  within   approximately  120  meters
(horizontally) of the hilltop where the high point of the vein crops out. Values
obtained  from channel  samples on outcrops are in general  slightly  lower than
values  demonstrated  by the La Castellana  vein.  This may reflect  leaching of
metal values in the surface environment, a common phenomenon, often complemented
by a  corresponding  enhancement  of values  (secondary  enrichment)  at greater
depth.

Exploration  carried  out to  date  confirms  that  the La  Castellana  mine  is
essentially  depleted down to the  Buenaventura  level. The vein walls typically
are sharp,  and once the vein was mined no  significant  ore remained.  No other
mineral  resource is known on the  property.  It is presumed  that the grades of
mineralization  exploited in the past were substantially higher than the average
values  shown by the recent  sampling  initiative;  however,  in the  absence of
records showing the grades  encountered during the historic active period of the
mine this concept cannot be confirmed.

Future  mining on the  property is  dependent  on  discovery of a new orebody of
sufficient size and grade to justify underground development and investment in a
concentrating  plant,  given that there is no adequate custom mill within a very
large  radius.  The El Norte  vein is the most  obvious  exploration  target  at
present,  although  other  veins in the  vicinity  have  come to light in recent
months and will require investigation.

                                      -24-

<PAGE>



Further   exploration  of  the  property  will  have  the  following   principal
objectives:

   1.    completion of surface  exploration  of the El Norte vein,  leading to a
         drill decision;

   2.    completion of geological mapping in an area embracing the La Castellana
         and  Guanajuatillo  mines  and  the  El  Norte  vein,   accompanied  by
         prospecting;

   3.    location and evaluation of mineralization  at the  Guanajuatillo  mine;
         and

   4.    geological  reconnaissance  and  prospecting  of the  remainder  of the
         extensive property.

An exploration program to address the above objectives will last between two and
three months and cost about US $60,000.  On completion of the program a decision
will be made whether or not to proceed with drilling of the El Norte vein.

Government Regulations

The Company's operations and exploration and development  activities are subject
to extensive  Canadian and Mexican federal,  state,  provincial  territorial and
local laws and regulations governing various matters, including:

    -    environmental protection;
    -    management and use of toxic substances and explosives;
    -    management of natural resources;
    -    exploration,   development  of  mines,   production  and   post-closure
         reclamation;
    -    exports;
    -    price controls;
    -    taxation;
    -    labour  standards and  occupational  health and safety,  including mine
         safety; and
    -    historic and cultural preservation.

The costs  associated  with  compliance  with  these  laws and  regulations  are
substantial  and  possible  future  laws  and  regulations,  or  more  stringent
enforcement of current laws and regulations by governmental  authorities,  could
cause additional expense,  capital expenditures,  restrictions on or suspensions
of the Company's  operations and delays in the  development  of its  properties.
Moreover,  these laws and  regulations  may allow  governmental  authorities and
private  parties to bring  lawsuits based upon damages to property and injury to
persons resulting from the environmental,  health and safety impacts of our past
and current  operations and could lead to the  imposition of substantial  fines,
penalties or other civil or criminal sanctions.

OTHER ASSETS

As at the date of this annual  report,  the Company  does not hold any  material
assets other than its option and mineral claim interests.

EMPLOYEES

As of the date of this annual report the Company has no full-time employee.  The
Company's  management  functions  are  provided  by private  companies  owned by
officers  and  directors  of the Company.  See "Item 7. Major  Shareholders  and
Related Party  Transactions  - Related  Party  Transactions."  In addition,  the
Company employs a number of consultants to perform specific functions,  on an as
needed basis.

ORGANIZATIONAL STRUCTURE

Effective  November  30,  2002,  the  Company  wrote off its  investment  in its
wholly-owned subsidiaries, Hilton U.S. and 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.  Effective May 31,
2004,  the Company  wrote-off  its  remaining  investment  in Stanford  and A.I.
Solutions, both inactive companies.


                                      -25-

<PAGE>



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 the  date of  this  annual  report.  Unless
otherwise  indicated herein,  the term "Company" means  collectively the Company
and its subsidiaries.

                               ORGANIZATION CHART


                        --------------------------------
                              HILTON RESOURCES LTD.
                               (British Columbia)
                        --------------------------------
                                       |
                                       |
                                       |
                          ----------------------------
                           Minera Nayarit S.A. de C.V.
                                    (Mexico)
                                       60%
                          ----------------------------

SUBSIDIARY

As of the date of this  annual  report the Company  has one  subsidiary,  Minera
Nayarit S.A. de C.V.  ("Minera  Nayarit"),  which was  incorporated on April 29,
2004 in  Mexico,  to  hold  and  carry  out the  Company's  Mexican  exploration
activities.  The  Company  is a  recorded  holder  of  60%  of  the  issued  and
outstanding common shares of Minera Nayarit. The remaining 40% of the issued and
outstanding common shares of Minera Nayarit are held by MSJ, the optionor of the
El Nayar  Project.  The 40%  interest  is held in trust by MSJ on  behalf of the
Company  until the Company has earned its 60% interest in the El Nayar  Project,
as described in "Item 4. Information on the Company - Principal  Properties - El
Nayar Project, Mexico - Property Agreements".

PRINCIPAL OFFICES

The  Company's  corporate  office is located at Suite  #1305,  1090 West Georgia
Street,  Vancouver,  British Columbia,  Canada. The corporate 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, 2004,  2003,  and 2002 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 November  24, 2004,
reported  by the  United  States  Federal  Reserve  Bank  of New  York,  for the
conversion  of Canadian  dollars  into  United  States  dollars  was  CDN$1.1813
(US$0.8465 = 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.

OVERVIEW

Since  inception the Company has primarily been engaged in the mineral  resource
and petroleum and natural gas  industries.  Most recently it had been engaged in
the  acquisition,  exploration  for and development of crude oil and natural gas
interests in the United states and in the research, development and marketing of
proprietary  software programs.  In 2003, the Company  reorganized its corporate
structure and business objectives. The Company is currently

                                      -26-

<PAGE>



a  junior  mineral  exploration  company  engaged  in  the  acquisition  of  and
exploration for precious metals on mineral interests located in Mexico.

In October 2003,  the Company  finalized an option  agreement,  whereby it could
earn an initial  60%  interest in the El Nayar  Project in Mexico.  See "Item 4.
Information on the Company - Principal Properties - El Nayar Project, Mexico."

At this stage of  development,  the Company  has no  producing  properties  and,
consequently,  has no current operating income or cash flow. The Company has not
yet determined whether its properties contain ore reserves that are economically
recoverable.  As a result,  the  Company  is  considered  an  exploration  stage
company.

The Company is actively  reviewing  additional  resource  properties  at various
stages of development  and may make  additional  acquisitions  through  staking,
options,  purchases or joint ventures.  If so, significant  additional financing
may be  required,  and there is no  assurance  that funds would be  available on
terms acceptable to the Company or at all.

The Company  expects the  property  in which it has an option  interest  will be
moved toward determining  individual viability over the next two to three years.
There is no assurance  that any  property  will prove to be mineable or, that if
such a determination  is made, that the Company will be able to secure financing
for capital costs.

Nearly all of the  Company's  activities  are directed to such  exploration  and
future   development   programs.   Yearly  variations  in  individual   property
expenditures  generally reflect  increases or decreases in specific  exploration
and  development  costs based on previous  results and the  Company's  decisions
regarding the allocation of exploration expenditures between properties.

The  Company  is  presently  exploring  the  property  in which it has an option
interest for sufficient reserves to justify  production.  None of its properties
are yet in  production  and,  consequently,  the  properties  do not produce any
revenue.  As a result there is little  variation  expected in operating  results
from year to year and little is to be  expected  until such time,  if any,  as a
production decision is made on the property.  The Company's level of exploration
expenditures is dependent upon exploration  results and the Company's ability to
maintain sufficient financial resources.

The Company derives  interest  income on its bank deposits and other  short-term
deposits,  which  depend  on the  Company's  ability  to  raise  funds.  Of most
significance  would be further  cash  received  from  issuance of shares to fund
ongoing operations.

Through the exploration process,  management  periodically reviews results, both
internally and externally,  through mining related  professionals.  Decisions to
abandon,  reduce or expand  exploration  efforts  are  based  upon many  factors
including general and specific  assessments of mineral deposits,  the likelihood
of increasing  or decreasing  those  deposits,  land costs,  estimates of future
mineral  prices,  potential  extraction  methods and costs,  the  likelihood  of
positive or negative changes to the environment, permitting, taxation, labor and
capital costs.  Geological  and/or economic  circumstances  render each property
unique. Consequently, it is not possible to have any predetermined hold period.

Costs incurred for general  exploration that do not result in the acquisition of
mineral  properties  with ongoing  exploration  or  developmental  potential are
charged to operations.  Exploration  costs relating to the Company's  properties
are  capitalized as mineral  properties and deferred  costs.  Should the Company
abandon a property or project,  the  related  deferred  costs will be charged to
operations.

The recoverability of amounts shown for mineral properties and deferred costs is
dependent upon the discovery of economially recoverable reserves,  completion of
positive  feasibility  studies,  confirmation  of the Company's  interest in the
underlying  mineral  claims,  the  ability of the  Company  to obtain  necessary
financing  to  complete   exploration  and  development  and  future  profitable
production, or from the disposition of such properties.

During  fiscal 2004,  the Company  changed its  reporting  currency  from United
States dollars to Canadian  dollars.  All assets and  liabilities are translated
into  Canadian  dollars at the rate of exchange  prevailing at the balance sheet
date. Revenues and expenses are translated at the average rate for the year.

The  reporting  currency  was  changed  from United  States  dollars to Canadian
dollars as the majority of the  Company's  transactions  during fiscal 2004 were
denominated in Canadian dollars.

                                      -27-

<PAGE>


RESULTS OF OPERATIONS

YEAR ENDED MAY 31, 2004 COMPARED TO YEAR ENDED MAY 31, 2003

During  fiscal  2004 the Company  recorded a loss of $582,395  ($0.06 per share)
compared  to a  loss  of  $9,790,501  ($2.17  per  share)  for  fiscal  2003.  A
significant   portion  of  the  loss  for  fiscal  2003  is  attributed  to  the
depreciation,  depletion and  impairment  charge of  $6,881,119  relating to the
abandonment  of the  Company's  petroleum  and natural gas interests in November
2002.  Accordingly,  there were no  petroleum  and natural gas  revenues  during
fiscal 2004. Production for fiscal 2003 was attributable only to the constrained
production at the ELH #1 well to November 2002.

General and administrative costs decreased by $553,250,  from $821,308 in fiscal
2003 to $288,058  in fiscal 2004 due mainly to the impact of reduced  operations
and the abandonment of petroleum and proprietary  software program activities in
fiscal  2003.  General  and  administrative  costs in fiscal 2004  reflects  the
Company's current operating levels. Specific expenses of note during fiscal 2004
and 2003 are as follows:

         i)   during  fiscal  2004,   the  Company   incurred   accounting   and
              administrative  fees of $70,840 ( 2003 -  $108,475)  provided by a
              private  company  controlled  by  the  current  President  of  the
              Company;

         ii)  during fiscal 2004, the Company incurred management fees of $9,466
              (2003  - $  128,117)  provided  by  the  former  President  of the
              Company; and

         iii) during  fiscal 2003,  the Company  incurred  costs of $364,413 for
              research,  development and marketing of the  proprietary  software
              programs. In addition general and administrative costs of $226,193
              was  recorded for the  proprietary  software  program  activities,
              mainly in  salaries  and  benefits.  The  Company  abandoned  this
              business segment in May 2003.

During fiscal 2004, the Company sold marketable securities for $9,845, resulting
in a gain of $2,645,  which has been included in Interest and Other  Income.  In
addition,  the Company  recovered $23,792 for costs previously  incurred.  These
costs have been recorded as a cost recovery in general and administrative.

During  fiscal  2004,  the  Company  recorded  a  non-cash  charge  of  $154,000
attributed to the granting of 700,000 stock options to employees,  directors and
consultants. No stock options were granted in fiscal 2003.

Interest  expense on debentures  decreased by $406,787,  from $640,548 in fiscal
2003 to $233,761 in fiscal 2004,  reflecting  the  retirement  of  $2,041,932 of
debentures in fiscal 2004. In addition, interest expense in fiscal 2003 included
$252,621  of bonus  interest  paid to  debenture  holders  who  converted  their
debentures into common shares in fiscal 2003.

During  fiscal  2003,  the  Company  recorded  $937,937  for the  impairment  of
investments,  advances and  receivables  due from  related and other  companies.
During fiscal 2004, the Company recovered $72,604, which was included as part of
interest and other income.  The Company also incurred  $246,900 of due diligence
costs  in  fiscal  2003  for  property  investigations   conducted  on  possible
acquisitions  of mineral  properties  in China and  Mongolia.  These  costs were
expensed in 2003.

During  fiscal  2003,  the  Company  recorded  a  depreciation,   depletion  and
impairment  charge of $6,881,119  relating to the  unsuccessful  side-track well
conducted in Regional  California and the abandonment of the Company's petroleum
and natural gas interests in November 2002. In fiscal 2002, the Company recorded
a charge of  $39,482,069,  which  reflected a significant  drop in the Company's
economic reserves  resulting from the combination of a decrease in the estimated
proven  reserves due to problems  encountered  at East Lost Hills, a drop in oil
and gas  prices,  the  withdrawal  from the  Greater  San  Joaquin  Venture  and
disappointing results in Regional California.

During fiscal 2004, the Company completed private placements totalling 6,130,000
units for gross cash  proceeds of $865,750.  The Company also received a further
$68,600 on the issuances of 490,000  shares on the exercise of warrants.  During
fiscal 2004, the Company successfully negotiated the retirement of $2,041,932 of
debentures and $65,371 of accrued interest by issuing 6,874,209 shares.


                                      -28-

<PAGE>



During fiscal 2004, the Company spent $103,971 relating to acquisition costs and
$116,611 for  exploration  expenditures  on the El Nayar Project.  An additional
$21,443 was spent on trucks and equipment for El Nayar.

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

During fiscal 2003,  the Company  recorded a loss  $9,790,501  ($2.17 per share)
compared to a loss of  $42,414,241  ($11.65 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  $39,482,069  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, a 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 $6,881,119 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 $459,057,  approximately 36% from
$1,280,365  in fiscal 2002 to $821,308 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 petroleum and
natural  gas  operations,  reduced  financial  resources  and the closure of the
Bakersfield  office.  All  discretionary  costs were 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  programs were  contracted out to arm's-length  parties.  During fiscal
2003,  $364,413 was expended in relation to this business.  To date, the Company
has been unable to  generate  any  revenues  from these  activities.  No further
expenditures were incurred in this business activity.

Interest  expense on long-term  debt decreased by $438,731,  from  $1,079,279 in
fiscal 2002 to $640,548 in fiscal 2003,  reflecting the retirement of $6,210,381
of debentures  through the issuance of common shares.  The interest  expense for
fiscal 2003 includes  $252,621 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   $246,900  of  due   diligence   costs   incurred  on  the   property
investigations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's practice is to proceed with staged  exploration,  where each stage
is dependent  on the  successful  results of the  preceding  stage.  To date the
Company has not received any revenues from its  exploration  activities  and has
relied on equity financing to fund its commitments and discharge its liabilities
as they come due.  As of May 31,  2004,  the  Company  had a working  capital of
$550,932.  As of the  date of this  annual  report  the  Company  does  not have
sufficient  financial  resources to meet its expenditure  commitment and ongoing
corporate overhead levels for the next 12 months. In addition,  results from its
exploration programs and/or additional mineral property  acquisitions may result
in additional financial  requirements.  If needed, the Company would be required
to conduct additional  financings,  however,  there is no assurance that funding
will be  available on terms  acceptable  to the Company or at all. If such funds
cannot be secured,  the Company may be forced to curtail additional  exploration
efforts to a level for which funding can be secured or relinquish certain of its
properties.


                                      -29-

<PAGE>



As of the date of the annual  report,  the Company  has  budgeted US $60,000 for
further exploration work on the El Nayar Project.

The Company also anticipates spending  approximately $200,000 during fiscal 2004
for administrative and other operating expenditures.

The Company  does not have any loans or bank debt and there are no  restrictions
on the use of its cash resources.

There are no material commitments for capital expenditures during fiscal 2005.

The  Company  holds the  majority of its cash and cash  equivalents  in Canadian
funds.

TREND INFORMATION

The Company is not aware of any trends which might affect its financial  results
or business.

RESEARCH AND DEVELOPMENT

During  fiscal  2004,  the  Company  incurred   $103,971  for  mineral  property
acquisition  costs and $116,611 for  exploration  costs on its mineral  property
interests.  No mineral property  acquisitions or exploration  expenditures  were
made in fiscal 2003, 2002 or 2001.

During  fiscal  2003 and 2002,  the Company  incurred  $655,786  and  $3,169,417
respectively,  on the acquisition,  exploration and development of its petroleum
interests.  During fiscal 2003 and 2002, the Company also incurred  $364,413 and
$793,237,  respectively, on research, development and marketing costs related to
the development of its software programs.

OFF BALANCE SHEET ARRANGEMENTS

The Company does not have any material off balance sheet  arrangements that have
or are  reasonably  likely to have a current or future  effect on the  Company's
financial  condition,  changes in  financial  condition,  revenues or  expenses,
results of operations, liquidity, capital expenditures or capital resources.

CONTRACTUAL OBLIGATIONS

The Company does not have any contractual  obligations.  The Company has entered
into option agreements to earn various interests in mineral  properties  through
payments  and   expenditures.   These  agreements  are  described  in  "Item  4.
Information  on the Company - Principal  Properties and Other  Properties".  The
Company may, at any time, elect to terminate the agreements.


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:

<TABLE>
<CAPTION>

NAME                                    POSITION WITH THE COMPANY                 TERM OF OFFICE (FOR EACH OFFICE HELD)
<S>                                   <C>                                       <C>
NICK DEMARE(1)                          President, Chief Executive                July 2003 to present
                                        Officer and Chief Financial
                                        Officer
                                        Director                                  October 1989 to present

WILLIAM LEE(1)                          Director                                  September 1995 to present

</TABLE>

                                      -30-

<PAGE>



<TABLE>
<CAPTION>

NAME                                    POSITION WITH THE COMPANY                 TERM OF OFFICE (FOR EACH OFFICE HELD)
<S>                                   <C>                                       <C>

ANDREW CARTER(1)                        Director                                  July 2003 to present

HARVEY LIM                              Corporate Secretary                       June 1997 to present

</TABLE>

(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 50), Director, President, Chief Executive Officer
                      and Chief Financial 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. ("Chase"), a private company which provides a
broad range of administrative,  management and financial services to private and
public companies engaged in mineral exploration and development, gold and silver
production,  oil and gas  exploration  and production and venture  capital.  Mr.
DeMare  indirectly owns 100% of Chase. Mr. DeMare currently serves as an officer
and  director  of  other  public  reporting   companies.   See  "Item  7.  Major
Shareholders  and Related  Party  Transactions  - Related Party  Transactions  -
Conflicts of Interest."

William Lee (Age 51), 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  Inc.  From June,  1996 to March,  2004,  Mr. Lee was been
employed  as the Chief  Financial  Officer  of IMA  Exploration  Inc.,  a public
company engaged in the exploration of mineral  properties.  Since July, 2004 Mr.
Lee has been  employed as a business  analyst of Ivanhoe  Energy  Inc., a public
company  engaged in the  exploration  for and production of oil and natural gas.
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 57), 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 is currently the President of
Tinka  Resources  Ltd., a public  company  trading on the TSXV, and 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".

                                      -31-

<PAGE>



Harvey Lim (Age 46), 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  LLP) 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 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, 2004, the former and current  directors and
officers of the Company, as a group, had received or charged the Company a total
of $110,066 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") and Chief
Financial  Officer  ("CFO")  of  the  Company,   regardless  of  the  amount  of
compensation of those  individuals,  and each of the Company's three 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 $40,000 or more.  In addition,  disclosure is also
required for any individuals whose total salary and bonus during the most recent
fiscal year was $40,000 whether or not they are an executive  officer at the end
of the fiscal year.

The Company  currently has two Named Executive  Officers,  Donald W. Busby,  the
Company's  former  Chairman and Chief  Executive  Officer and Nick  DeMare,  the
Company's  current  President,  Chief  Executive  Officer  and  Chief  Financial
Officer.

The following table sets forth the  compensation  awarded,  paid to or earned by
the Named Executive Officers during the financial years ended May 31, 2002, 2003
and 2004:

<TABLE>
<CAPTION>

                                          ANNUAL COMPENSATION                 LONG TERM COMPENSATION
                                    -----------------------------       -----------------------------------
                                                                                 AWARDS             PAYOUTS
                                                                        ------------------------    -------
                                                           OTHER        SECURITIES    RESTRICTED
                                                           ANNUAL         UNDER        SHARES OR                 ALL OTHER
       NAME AND                                           COMPEN-      OPTIONS/SARS   RESTRICTED     LTIP        COMPEN-
  PRINCIPAL POSITION       YEAR     SALARY     BONUS       SATION        GRANTED      SHARE UNITS    PAYOUTS      SATION
                                      ($)       ($)         ($)            (#)           (#)          ($)          ($)
<S>                      <C>        <C>       <C>       <C>            <C>            <C>           <C>          <C>

Nick DeMare(1)             2004       Nil       Nil       72,100(2)       85,000         Nil          Nil          Nil
President, CEO, CFO        2003       N/A       N/A         N/A             N/A          N/A          N/A          N/A
and Director               2002       N/A       N/A         N/A             N/A          N/A          N/A          N/A

Donald W. Busby(1)         2004       Nil       Nil         9,466           Nil          Nil          Nil          Nil
former Chairman, CEO       2003       Nil       Nil       186,149           Nil          Nil          Nil          Nil
and Director               2002       Nil       Nil       155,938         40,000         Nil          Nil          Nil

</TABLE>

NOTES:
(1)  On July 4, 2003,  Donald W. Busby  resigned as a director  and the Chairman
     and CEO of the Company and Nick DeMare was appointed the President, CEO and
     CFO of the Company.
(2)  Paid to Chase Management Ltd.  ("Chase"),  a private  corporation  owned by
     Nick DeMare.  Chase personnel  (excluding Mr. DeMare)  provide  accounting,
     secretarial and administrative services to the Company.

                                      -32-

<PAGE>



LONG TERM INCENTIVE PLAN AWARDS

The Company does not have any long term incentive plan awards  ("LTIP")  defined
as "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 SAR plans or plans for compensation through restricted shares or units."

OPTION/STOCK  APPRECIATION  RIGHT ("SAR") GRANTS AND REPRICINGS  DURING THE MOST
RECENTLY COMPLETED FINANCIAL YEAR

The  following  table sets forth stock  options  granted to the Named  Executive
Officers during the financial year ended May 31, 2004:

<TABLE>
<CAPTION>

                                             % OF TOTAL                           MARKET VALUE OF
                          SECURITIES        OPTIONS/SARS                            SECURITIES
                            UNDER            GRANTED TO                             UNDERLYING
                         OPTIONS/SARS       EMPLOYEES IN       EXERCISE OR        OPTIONS/SARS ON        EXPIRATION
NAME                       GRANTED         FINANCIAL YEAR       BASE PRICE       THE DATE OF GRANT          DATE
                             (#)                (%)            ($/SECURITY)        ($/SECURITY)
<S>                       <C>                <C>                 <C>                <C>                <C>

Nick DeMare                 85,000             12.14%              0.25                0.33              Feb. 18/07

Donald W. Busby               Nil               N/A                 N/A                 N/A                  N/A

</TABLE>

AGGREGATED  OPTION EXERCISES DURING THE MOST RECENTLY  COMPLETED  FINANCIAL YEAR
AND FINANCIAL YEAR-END OPTION/SAR VALUES

The following  table sets out details of all the incentive  stock options,  both
exercised and unexercised, for the Named Executive Officers during the financial
year ended May 31, 2004:

<TABLE>
<CAPTION>

                                                                        UNEXERCISED            VALUE OF UNEXERCISED
                             SECURITIES                               OPTIONS/SARS AT         IN THE MONEY OPTIONS AT
                            ACQUIRED ON       AGGREGATE VALUE       FINANCIAL YEAR-END         FINANCIAL YEAR-END (1)
NAME                         EXERCISE           REALIZED         EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
                                (#)                 ($)                     (#)                         ($)
<S>                          <C>                <C>                  <C>                           <C>

Nick DeMare                     Nil                 N/A                85,000/Nil                     Nil/N/A

Donald W. Busby                 Nil                 N/A                  Nil/Nil                      N/A/N/A

</TABLE>

(1)   The closing price of the Company's shares on May 31, 2004 was $0.11.

PENSION PLANS

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

TERMINATION OF EMPLOYMENT OR CHANGE OF CONTROL

Other than as described in the Summary  Compensation  Table,  the Company has no
plans or  arrangements  with  respect to  remuneration  received  or that may be
received by the Named  Executive  Officers  during 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  $100,000 per
executive officer.

DIRECTOR COMPENSATION

CASH COMPENSATION

During  the  financial  year ended May 31,  2004,  the  Company  paid a total of
$21,000 for  professional  fees to its directors who are not the Named Executive
Officers of the Company.

                                      -33-

<PAGE>



NON-CASH COMPENSATION

The following  table sets forth stock options  granted by the Company during the
financial  year  ended  May 31,  2004  to the  directors  who are not the  Named
Executive Officers of the Company:

<TABLE>
<CAPTION>

                                                  % OF TOTAL                        MARKET VALUE OF
                                SECURITIES       OPTIONS/SARS                         SECURITIES
                                  UNDER           GRANTED TO                          UNDERLYING
                               OPTIONS/SARS      EMPLOYEES IN       EXERCISE OR     OPTIONS/SARS ON       EXPIRATION
NAME                             GRANTED        FINANCIAL YEAR      BASE PRICE     THE DATE OF GRANT         DATE
                                   (#)                (%)          ($/SECURITY)      ($/SECURITY)
<S>                            <C>                <C>               <C>               <C>              <C>

Directors as a group             150,000            21.43%             0.25              0.33             Feb. 18/07
who are not Named
Executive Officers

</TABLE>

The following  table sets forth details of all exercises of stock options during
the  financial  year ended May 31, 2004 by the  directors  who are not the Named
Executive Officers, and the financial year end value of unexercised options:

<TABLE>
<CAPTION>

                                                                       UNEXERCISED          VALUE OF UNEXERCISED IN THE
                               SECURITIES                            OPTIONS/SARS AT             MONEY OPTIONS AT
                               ACQUIRED ON    AGGREGATE VALUE      FINANCIAL YEAR -END        FINANCIAL YEAR -END (1)
NAME                            EXERCISE         REALIZED       EXERCISABLE/UNEXERCISABLE    EXERCISABLE/UNEXERCISABLE
                                   (#)              ($)                    (#)                          ($)
<S>                             <C>             <C>                <C>                          <C>

Directors as a group               Nil              N/A               150,000/Nil                  Nil/N/A
who are not Named
Executive Officers

</TABLE>

NOTE:
(1) The closing price of the Company's shares on May 31, 2004 was $0.11.

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS OF THE COMPANY

No director or senior  officer of the  Company,  is or has been  indebted to the
Company  or any of its  subsidiaries  at any  time  during  the  Company's  last
completed financial year, other than routine indebtedness.

EMPLOYMENT AGREEMENTS

The Company has a management  contract with Chase Management Ltd.  ("Chase"),  a
company  owned by Mr.  DeMare,  whereby the Company is paying  Chase  $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. The Company is also paying Mr. DeMare $2,000 per month in his
capacity as  President,  CEO and CFO of the  Company.  The Company has no formal
management contract with any of its officers or directors. See "Item 7. Majority
Shareholders and Related Party Transactions - Related Party Transactions".

There are no  service  contracts  with the  Company  or any of its  subsidiaries
providing  for benefits  upon  termination  of employment of any director of the
Company.



                                      -34-

<PAGE>



BOARD PRACTICES

AUDIT COMMITTEE

THE AUDIT COMMITTEE'S CHARTER

MANDATE

The primary  function of the audit committee (the  "Committee") is to assist the
board of directors in fulfilling  its financial  oversight  responsibilities  by
reviewing the financial reports and other financial  information provided by the
Company to regulatory  authorities and  shareholders,  the Company's  systems of
internal controls  regarding finance and accounting and the Company's  auditing,
accounting and financial reporting processes. The Committee's primary duties and
responsibilities are to:

     -   Serve as an  independent  and objective  party to monitor the Company's
         financial   reporting  and  internal  control  system  and  review  the
         Company's financial statements.

     -   Review and appraise the performance of the Company's external auditors.

     -   Provide an open avenue of communication  among the Company's  auditors,
         financial and senior management and the Board of Directors.

COMPOSITION

The Committee  shall be comprised of three  directors as determined by the Board
of Directors,  the majority of whom shall be free from any relationship that, in
the opinion of the Board of Directors,  would interfere with the exercise of his
independent  judgment as a member of the  Committee.  At least one member of the
Committee shall have accounting or related financial management  expertise.  All
members of the  Committee  that are not  financially  literate will work towards
becoming financially literate to obtain a working familiarity with basic finance
and accounting  practices.  For the purposes of the Audit Committee Charter, the
definition of "financially literate" is the ability to read and understand a set
of  financial  statements  that  present a breadth  and level of  complexity  of
accounting issues that are generally comparable to the breadth and complexity of
the  issues  that can  presumably  be  expected  to be raised  by the  Company's
financial statements.

The members of the  Committee  shall be elected by the Board of Directors at its
first meeting  following  the annual  shareholders'  meeting.  Unless a Chair is
elected  by the full  Board of  Directors,  the  members  of the  Committee  may
designate a Chair by a majority vote of the full Committee membership.

MEETINGS

The  Committee  shall  meet a  least  twice  annually,  or  more  frequently  as
circumstances  dictate.  As part of its job to foster  open  communication,  the
Committee will meet at least annually with the CFO and the external  auditors in
separate sessions.

RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties, the Committee shall:

Documents/Reports Review

(a)      Review and update the Charter annually.

(b)      Review  the  Company's  financial  statements,  MD&A and any annual and
         interim earnings,  press releases before the Company publicly discloses
         this  information  and  any  reports  or  other  financial  information
         (including quarterly financial statements),  which are submitted to any
         governmental  body,  or to the  public,  including  any  certification,
         report, opinion, or review rendered by the external auditors.

                                      -35-

<PAGE>



External Auditors

(a)      Review annually,  the performance of the external auditors who shall be
         ultimately  accountable  to the Board of Directors and the Committee as
         representatives of the shareholders of the Company.

(b)      Recommend  to  the  Board  of  Directors  the  selection   and,   where
         applicable, the replacement of the external auditors nominated annually
         for shareholder approval.

(c)      Review with management and the external auditors the audit plan for the
         year-end   financial   statements   and  intended   template  for  such
         statements.

(d)      Review and  pre-approve  all audit and  audit-related  services and the
         fees  and  other  compensation   related  thereto,  and  any  non-audit
         services, provided by the Company's external auditors.

Provided  the  pre-approval  of  the  non-audit  services  is  presented  to the
Committee's  first scheduled  meeting following such approval such authority may
be  delegated  by the  Committee  to  one or  more  independent  members  of the
Committee.

FINANCIAL REPORTING PROCESSES

(a)      In consultation with the external auditors,  review with management the
         integrity of the Company's financial  reporting process,  both internal
         and external.

(b)      Consider  the  external  auditors'  judgments  about  the  quality  and
         appropriateness  of the Company's  accounting  principles as applied in
         its financial reporting.

(c)      Consider and approve, if appropriate, changes to the Company's auditing
         and  accounting  principles  and practices as suggested by the external
         auditors and management.

(d)      Following  completion  of the  annual  audit,  review  separately  with
         management  and the  external  auditors  any  significant  difficulties
         encountered during the course of the audit,  including any restrictions
         on the scope of work or access to required information.

(e)      Review any significant  disagreement  among management and the external
         auditors  in  connection   with  the   preparation   of  the  financial
         statements.

(f)      Review with the external  auditors and  management  the extent to which
         changes and improvements in financial or accounting practices have been
         implemented.

(g)      Review any  complaints or concerns about any  questionable  accounting,
         internal accounting controls or auditing matters.

(h)      Review certification process.

(i)      Establish a procedure  for the  confidential,  anonymous  submission by
         employees of the Company of concerns regarding questionable  accounting
         or auditing matters.

OTHER

Review any related-party transactions.



                                      -36-

<PAGE>



COMPOSITION OF THE AUDIT COMMITTEE

The following are the members of the Committee (1):

                            INDEPENDENT (1)                 FINANCIALLY LITERATE

Nick DeMare                      N                                   Y
William Lee                      Y                                   Y
Andrew Carter                    Y                                   Y


NOTE:
(1) As defined by Multilateral Instrument 52-110 ("MI 52-110").

The Company is relying on the exemption provided under Section 6.1 of MI 52-110.

AUDIT COMMITTEE OVERSIGHT

At no time since the  commencement  of the  Company's  most  recently  completed
financial year was a  recommendation  of the Committee to nominate or compensate
an external auditor not adopted by the Board of Directors.

RELIANCE ON CERTAIN EXEMPTIONS

At no time since the  commencement  of the  Company's  most  recently  completed
financial  year has the  Company  relied on the  exemption  in Section 2.4 of MI
52-110 (De Minimis Non-audit Services), or an exemption from MI 52-110, in whole
or in part, granted under Part 8 of Multilateral Instrument 52-110.

PRE-APPROVAL POLICIES AND PROCEDURES

The Committee has adopted specific policies and procedures for the engagement of
non-audit services as described above under the heading "External Auditors".

REMUNERATION COMMITTEE

The Company does not have a separate Remuneration Committee.

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  $100,000 per
executive officer.

The Company and its subsidiaries do not have any contracts with the directors of
the  Company  (or any  entities  controlled  by the  directors  of the  Company)
providing for benefits upon termination of employment.

EMPLOYEES

During the years ended May 31, 2004 and 2003,  the Company had no  full-time  or
part-time  employees in the area of  management  and  administration.  Corporate
accounting,  management and  administration  are provided,  in part, by Chase, a
company  owned by Mr. Nick  DeMare.  Chase  provides its services to a number of
public and private  companies  and currently  employs six  full-time  employees,
including Mr. Lim (excluding Mr.  DeMare).  Mr. DeMare  provides his services as
the  President,  CEO and CFO of the Company.  As at May 31, 2002,  there were no
full-time or part-time  employees in the area of management and  administration.
The Company also retains consultants to handle specific

                                      -37-

<PAGE>



projects  on a case by case  basis.  In the  event the  Company  needs to employ
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.  Exploration  activities  are  conducted  by
consultants,  laborers and technicians hired for the duration of the exploration
program.

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 October 31, 2004.

                                                     SHARES AND
                                                       RIGHTS
                                                    BENEFICIALLY
                                                      OWNED OR        PERCENT OF
TITLE OF CLASS     NAME AND ADDRESS OF OWNER        CONTROLLED(1)      CLASS (1)
--------------     -------------------------        -------------     ----------

Common Stock       Nick DeMare                         867,226(2)        4.57%
                   Burnaby, British Columbia,
                   Canada

Common Stock       William Lee                         306,500(3)        1.63%
                   Delta, British Columbia,
                   Canada

Common Stock       Andrew Carter                       325,000(4)        1.73%
                   North Vancouver,
                   British Columbia, Canada

Common Stock       Harvey Lim                          315,000(5)        1.68%
                   Burnaby, British Columbia,
                   Canada

NOTES:
(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 within 60 days from October 31, 2004, 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 18,537,355  shares of common stock  outstanding  as of October 31,
     2004.
(2)  Includes 370,922 common shares held by DNG Capital Corp. ("DNG"), a private
     corporation  wholly-owned  by Mr. DeMare,  and 56,304 common shares held by
     888 Capital Corp.,  a private  corporation  50% owned by Mr.  DeMare.  Also
     includes  options to  acquire  215,000  common  shares  held by Mr.  DeMare
     directly and warrants to acquire 225,000 common shares held by DNG.
(3)  Includes  76,500  common  shares held,  options to acquire  155,000  common
     shares and warrants to acquire 75,000 common shares.
(4)  Includes  75,000  common  shares held,  options to acquire  175,000  common
     shares and warrants to acquire 75,000 common shares.
(5)  Includes  75,000  common  shares held,  options to acquire  165,000  common
     shares and warrants to acquire 75,000 common shares.

All of the Company's shareholders have the same voting rights.

STOCK OPTION PLAN

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.  The Company's  Plan is approved  annually by the  shareholders.  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 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
may issue a majority of the options to insiders of the Company. However, the

                                      -38-

<PAGE>



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:

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.  Any
         outstanding options will form a part of the foregoing 10%. The exercise
         price of the stock options,  as determined by the Board of Directors 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 of Directors  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  five years from
         the date on which  the  Board  of  Directors  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  shall  expire  on the 90th day
         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 of Directors  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 October 31, 2004,  an aggregate of 1,460,000  incentive  stock  options to
purchase  shares  of  the  Company's  common  stock  remain  outstanding  to the
following persons:

                          NATURE          NO. OF      EXERCISE
OPTIONEE                 OF OPTION       OPTIONS     PRICE/SHARE     EXPIRY DATE
                                                          $

Nick DeMare              Director         85,000        0.25         Feb. 18/07
Andrew Carter            Director         75,000        0.25         Feb. 18/07
William Lee              Director         75,000        0.25         Feb. 18/07
Harvey Lim               Officer          75,000        0.25         Feb. 18/07
Paul Kessler             Consultant       75,000        0.25         Feb. 18/07
Diana Dercyz-Kessler     Consultant       75,000        0.25         Feb. 18/07
Gloria Barnett           Consultant       50,000        0.25         Feb. 18/07
David Henstridge         Consultant       50,000        0.25         Feb. 18/07
Des O'Kell               Consultant       40,000        0.25         Feb. 18/07
Betty Moody              Consultant       25,000        0.25         Feb. 18/07
Arabella Smith           Consultant       25,000        0.25         Feb. 18/07
Rosanna Wong             Consultant       25,000        0.25         Feb. 18/07
Linda Liu                Consultant       25,000        0.25         Feb. 18/07
Nick DeMare              Director        130,000        0.10         Sept. 03/07
Andrew Carter            Director        100,000        0.10         Sept. 03/07


                                      -39-

<PAGE>



                          NATURE          NO. OF      EXERCISE
OPTIONEE                 OF OPTION       OPTIONS     PRICE/SHARE     EXPIRY DATE
                                                          $

William Lee              Director         80,000        0.10         Sept. 03/07
Harvey Lim               Officer          90,000        0.10         Sept. 03/07
Gloria Barnett           Consultant       75,000        0.10         Sept. 03/07
James Stewart            Consultant       75,000        0.10         Sept. 03/07
David Henstridge         Consultant       75,000        0.10         Sept. 03/07
Betty Moody              Consultant       25,000        0.10         Sept. 03/07
Arabella Smith           Consultant       25,000        0.10         Sept. 03/07
Rosanna Wong             Consultant       25,000        0.10         Sept. 03/07
Linda Liu                Consultant       25,000        0.10         Sept. 03/07
Des O'Kell               Consultant       25,000        0.10         Sept. 03/07
Natalya Abramov          Consultant       10,000        0.10         Sept. 03/07
                                       ---------
TOTAL:                                 1,460,000
                                       =========

As of October 31, 2004, the directors and officers of the Company, as a group (4
persons), held options to purchase 710,000 shares of the Company's common stock.

WARRANTS

As of October  31,  2004,  there were  non-transferable  common  share  purchase
warrants  exercisable for the purchase of 5,740,000 common shares,  which expire
at various times until 2006 and may be exercised at various  prices ranging from
$0.14 per share to $0.31 per share, as follows:


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

      675,000                            0.26                  February 19,2005
    3,640,000                            0.14                  November 25, 2005
    1,425,000                            0.31                  March 4, 2006
    ---------
    5,740,000
    =========

As of October 31, 2004, the directors and officers of the Company, as a group (4
persons),  held  warrants to purchase  450,000  shares of the  Company's  common
stock.

There are no  assurances  that the option or  warrants  described  above will be
exercised in whole or in part.


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

PRINCIPAL HOLDERS OF VOTING SECURITIES

To the best of the Company's  knowledge,  it is not directly or indirectly owned
or controlled  by another  Company or by any foreign  government.  The following
table sets forth certain information regarding ownership of the Company's shares
by all persons who own five  percent (5%) or more of the  Company's  outstanding
shares, as of October 31, 2004.


                                                     SHARES AND
                                                       RIGHTS
                                                    BENEFICIALLY
                                                      OWNED OR        PERCENT OF
TITLE OF CLASS     NAME AND ADDRESS OF OWNER        CONTROLLED(1)      CLASS (1)
--------------     -------------------------        -------------     ----------

Common Stock       Bristol Investment Fund, Ltd.     1,253,250(2)        6.54%
                   Grand Cayman, Cayman, Islands


                                      -40-

<PAGE>

(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 within 60 days from October 31, 2004, 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 18,537,355  shares of common stock  outstanding  as of October 31,
     2004.
(2)  Includes  warrants  held by Bristol  Investment  Fund,  Ltd.  to acquire an
     additional 626,625 common shares.

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

ESCROW SHARES

As of the date of this annual report, no shares are held in escrow.

CHANGES IN SHAREHOLDINGS

There have been no significant changes to the above listed persons' ownership.

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 October 31, 2004, there were  approximately  17 registered  holders of the
Company's  common  shares  in the  United  States,  with  combined  holdings  of
3,442,165 shares, representing 18.56% 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 jointly or severally.

RELATED PARTY TRANSACTIONS

Other than as disclosed  below, for the period from June 1, 2003 through October
31, 2004, 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 $9,466  (US  $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,  2004,  the Company paid Boone an aggregate of $9,466 until Mr.
         Busby's  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 President,  Chief  Executive  Officer and Chief  Financial
         Officer  and a director of the  Company,  to provide  office  premises,
         administrative,  accounting and management  services.  In consideration
         therefor,  Chase  is  paid a  monthly  fee of  $3,000.  Chase  is  also
         reimbursed for  out-of-pocket  disbursements  incurred on behalf of the
         Company. In

                                      -41-

<PAGE>



         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, 2004 and the period from June 1,
         2004 to October 31, 2004,  the Company  paid Chase  $39,100 and $8,800,
         respectively.

3.       Commencing  July 4, 2003,  the Company paid Chase a monthly fee for the
         services  of Mr.  Nick  DeMare  in his  capacity  as  President,  Chief
         Executive  Officer  and Chief  Financial  Officer of the  Company.  The
         Company is currently  paying $2,000 per month.  See "Item 6. Directors,
         Senior  Management and Employees - Compensation."  Management  believes
         the  arrangement  with Chase for Mr.  DeMare's  services is fair to the
         Company. During the year ended May 31, 2004 and the period from June 1,
         2004 to October 31, 2004,  the Company  paid Chase  $33,000 and $10,000
         respectively.

4.       The Company has completed  previous  private  placements of securities,
         the  subscribers of which include  companies  wholly-owned by directors
         and officers of the Company.  The  securities  issued  pursuant to such
         private  placements were issued in accordance with the pricing policies
         of the TSXV.  During the year ended May 31, 2004, the Company conducted
         the following private placements of common stock:


                                         PARTICIPATION     PURCHASE     MARKET
PLACEE                                    BY INSIDERS        PRICE      PRICE(1)
                                                               $           $

YEAR ENDED MAY 31, 2004

4,030,000 units
  (one common share and one warrant)           Nil           0.10         0.13
                                            =======

675,000 units
  (one common share and one warrant)                         0.20         0.22

  -  Andrew Carter                           75,000
  -  William Lee                             75,000
  -  Harvey Lim                              75,000
  -  DNG Capital Corp.(2)                   225,000
                                            -------
                                            450,000
                                            =======

1,425,000 units
  (one common share and one warrant)           Nil           0.23         0.31
                                            =======

(1)  Quoted closing price on date of announcement of private  placement.
(2)  100% owned by Nick DeMare

See also "Item 6.  Directors, Senior Management and Employees - Compensation."

INDEBTEDNESS OF DIRECTORS, OFFICERS, PROMOTERS AND OTHER MANAGEMENT

No executive  officers,  directors,  employees or former executive  officers and
directors  of the Company are indebted to the  Company.  None of the  directors,
executive  officers or proposed  nominees  of the Company nor any  associate  or
affiliate of these  individuals,  is or has been  indebted to the Company  since
June 1, 2003.

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. 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.


                                      -42-

<PAGE>



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,  and for
which such director  currently serves as an officer or director,  other than the
Company:

<TABLE>
<CAPTION>

DIRECTOR             REPORTING ISSUER                     CAPACITY                           COMMENCED SERVICE
<S>                <C>                                  <C>                                <C>

Nick DeMare          Aguila American Resources Ltd.       Director                           January 2003
                     Andean American Mining Corp.         Director                           August 2002
                                                          Secretary                          December 1995
                     Baradero Resources Limited           Director                           October 2002
                                                          President                          September 2003
                     Dial Thru International Inc.         Director                           January 1991
                     GGL Diamond Corp.                    Director                           May 1989
                     Global Energy Inc.                   Director, President,               September 2002
                                                          Secretary & Treasurer
                     Golden Peaks Resources Ltd.          Director                           January 1992
                     Goldmarca Limited                    Director                           September 2000
                     Gold Point Exploration Ltd.          Director & President               August 2003
                     Halo Resources Ltd.                  Director                           January 1996
                                                          President & CEO                    July 2003
                     Kookaburra Resources Ltd.            Director                           June 1988
                     Lariat Resources Ltd.                Director & President               August 2002
                     Mawson Resources Limited             Director                           March 2004
                     Medina International Corp.           Director, Secretary & Treasurer    May 2002
                     Tinka Resources Limited              Director & Secretary               October 2003
                     Tumi Resources Limited               Director                           January 2002

William Lee          Gold Point Exploration Ltd.          Director                           January 2001
                     Tinka Resources Limited              Director                           October 2002

Andrew Carter        Baradero Resources Limited           Director                           September 2003
                     Tinka Resources Ltd.                 Director, President & CEO          February 2003
</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.
--------------------------------------------------------------------------------

DESCRIPTION                                                             PAGE
-----------                                                             ----
Audited Consolidated Financial Statements for the
Years Ended May 31, 2004, 2003 and 2002                              F-1 to F-24

SIGNIFICANT CHANGES

There are no significant changes proposed by the Company.

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.

                                      -43-

<PAGE>



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.


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

PRICE HISTORY

The  TSXV  classifies  listed  companies  into  two  different  tiers  based  on
standards, which include historical financial performance, stage of development,
and financial resources of the listed company. Tier 1 is the TSXV's premier tier
and is reserved for the TSXV's most advanced  issuers with the most  significant
financial  resources.  Tier 1 issuers benefit from decreased filing requirements
and improved service standards. The majority of the companies listed on the TSXV
are Tier 2 companies.  The Company trades on the TSXV under the symbol "HPM" and
is classified as a Tier 2 company.

There  have  been no  trading  suspensions  imposed  by the  TSXV  or any  other
regulatory authorities in the past three years.

The following table sets forth the market price ranges and the aggregate  volume
of trading  of the common  shares of the  Company on the TSXV,  and  predecessor
exchanges, for the periods indicated:

                           TSXV STOCK TRADING ACTIVITY


                                                               SALES PRICE
                                                         -----------------------
YEAR ENDED                     VOLUME                     HIGH              LOW

May 31, 2004                  5,413,149                  $ 0.37           $ 0.05
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


                                                               SALES PRICE
                                                         -----------------------
QUARTER ENDED                  VOLUME                     HIGH              LOW

August 31, 2004               2,043,500                   $0.16            $0.07
May 31, 2004                  2,523,100                   $0.36            $0.10
February 28, 2004             1,553,600                   $0.37            $0.26
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



                                      -44-

<PAGE>


                                                               SALES PRICE
                                                         -----------------------
MONTH ENDED                    VOLUME                     HIGH              LOW

October 31, 2004                275,300                   $0.15            $0.10
September 30, 2004              321,100                   $0.16            $0.12
August 31, 2004               1,228,300                   $0.14            $0.09
July 31, 2004                   460,000                   $0.16            $0.07
June 30, 2004                   355,200                   $0.14            $0.08
May 31, 2004                    409,800                   $0.19            $0.10

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

                             OTC-BB TRADING ACTIVITY

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

May 31, 2004                    489,138                  $ 0.48            $0.00
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

August 31, 2004                 209,912                   $0.15            $0.07
May 31, 2004                    280,297                   $0.48            $0.07
February 28, 2004               106,044                   $0.29            $0.00
November 30, 2003               100,100                   $0.21            $0.13
August 31, 2003                   2,700                   $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


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

October 31, 2004                 34,325                   $0.11            $0.07
September 30, 2004               16,736                   $0.10            $0.06
August 31, 2004                  10,400                   $0.10            $0.09
July 31, 2004                   193,300                   $0.15            $0.09
June 30, 2004                     6,212                   $0.09            $0.07
May 31, 2004                     35,400                   $0.11            $0.08

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

The OTCBB is smaller and less liquid  than the major  securities  markets in the
United States.  The trading volume of the Company's shares on the OTCBB 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.



                                      -45-

<PAGE>



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

ARTICLES OF CONTINUANCE AND ARTICLES

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").

On March 29,  2004,  the  British  Columbia  legislature  enacted  the BCBCA and
repealed  the British  Columbia  COMPANY ACT (the "BC COMPANY  ACT").  The BCBCA
removes many of the  restrictions  contained  in the BC COMPANY  ACt,  including
restrictions  on the  residency of  directors,  the  location of annual  general
meetings and limits on authorized  share  capital,  as well,  the BCBCA uses new
forms and terminology and has replaced the Memorandum with a Notice of Articles.

On November 23, 2004, the Company was continued to British  Columbia,  Canada by
the registration of a Continuation Application with the BC Registrar.

The  Company  is of the view  that the BCBCA  provides  to  shareholders  of the
Company  substantively  the same rights as were available to shareholders  under
the  YBCA,  including  rights  of  dissent  and  appraisal  and  rights to bring
derivative and oppression actions.  The following is a comparison of some of the
principal  provisions of the YBCA and the BCBCA that the Company believes may be
relevant to  shareholders.  This  summary is not intended to be  exhaustive  and
shareholders  should  consult their legal  advisors with respect to the detailed
provisions of the BCBCA and their rights under it.  Reference  should be made to
the full text of both statutes for particulars of the differences.

Note:  Within this summary,  the term  "Articles" when referring to the BCBCA is
the  equivalent to the "by-laws"  under the YBCA.  The term "Notice of Articles"
when referring to the BCBCA is the equivalent of the "articles" under the YBCA.

SALE OF COMPANY'S  UNDERTAKING.  Under the BCBCA, a sale of all or substantially
all the  property  of a  corporation,  other  than  in the  ordinary  course  of
business,  of the  corporation  requires  approval  by special  resolution.  The
Company's Articles confirm a special resolution,  being a resolution passed by a
majority of not less than two-thirds of the votes cast by shareholders who voted
in respect of the  resolution  (the "Special  Resolution"),  must be approved in
respect of the proposed sale. The provisions of the YBCA are  substantially  the
same.

ALTERATION  TO  NOTICE  OF  ARTICLES  OF  THE  COMPANY.  Under  the  BCBCA,  any
substantive change to the Notice of Articles of a corporation,  such as a change
in the name of the  corporation  and certain  changes to the share  capital of a
corporation,  require approval of a Special Resolution in respect of the change.
The provisions of the YBCA are substantially the same.

ARTICLE  AMENDMENTS.  The BCBCA provides that unless the Articles or a unanimous
shareholder agreement otherwise provide, the directors may, by resolution, make,
amend,  or repeal  any  Articles  that  regulate  the  business  or affairs of a
corporation. However, the directors must submit an Article, or an amendment or a
repeal  of  an  Article,  to  the  shareholders  of  the  corporation,  and  the
shareholders may, with approval of a way of Special Resolution,  confirm, reject
or amend the  article,  amendment  or  repeal.  The  provisions  of the YBCA are
substantially the same in connection with amendments to the by-laws.

AUTHORIZATION OF UNLIMITED NUMBER OF SHARES.  The BCBCA permits a corporation to
have an unlimited number of shares without par value. The provisions of the YBCA
are substantially the same.

RIGHTS OF DISSENT  AND  APPRAISAL.  The BCBCA  provides  that  shareholders  who
dissent to certain  actions being taken by a corporation may exercise a right of
dissent  and  require  the  corporation  to  purchase  the  shares  held by such
shareholder  at the fair value of such shares.  The dissent  right is applicable
where  the  corporation  proposes  to  (a)  amend  its  articles  to  alter  the
restrictions  on the  powers  of the  corporation  or on the  business  that the
corporation may carry on, (b) adopt an amalgamation agreement, (c) in respect of
a resolution to approve an amalgamation under the BCBCA

                                      -46-

<PAGE>



(d) in respect of a  resolution  approving  an  arrangement,  the terms of which
arrangement  permits  dissent,  (e)  continue  out of the  jurisdiction,  (f) in
respect of a resolution to authorize  and ratify the lease or other  disposition
of all or  substantially  all  its  undertaking,  (g) in  respect  of any  other
resolution, if dissent is authorized by the resolution, or (h) in respect of any
court order that permits  dissent.  The  dissenting  shareholder  is required to
strictly  comply  with the  provisions  of the BCBCA in order to  exercise  this
remedy.  The YBCA provides similar rights to shareholders.  See "Dissent Rights"
below.

OPPRESSION  REMEDIES.  Under the BCBCA, a shareholder  of a corporation  has the
right to apply to a court for an order  where the  business or affairs are being
or have been conducted,  or the exercise of the directors' of the  corporation's
or any of its affiliates' powers, in a manner oppressive or unfairly prejudicial
to or  would  unfairly  disregard  the  interests  of  any  shareholder  of  the
corporation.  On such an  application,  the court may make any  interim or final
order  it  considers  appropriate,  including  regulating  the  conduct  of  the
corporation's  affairs.  Under the YBCA, the oppression  remedy is substantially
the same as that contained in the BCBCA.

SHAREHOLDER  DERIVATIVE  ACTIONS.  Pursuant to the BCBCA, a  complainant,  which
includes a  shareholder,  may apply to the court for leave to bring an action in
the name of and on behalf of a corporation or any subsidiary, or to intervene in
an  existing  action to which the  corporation  is a party  for the  purpose  of
prosecuting, defending or discontinuing the action on behalf of the corporation.
On such an application, the court may make any order it thinks fit, including an
order  authorizing the complainant or any other person to control the conduct of
the  action.  Pursuant  to the  YBCA,  derivative  actions  are  dealt  with  in
substantially the same manner as the BCBCA.

FINANCIAL  ASSISTANCE.  The BCBCA does not  restrict a  corporation  from giving
financial  assistance  to  shareholders  or directors of the  corporation  or an
affiliated  corporation.  The provisions of the YBCA are  substantially the same
except that in certain cases a solvency test is met.

RECORD DATE FOR VOTING. The BCBCA provides the Company with the ability to fix a
record date for voting  purposes.  Transfers of shares after the record date are
not recognized for voting entitlement  purposes.  The YBCA also provides for the
setting of a fixed record date for voting  purposes  but a transferee  of shares
requesting to have its name included in the relevant  shareholder  list at least
ten days (or such  shorter  time as is  provided  in the  by-laws)  prior to the
meeting is entitled to vote, provided that the transferee can establish that the
transferee owns the shares.

REQUISITION  OF MEETINGS.  The BCBCA provides that holders of not less than five
per cent of the issued shares of a corporation that carry the right to vote at a
meeting  sought to be held may  requisition  the  directors to call a meeting of
shareholders for the purposes stated in the  requisition.  The provisions of the
YBCA are substantially the same.

FORM OF PROXY AND INFORMATION CIRCULAR.  The BCBCA requires that management of a
distributing corporation (public company),  concurrently with giving notice of a
meeting  of  shareholders,  send a form  of  proxy  in  prescribed  form to each
shareholder who is entitled to receive notice of the meeting.  Where  management
of a corporation  solicits proxies,  an information  circular in prescribed form
must  also  accompany  the  notice of the  meeting.  The YBCA  contains  similar
provisions.

PLACE OF  MEETINGS.  The BCBCA  provides  that  meetings  of  shareholders  of a
corporation  must be held at the place within the  Province of British  Columbia
provided in the articles. A meeting of shareholders of a corporation may however
be held at a place  outside of British  Columbia if the  location is approved by
the resolution  required by the Articles for the purpose, or if no resolution is
required  for that  purpose by the  Articles,  approved by ordinary  resolution.
Under the YBCA,  meetings of  shareholders  of a  corporation  must be held at a
location in the Yukon  Territory  or, if the  articles so provide at one or more
places specified in the articles,  or in the absence of such  determination,  at
the place where the registered office of the corporation is located.

QUORUM OF SHAREHOLDERS.  The BCBCA states that the quorum of shareholders of the
corporation at a meeting of  shareholders  is established in the articles of the
corporation.  If no quorum is  established  by the  articles,  the quorum is two
shareholders  entitled  to vote at the meeting  whether  present in person or by
proxy. Under the YBCA, unless the articles of a corporation otherwise provide, a
quorum of shareholders is present at a meeting of shareholders  (irrespective of
the number of persons  actually present at the meeting) if holders of a majority
of the  shares  entitled  to  vote at the  meeting  are  present  in  person  or
represented by proxy.


                                      -47-

<PAGE>



SHAREHOLDER   PROPOSALS.   The  BCBCA  contains  eligibility   requirements  for
shareholders  that wish to submit  proposals  for  inclusion in a  corporation's
proxy materials. The YBCA imposes similar requirements.

DUTIES  OF  DIRECTORS.   The  BCBCA  provides  that  subject  to  any  unanimous
shareholder agreement, the directors manage, or supervise the management of, the
business and affairs of the Company.  The YBCA contains  substantially  the same
provisions.

REMOVAL OF  DIRECTORS.  The BCBCA  permits the removal of  directors  by special
resolution. Unless otherwise provided in the articles of a corporation, a quorum
of  directors  may fill a vacancy  among  the  directors,  except  for a vacancy
resulting  from an increase  in the number or the  minimum or maximum  number of
directors  or the  failure to elect the number or  minimum  number of  directors
provided  for  in  the  articles.  The  YBCA  contains  substantially  the  same
provisions.

The  following  is a  summary  of  all  material  provisions  of  the  Company's
Continuation  Application  and  Articles  and certain  provisions  of the BCBCA,
applicable to the Company:

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

                  Under the BCBCA, subject to certain exceptions,  a director or
                  senior  officer of the  Company  must  disclose  any  material
                  interest that he  personally  has, or that he as a director or
                  senior  officer of another  corporation  has in a contract  or
                  transaction  that is  material  to the  Company  and which the
                  Company has entered into or proposes to enter into.

                  A director or senior  officer of the  Company  does not hold a
                  disclosable interest in a contract or transaction if:

                  1.       the  situation  that  would  otherwise  constitute  a
                           disclosable  interest  arose  before the coming  into
                           force of the BCBCA,  and the interest  was  disclosed
                           and  approved  under,  or  was  not  required  to  be
                           disclosed  under  legislation  that  applied  to  the
                           Company before the coming into effect of the BCBCA;
                  2.       both the Company and the other party to the  contract
                           or transaction  are wholly owned  subsidiaries of the
                           same corporation;
                  3.       the Company is a wholly owned subsidiary of the other
                           party to the contract or transaction;
                  4.       the other party to the contract or  transaction  is a
                           wholly owned subsidiary of the Company; or
                  5.       the   director   or  senior   officer   is  the  sole
                           shareholder  of the  Company or of a  corporation  of
                           which the Company is a wholly owned subsidiary.

                  A director or senior  officer of the  Company  does not hold a
                  disclosable  interest  in a  contract  or  transaction  merely
                  because:

                  1.       the contract or  transaction is an arrangement by way
                           of a security granted by the Company for money loaned
                           to, or  obligations  undertaken  by, the  director or
                           senior  officer,  or a person in whom the director or
                           senior  officer  has a  material  interest,  for  the
                           benefit  of  the  Company  or  an  affiliate  of  the
                           Company;
                  2.       the contract or  transaction  relates to an indemnity
                           or insurance under the BCBCA;
                  3.       the   contract   or   transaction   relates   to  the
                           remuneration  of the director or senior  officer,  in
                           that person's capacity as director, officer, employee
                           or agent of the  Company  or of an  affiliate  of the
                           Company;
                  4.       the contract or transaction  relates to a loan to the
                           Company,  and the  director or senior  officer,  or a
                           person in whom the  director or senior  officer has a
                           material interest, is or is to be a guarantor of some
                           or all of the loan; or
                  5.       the contract or transaction  has been or will be made
                           with  or for the  benefit  of a  corporation  that is
                           affiliated  with  the  Company  and the  director  or
                           senior  officer is also a director or senior  officer
                           of  that   corporation   or  an   affiliate  of  that
                           corporation.

                                      -48-

<PAGE>



                  A  director  or  senior  officer  who  holds  such a  material
                  interest  must disclose the nature and extent of such interest
                  in writing.  The disclosure  must be evidenced in writing in a
                  consent  resolution,  the  minutes  of a meeting  or any other
                  record  deposited with the Company's record office. A director
                  who has a disclosable interest in a contract or transaction is
                  not entitled to vote on any  directors'  resolution to approve
                  that contract or transaction, but may be counted in the quorum
                  at the directors' meeting at which such vote is taken.

         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 decided by the directors
                  unless the Board of Directors  specifically  requests approval
                  of the compensation from the shareholders.  If the issuance of
                  compensation  to the directors is decided by the directors,  a
                  quorum is the majority of the directors in office.

         C.       BORROWING  POWERS  EXERCISABLE  BY THE  DIRECTORS AND HOW SUCH
                  BORROWING POWERS MAY BE VARIED.

                  The Company, if authorized by the directors, may:

                  1.       borrow  money  in  the  manner  and  amount,  on  the
                           security,  from  the  sources  and on the  terms  and
                           conditions that they consider appropriate;
                  2.       issue bonds,  debentures  and other debt  obligations
                           either  outright or as security for any  liability or
                           obligation  of the Company or any other person and at
                           such discounts or premiums and on such other terms as
                           they consider appropriate;
                  3.       guarantee  the repayment of money by any other person
                           or the  performance  of any  obligation  of any other
                           person; and
                  4.       mortgage,  charge,  whether  by  way of  specific  or
                           floating  charge,  grant a security  interest  in, or
                           give other  security on, the whole or any part of the
                           present  and  future  assets and  undertaking  of the
                           Company.

                  The  borrowing  powers  may  be  varied  by  amendment  to the
                  Articles  of  the  Company  which  requires  approval  of  the
                  shareholders of the Company by Special Resolution.

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

                  There are no such  provisions  applicable to the Company under
                  the Notice of Articles, Articles or the BCBCA.

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

                  A director of the  Company is not  required to hold a share in
                  the capital of the Company as qualification for 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
Notice of Articles.

Of the Company's  unlimited share capital,  a total of 18,537,355  common shares
were issued and outstanding as of October 31, 2004.

All of the common  shares are fully paid and not  subject to any future  call or
assessment.  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  to
dividends.  The holders of the common  shares are entitled to receive  notice of
all shareholder  meetings and to attend and vote at such meetings.  Shareholders
are not entitled to  cumulative  voting.  Each common share  carries with it the
right to one vote. The common shares do

                                      -49-

<PAGE>



not have preemptive or conversion rights. In addition, there are no sinking fund
or  redemption  provisions  applicable  to the common  shares or any  provisions
discriminating against any existing or prospective holders of such securities as
a result of a shareholder  owning a substantial  number of shares. The Company's
board of directors does not stand for re-election at staggered intervals.

DIVIDEND RECORD

The Company has not paid any  dividends  on its common  shares and has no policy
with respect to the payment of dividends.

OWNERSHIP OF SECURITIES AND CHANGE OF CONTROL

Except for the Investment Canada Act,  discussed below, there are no limitations
on the rights to own securities, including the rights of non-resident or foreign
shareholders  to hold or exercise  voting  rights on the  securities  imposed by
foreign law or by the constituent documents of the Company.

Any person who beneficially owns or controls,  directly or indirectly, more than
10% of the Company's  voting  shares is considered an insider,  and must file an
insider  report  with the  British  Columbia,  Alberta  and  Ontario  Securities
Commissions  within ten days of  becoming  an insider  disclosing  any direct or
indirect  beneficial  ownership of, or control over direction over securities of
the Company. In addition, if the Company itself holds any of its own securities,
the Company must disclose such ownership.

There are no  provisions in the Company's  Continuation  Application,  Notice of
Articles  and  Articles  that would  have an effect of  delaying,  deferring  or
preventing a change in control of the Company  operating  only with respect to a
merger,  acquisition  or corporate  restructuring  involving  the Company or its
subsidiaries.

CHANGES TO RIGHTS AND RESTRICTIONS OF SHARES

Under the BCBCA and the Company's Articles,  if the Company wishes to change the
rights  and  restrictions  of the  common  shares the  Company  must  obtain the
approval of the shareholders by Special Resolution.

SHAREHOLDER MEETINGS

ANNUAL AND EXTRAORDINARY GENERAL MEETINGS

Under the BCBCA and the Company's Articles, the Company's annual general meeting
is to be held once in each  calendar  year and not more than 15 months after the
previous  meeting.  No advance  notice  will be required  to be  published  at a
meeting where directors are to be elected.  The Company,  under the BCBCA,  must
give  shareholders  not less than 21 days' notice of any general  meeting of the
shareholders.

The  Directors  may fix in advance a date,  which is no fewer than 35 days or no
more than 60 days prior to the date of the  meeting,  as the record date for the
meeting.  All the holders of common shares as at the record date are entitled to
attend and vote at a general meeting.

On a show of hands,  every person who is present,  a shareholder or proxy holder
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
resolution has been carried or carried by the necessary  majority or is defeated
must be entered in the minutes of the meeting and shall be  conclusive  evidence
of the fact without proof of the number or  proportion of the votes  recorded in
favor of or against the  resolution and the result of the vote so taken shall be
the decision of the members upon the said question.

DIFFERENCES FROM REQUIREMENTS IN THE UNITED STATES

Except for the Company's quorum  requirements,  certain  requirements related to
related party transactions,  the requirement for notice of shareholder  meetings
and the approval of amendments to the  Company's  articles,  which are discussed
above,  there  are no  significant  differences  in the  law  applicable  to the
Company, in the areas outlined above,

                                      -50-

<PAGE>



in  British  Columbia  versus the United  States.  In most  states in the United
States, a quorum must consist of a majority of the shares entitled to vote. Some
states allow for a reduction of the quorum  requirements to less than a majority
of the shares  entitled to vote.  Having a lower  quorum  threshold  may allow a
minority of the shareholders to make decisions about the Company, its management
and  operations.  In addition,  most states in the United States  require that a
notice  of  meeting  be  mailed  to  shareholders  prior  to the  meeting  date.
Additionally,  in the United  States,  a director may not be able to vote on the
approval of any  transaction  in which the director  has a interest.  Generally,
most states in the United States require  amendments to a company's  articles of
incorporation  to be  approved  by at least a majority  of the votes cast by the
holders  of the  issued  and  outstanding  shares.  Some  states,  or some older
corporations, may require approval of amendments by 2/3 of the votes cast by the
holders of the issued and outstanding shares. In addition,  in the United States
voting by separate  voting  groups may be  required on the  approval of any such
amendments.

MATERIAL CONTRACTS

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

1.       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 - Principal Properties - El Nayar Project, 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 of 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,  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 the Province of British  Columbia or in the
charter documents of the Company.

The following  discussion  summarizes  the principal  features of the Investment
Canada Act for a non-resident who proposes to acquire the common shares.

The Investment  Canada Act generally  prohibits  implementation  of a reviewable
investment  by  an  individual,   government  or  agency  thereof,  corporation,
partnership,  trust or joint venture (each an "entity") that is not a "Canadian"
as defined in the Investment Canada Act (a "non-Canadian"), unless after review,
the  Director of  Investments  appointed  by the  minister  responsible  for the
Investment  Canada Act is satisfied  that the  investment is likely to be of net
benefit to Canada.  An investment in the common shares by a  non-Canadian  other
than a "WTO Investor" (as that term is defined by the Investment Canada Act, and
which  term  includes  entities  which are  nationals  of or are  controlled  by
nationals of member states of the World Trade Organization) when the Company was
not  controlled by a WTO  Investor,  would be  reviewable  under the  Investment
Canada Act if it was an  investment  to acquire  control of the  Company and the
value of the  assets  of the  Company,  as  determined  in  accordance  with the
regulations  promulgated  under the Investment  Canada Act, equals or exceeds $5
million for direct acquisition and over $50 million for indirect acquisition, or
if an order for review was made by the federal  cabinet on the grounds  that the
investment   related  to  Canada's  cultural  heritage  or  national   identity,
regardless  of the value of the  assets of the  Company.  An  investment  in the
common  shares by a WTO  Investor,  or by a  non-Canadian  when the  Company was
controlled by a WTO Investor,  would be reviewable  under the Investment  Canada
Act if it was an investment  to acquire  control of the Company and the value of
the assets of the Company,  as  determined in  accordance  with the  regulations
promulgated  under  the  Investment  Canada  Act was not less  than a  specified
amount,  which for 2004 is any amount in excess of $237 million.  A non-Canadian
would acquire  control of the Company for the purposes of the Investment  Canada
Act  if  the  non-Canadian  acquired  a  majority  of  the  common  shares.  The
acquisition  of one third or more, but less than a majority of the common shares
would be presumed to be an acquisition of control of the Company unless it could
be established that, on the acquisition,  the Company was not controlled in fact
by the acquirer through the ownership of the common shares.


                                      -51-

<PAGE>



Certain  transactions  relating  to the common  shares  would be exempt from the
Investment Canada Act,  including:  (a) an acquisition of the common shares by a
person in the ordinary course of that person's business as a trader or dealer in
securities;  (b) an acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial assistance and not
for a purpose related to the provisions of the Investment Canada Act; and (c) an
acquisition  of control of the  Company  by reason of an  amalgamation,  merger,
consolidation or corporate reorganization following which the ultimate direct or
indirect  control in fact of the  Company,  through the  ownership of the common
shares, remained unchanged.

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

CAPITAL GAINS

In general,  a  non-resident  of Canada is not subject to tax under the ITA with
respect  to a  capital  gain  realized  upon  the  disposition  of a share  of a
corporation  resident in Canada that is listed on a prescribed  stock  exchange.
For purposes of the ITA, the 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
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 US 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

                                      -52-

<PAGE>



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  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.

US HOLDERS

As used herein, a "US Holder" is defined as (i) citizens or residents of the US,
or any state  thereof,  (ii) a corporation  or other entity created or organized
under the laws of the US, or any political subdivision thereof,  (iii) an estate
the income of which is subject to US federal  income tax regardless of source or
that is  otherwise  subject  to US 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 US court and which has one or more US 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

US 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 US Holder's United States federal income tax liability
or,  alternatively,  may be deducted in computing the US 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 US 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 US Holder
which is an individual, estate or trust. There are currently no preferential tax
rates  for  long-term  capital  gains for a US  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 US 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 US  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 US Holder during that year. Subject
to certain  limitations,  Canadian  taxes  withheld  will be eligible for credit
against the US 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 US Holder's circumstances. Foreign tax credits allowable with respect
to each  class of income  cannot  exceed the US  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 US Holder's income and
the deductions  appropriately allocated or apportioned thereto. The availability
of the

                                      -53-

<PAGE>



foreign tax credit and the application of the limitations on the credit are fact
specific and holders and  prospective  holders of common  stock  should  consult
their own tax advisors regarding their individual circumstances.

DISPOSITION OF SHARES OF COMMON STOCK

A US 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 US Holder, and such gain or loss will be
long-term  capital  gain or loss if the US 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 US 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 US 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 US law.

If more  than  50% of the  voting  power  or value  of the  Company  were  owned
(actually  or  constructively)  by  US  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 US Holder  (regardless  of the  amount of the  Company's
common  shares  owned by such US  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 US 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 US 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

US information  reporting  requirements may apply with respect to the payment of
dividends to US 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.



                                      -54-

<PAGE>



INSPECTION OF DOCUMENTS

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


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

Not applicable.


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

Not applicable


                                     PART II


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

Not applicable.


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

See  "Item 4.  Information  on the  Company  - History  and  Development  of the
Company" and "Item 10.  Additional  Information  - Articles of  Continuance  and
Articles."


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


An evaluation was performed under the supervision and with the  participation of
the Company's management,  including Mr. DeMare, the Company's President,  Chief
Executive  Officer and acting Chief Financial  Officer,  of the effectiveness of
the design and operation of the  Company's  disclosure  controls and  procedures
pursuant to Rules  13a-15(b)  and 15d- 15(b) of the  Securities  Exchange Act of
1934 (the "Exchange Act") as of May 31, 2004.  Based upon that  evaluation,  Mr.
DeMare,  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's rules and forms.

During  the  fiscal  year  ended May 31,  2004,  there  were no  changes  in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


ITEM 16.  [RESERVED]
--------------------------------------------------------------------------------

Not applicable.




                                      -55-

<PAGE>



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

The Board of Directors  has  determined  that the Company has at least one audit
committee  financial expert,  Mr. Nick DeMare, who serves on the Company's audit
committee.  Mr. DeMare is not considered to be an "independent director" as that
term is defined in Rule  4200(a)(15)  of the National  Association of Securities
Dealers.


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

The Company has not yet adopted a code of ethics that  applies to the  Company's
principal executive officer,  principal financial officer,  principal accounting
officer,  or controller,  or persons  performing  similar  functions.  Given the
Company's  current  operations,  management does not believe a code of ethics is
necessary at this stage of the Company's development.


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

AUDIT FEES

For the  fiscal  years  ended May 31,  2004 and 2003,  the  Company's  principal
accountant billed $15,848 and billed $33,400, respectively, for the audit of the
Company's annual financial  statements or services that are normally provided by
the  accountant  in  connection   with  statutory  and  regulatory   filings  or
engagements for those fiscal years.

AUDIT-RELATED FEES

For the  fiscal  years  ended May 31,  2004 and 2003,  the  Company's  principal
accountant  billed  $nil and  $nil,  respectively,  for  assurance  and  related
services that were reasonably  related to the performance of the audit or review
of the Company's  financial  statements  outside of those fees  disclosed  above
under "Audit Fees".

TAX FEES

For the  fiscal  years  ended May 31,  2004 and 2003,  the  Company's  principal
accountant billed $nil and $nil, respectively,  for tax compliance,  tax advice,
and tax planning services.

ALL OTHER FEES

For the  fiscal  years  ended May 31,  2004 and 2003,  the  Company's  principal
accountant billed $nil and billed $nil, respectively,  for products and services
other than those set forth above.

PRE-APPROVAL POLICIES AND PROCEDURES

Prior to engaging the Company's accountants to perform a particular service, the
Company's audit  committee  obtains an estimate for the service to be performed.
The  Company's  audit  committee   reviews  and   pre-approves   all  audit  and
audit-related  services and the fees and other compensation related thereto, and
any non-audit services provided by the Company's external auditors. Provided the
pre-approval  of the  non-audit  services is presented to the audit  committee's
first scheduled  meeting following such approval such authority may be delegated
by  the  audit  committee  to one  or  more  independent  members  of the  audit
committee.  The audit  committee in accordance  with  procedures for the Company
approved all of the services described above.

At no time since the  commencement  of the  Company's  most  recently  completed
financial year has the Company relied on the waiver in paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.




                                      -56-

<PAGE>



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

Not applicable.


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

Not applicable.


                                    PART III


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

See pages 60 (F-1) through 83 (F-24).


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

Not applicable.



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

EXHIBIT
NUMBER     DESCRIPTION                                                     PAGE

 1.1       Certificate of Continuation and Notice of Articles
           for Hilton Resources Ltd.                                         84

 1.2       Articles for Hilton Resources Ltd.                                88

 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



                                      -57-

<PAGE>



EXHIBIT
NUMBER     DESCRIPTION                                                     PAGE

 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

 4.11      Heads of Agreement by and among Hilton Petroleum Ltd.
           and Minera San Jorge S.A. de C.V. dated October 1, 2003.(8)      N/A

 4.20      10% Convertible Debentures (6)                                   N/A

 4.21      Stock Option Plan 2004 (8)                                       N/A

 4.22      Stock Option Plan 2005                                           126

 8.1       List of Subsidiaries                                             149

12.1       Certification of Nick DeMare Pursuant to Rule 13a-14(a)          151

13.1       Certification of Nick DeMare Pursuant to 18 U.S.C.
           Section 1350                                                     153

(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.
(8)      Previously  filed as an exhibit to the Company's  annual Report on Form
         20-F,  filed with the  Commission  on December  19,  2003.  File number
         000-30390.


                                      -58-

<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 RESOURCES LTD.


Dated:   November 29, 2004                 /s/ Nick DeMare
         -----------------                 ------------------------------------
                                           Nick DeMare,
                                           President, Chief Executive Officer,
                                           Chief Financial Officer and Director



                                      -59-

<PAGE>












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




                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS
                               FOR THE YEARS ENDED
                          MAY 31, 2004, 2003, AND 2002

            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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












                                       F-1

                                      -60-

<PAGE>






AUDITOR'S REPORT




To the Shareholders of
Hilton Resources Ltd. (formerly Hilton Petroleum Ltd.)


We have  audited  the  consolidated  balance  sheets  of Hilton  Resources  Ltd.
(formerly  Hilton  Petroleum  Ltd.)  as  at  May  31,  2004  and  2003  and  the
consolidated statements of operations, deficit and cash flow for the years ended
May 31, 2004, 2003 and 2002. 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  generally accepted auditing
standards in Canada and the standards of the Public Company Accounting Oversight
Board (United States). 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, 2004 and
2003 and the results of its operations and cash flow for the years ended May 31,
2004, 2003 and 2002 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,
2004 and 2003 and results of operations  for the years ended May 31, 2004,  2003
and  2002 to the  extent  summarized  in Note 12 to the  consolidated  financial
statements.

On  September  24, 2004 we reported  separately  to the  shareholders  of Hilton
Resources  Ltd.  (formerly  Hilton  Petroleum  Ltd.) on  consolidated  financial
statements  as at, and for the years  ended,  May 31,  2004 and 2003  audited in
accordance with Canadian generally accepted auditing standards.


                                                          /s/ D&H Group

Vancouver, BC
September 24, 2004                                     CHARTERED ACCOUNTANTS



                                    D&H Group
                          A Partnership of Corporations
        A Member of BHD Association with affiliated offices across Canada
     and Internationally 10th Floor, 1333 West Broadway, Vancouver B.C. V6H
                4C1 www.dhgroup.ca F 604-731-9923 T 604-731-5881
                                       F-2

                                      -61-

<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 24, 2004 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 24, 2004                              CHARTERED ACCOUNTANTS



















                                    D&H Group
                          A Partnership of Corporations
        A Member of BHD Association with affiliated offices across Canada
     and Internationally 10th Floor, 1333 West Broadway, Vancouver B.C. V6H
                4C1 www.dhgroup.ca F 604-731-9923 T 604-731-5881
                                       F-3

                                      -62-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                                  AS AT MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


                                                       2004            2003
                                                         $               $
                                   ASSETS

CURRENT ASSETS

Cash                                                    528,040         147,108
Amounts receivable                                       30,289          32,285
Prepaid expenses and deposits                             8,959          47,247
                                                   ------------    ------------
                                                        567,288         226,640

CAPITAL ASSETS, net of accumulated
    amortization of $1,976                               19,467               -

OPTION TO ACQUIRE INTERESTS IN UNPROVEN
    MINERAL CLAIMS (Note 5)                             103,971               -

DEFERRED EXPLORATION COSTS (Note 5)                     116,611               -

OTHER ASSETS (Note 6)                                    65,591         184,366
                                                   ------------    ------------
                                                        872,928         411,006
                                                   ============    ============

                              LIABILITIES

CURRENT LIABILITIES

Accounts payable and accrued liabilities                 16,356          20,238
Debentures (Note 7)                                           -       1,700,457
                                                   ------------    ------------
                                                         16,356       1,720,695
                                                   ------------    ------------

                      SHAREHOLDERS' EQUITY


SHARE CAPITAL (Note 8)                               70,593,713      67,568,135

CONTRIBUTED SURPLUS                                     154,000               -

EQUITY COMPONENT OF DEBENTURES                                -         430,922

DEFICIT                                             (69,891,141)    (69,308,746)
                                                   ------------    ------------
                                                        856,572      (1,309,689)
                                                   ------------    ------------
                                                        872,928         411,006
                                                   ============    ============
NATURE OF OPERATIONS (Note 1)

APPROVED BY THE BOARD

/s/ ANDREW CARTER    , Director
---------------------
/s/ NICK DEMARE      , Director
---------------------
                                       F-4

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.

                                      -63-

<PAGE>



                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                           FOR THE YEARS ENDED MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)



<TABLE>
<CAPTION>

                                                       2004            2003            2002
                                                         $               $               $
<S>                                               <C>             <C>             <C>

REVENUES

Petroleum and natural gas sales                               -         127,782         361,665
                                                   ------------    ------------    ------------

OTHER EXPENSES

Production                                                    -          83,607         263,553
General and administrative                              288,058         821,308       1,280,365
Stock-based compensation                                154,000               -               -
Depreciation, depletion and impairment                    1,976       6,881,119      39,482,069
Research, development and marketing                           -         364,413         793,237
                                                   ------------    ------------    ------------
                                                        444,034       8,150,447      41,819,224
                                                   ------------    ------------    ------------
OPERATING LOSS                                         (444,034)     (8,022,665)    (41,457,559)
                                                   ------------    ------------    ------------
OTHER INCOME (EXPENSES)

Interest and other income                                95,400          57,549       1,338,738
Interest expense on debentures                         (233,761)       (640,548)     (1,079,279)
Impairment of investment, advances and other                  -        (937,937)     (1,100,903)
Loss on sale of investment                                    -               -        (115,238)
Property investigations                                       -        (246,900)              -
                                                   ------------    ------------    ------------
                                                       (138,361)     (1,767,836)       (956,682)
                                                   ------------    ------------    ------------
NET LOSS FOR THE YEAR                                  (582,395)     (9,790,501)    (42,414,241)
                                                   ============    ============    ============


BASIC AND DILUTED LOSS PER SHARE                         $(0.06)         $(2.17)        $(11.65)
                                                   ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
    COMMON SHARES OUTSTANDING                        10,251,463       4,502,312       3,641,015
                                                   ============    ============    ============

</TABLE>














                                       F-5

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.

                                      -64-

<PAGE>



                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                       CONSOLIDATED STATEMENTS OF DEFICIT
                           FOR THE YEARS ENDED MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)




<TABLE>
<CAPTION>

                                                       2004            2003            2002
                                                         $               $               $
<S>                                               <C>             <C>             <C>

DEFICIT - BEGINNING OF YEAR                         (69,308,746)    (57,884,064)    (15,469,823)

CONVERSION OF DEBENTURES (Note 7(b))                          -      (1,634,181)              -
                                                   ------------    ------------    ------------
                                                    (69,308,746)    (59,518,245)    (15,469,823)

NET LOSS FOR THE YEAR                                  (582,395)     (9,790,501)    (42,414,241)
                                                   ------------    ------------    ------------
DEFICIT - END OF YEAR                               (69,891,141)    (69,308,746)    (57,884,064)
                                                   ============    ============    ============

</TABLE>





























                                       F-6


        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.

                                      -65-

<PAGE>



                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE YEARS ENDED MAY 31
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


<TABLE>
<CAPTION>

                                                                       2004            2003              2002
                                                                         $               $                 $
<S>                                                               <C>             <C>             <C>

CASH PROVIDED FROM (USED FOR)

OPERATING ACTIVITIES

Net loss for the year                                                  (582,395)     (9,790,501)    (42,414,241)
Adjustment for items not involving cash
     Depreciation, depletion and impairment                               1,976       6,881,119      39,482,069
     Amortization of deferred financing charges                          26,200          44,641         107,220
     Accretion of liability component of debentures                      92,139         156,183         357,732
     Stock-based compensation                                           154,000               -               -
     Impairment of investment, advances and other                         5,516         937,937               -
     Interest expense settled through issuance of shares                 65,371          42,221               -
     Loss (gain) on sale of investment                                   (2,645)              -         115,238
     Write-down of investment                                                 -               -       1,100,903
     Unrealized foreign exchange                                        (44,506)         52,266         (30,346)
                                                                   ------------    ------------    ------------
                                                                       (284,344)     (1,676,134)     (1,281,425)
Decrease in amounts receivable                                            1,996           8,585       3,642,499
Decrease in prepaid expenses and deposits                                38,288         134,793         146,335
Decrease in inventories                                                       -               -         976,556
Decrease in accounts payable and accrued liabilities                     (3,882)       (116,120)     (2,913,069)
                                                                   ------------    ------------    ------------
                                                                       (247,942)     (1,648,876)        570,896
                                                                   ------------    ------------    ------------
FINANCING ACTIVITIES

Issuance of common shares, net of issue costs                           918,275               -       2,844,100
Decrease in other assets                                                      -               -          38,188
                                                                   ------------    ------------    ------------
                                                                        918,275               -       2,882,288
                                                                   ------------    ------------    ------------
INVESTING ACTIVITIES

Drilling advances                                                       (57,221)              -               -
Expenditures on capital assets                                          (21,443)              -               -
Option payments and exploration costs                                  (220,582)              -               -
Petroleum and natural gas interests expenditures                              -        (655,786)     (3,169,417)
Proceeds from sale of petroleum and natural gas interests                     -         152,520               -
Investment and advances                                                       -          32,408      (1,198,377)
Proceeds from sale of investment                                          9,845               -         151,118
                                                                   ------------    ------------    ------------
                                                                       (289,401)       (470,858)     (4,216,676)
                                                                   ------------    ------------    ------------

INCREASE (DECREASE) IN CASH FOR THE YEAR                                380,932      (2,119,734)       (763,492)

CASH - BEGINNING OF YEAR                                                147,108       2,266,842       3,030,334
                                                                   ------------    ------------    ------------
CASH - END OF YEAR                                                      528,040         147,108       2,266,842
                                                                   ============    ============    ============

</TABLE>


Supplementary  disclosure  with respect to the  consolidated  statements of cash
flows (Note 14).
                                       F-7

        THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
                             FINANCIAL STATEMENTS.

                                      -66-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


1.       NAME CHANGE AND NATURE OF OPERATIONS

         The Company had previously been engaged in the acquisition, exploration
         for and  development  of crude oil and  natural gas  properties  in the
         United  States  and in  the  research,  development  and  marketing  of
         proprietary software programs.  During the 2003 fiscal year the Company
         recorded an impairment  charge of  $1,547,438  with respect to its then
         ongoing exploration of its petroleum interests. In addition,  effective
         November  30,  2002,  the  Company  also  recorded a further  charge of
         $5,333,681, representing its remaining net interest in Hilton Petroleum
         Inc. and STB Energy Inc., two wholly-owned  subsidiaries which held the
         Company's petroleum  interests.  The Company also ceased the funding of
         its proprietary software activities in the 2003 fiscal year.

         On March 2, 2004,  the Company  changed its name from Hilton  Petroleum
         Ltd. to Hilton Resources Ltd.

         The  Company  is in the  process  of  exploring  its  unproven  mineral
         interests in Mexico.  The Company  presently  has no proven or probable
         reserves  and on the  basis  of  information  to  date,  it has not yet
         determined   whether  these  mineral  interests  contain   economically
         recoverable ore reserves.  Consequently the Company considers itself to
         have become an  exploration  stage company on June 1, 2003. The amounts
         shown as unproven mineral  interests and deferred costs represent costs
         incurred to date, less amounts amortized and/or written off, and do not
         necessarily represent present or future values. The underlying value of
         the mineral  interests and deferred costs is entirely  dependent on the
         existence   of   economically   recoverable   reserves,   securing  and
         maintaining  title  and  beneficial  interest  in the  properties,  the
         ability of the Company to obtain the  necessary  financing  to complete
         development, and future profitable production.

         As at May 31, 2004,  the Company had working  capital of $550,932.  The
         Company  will  require   additional  equity  financing  to  pursue  the
         exploration  of  its  unproven  mineral   interests  and  meet  ongoing
         corporate  overhead  requirements.  The Company expects to generate the
         necessary  resources for the 2005 fiscal year through a combination  of
         the  sale of  equity  securities  through  private  placements  and the
         exercises of warrants and stock options. If the Company is unsuccessful
         in generating anticipated resources from one or more of the anticipated
         sources  and is unable to replace any  shortfall  with  resources  from
         another source,  the Company may be able to extend the period for which
         available  funds would be adequate  by joint  venturing  or selling its
         unproven mineral  interests and otherwise  scaling back operations.  No
         assurances  can be  given  however,  that the  Company  will be able to
         obtain  sufficient  additional  resources  or  renegotiate  its  option
         agreement  or sell it unproven  mineral  interest,  in which case,  its
         ability to meet its obligations and to continue its operations would be
         adversely affected.

         These   consolidated   financial   statements  have  been  prepared  in
         accordance  with  Canadian  generally  accepted  accounting  principles
         ("Canadian  GAAP") applicable to a going concern which assumes that the
         Company will realize its assets and  discharge its  liabilities  in the
         normal  course of  business.  Realization  values may be  substantially
         different from the carrying values shown in the consolidated  financial
         statements should the Company be unable to continue as a going concern.
         The ability of the Company to settle its  liabilities  as they come due
         and to fund ongoing  operations  is  dependent  upon the ability of the
         Company to obtain additional funding from equity financing.  Failure to
         continue as a going  concern would  require  restatement  of assets and
         liabilities on a liquidation  basis, which could differ materially from
         the going concern basis.


                                       F-8

                                      -67-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


2.       CHANGE IN ACCOUNTING POLICY

         Effective  June 1, 2003,  the  Company  prospectively  adopted the fair
         value method of accounting  for stock options  granted to employees and
         directors, as recommended by Section 3870 STOCK-BASED  COMPENSATION AND
         OTHER  STOCK BASED  PAYMENTS of the  Canadian  Institute  of  Chartered
         Accountants'  Handbook  ("CICA 3870").  CICA 3870 provides  alternative
         methods of transition for the adoption of the fair value method and, as
         permitted,  the  Company  has elected  prospective  application,  which
         allows the fair value method to be applied to stock options  granted or
         modified on or after June 1, 2003 to employees and directors. Pro-forma
         disclosure for options issued prior to June 1, 2003, as required by the
         standard,  had the Company  used the fair value  method is presented in
         Note 8(c).

         The fair value of stock options is determined  using the  BLACK-SCHOLES
         OPTION PRICING MODEL with  assumptions  for risk-free  interest  rates,
         dividend yields, volatility factors of the expected market price of the
         Company's common shares and an expected life of the options.

         For stock options  granted to other than employees and  directors,  the
         Company continues to apply the fair value method.


3.       SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         These   consolidated   financial   statements  have  been  prepared  in
         accordance  with 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 have, in management's  opinion,
         been properly  prepared  within  reasonable  limits of materiality  and
         within the framework of the significant  accounting policies summarized
         below.

         The  consolidated  financial  statements  for the 2003 and 2002  fiscal
         years  include  the  accounts  of  the  Company  and  its  wholly-owned
         subsidiaries.  Effective  May 31,  2004,  the Board of Directors of the
         Company determined to abandon all of its subsidiaries and, accordingly,
         as of this date,  the Company no longer  accounts for the activities of
         these subsidiaries. See also Note 1.

         USE OF ESTIMATES

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




                                       F-9

                                      -68-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


3.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         UNPROVEN MINERAL INTERESTS

         Unproven mineral interests costs and exploration, development and field
         support costs directly relating to mineral interests are deferred until
         the  interest to which they relate is placed into  production,  sold or
         abandoned.  The deferred  costs will be amortized  over the life of the
         orebody  following  commencement  of  production  or written off if the
         mineral interest is sold or abandoned.  Administration  costs and other
         exploration  costs that do not relate to any specific  mineral interest
         are expensed as incurred.

         On a periodic basis, management reviews the carrying values of deferred
         unproven mineral interest acquisition and exploration expenditures with
         a view to assessing  whether  there has been any  impairment  in value.
         Management takes into consideration various information including,  but
         not limited to,  results of exploration  activities  conducted to date,
         estimated  future  metal  prices,  and reports and  opinions of outside
         geologists, mine engineers and consultants.  When it is determined that
         a project or interest will be abandoned or its carrying  value has been
         impaired,  a provision is made for any expected  loss on the project or
         interest.

         Although  the  Company  has  taken  steps to  verify  title to  mineral
         interests in which it has an interest,  according to the usual industry
         standards for the stage of exploration of such mineral interests, these
         procedures do not guarantee the Company's title. Such mineral interests
         may be  subject  to prior  agreements  or  transfers  and  title may be
         affected by undetected defects.

         From  time to  time,  the  Company  acquires  or  disposes  of  mineral
         interests  pursuant  to the terms of  option  agreements.  Options  are
         exercisable   entirely  at  the   discretion   of  the  optionee   and,
         accordingly,  are recorded as mineral interest costs or recoveries when
         the payments are made or received.

         ASSET RETIREMENT OBLIGATIONS

         The fair value of a liability  for an asset  retirement  obligation  is
         recognized  when a reasonable  estimate of fair value can be made.  The
         asset  retirement   obligation  is  recorded  as  a  liability  with  a
         corresponding increase to the carrying amount of the related long-lived
         asset.  Subsequently,  the asset retirement cost is charged to earnings
         using a  systematic  and  rational  method and is  adjusted  to reflect
         period-to-period changes in the liability resulting from the passage of
         time and  revisions  to either the timing or the amount of the original
         estimate of  undiscounted  cash flow.  As at May 31, 2004,  the Company
         does not have any asset retirement obligations.

         IMPAIRMENT OF LONG-LIVED ASSETS

         Long-lived   assets  are  assessed  for  impairment   when  events  and
         circumstances  warrant.  The carrying  value of a  long-lived  asset is
         impaired when the carrying  amount  exceeds the estimated  undiscounted
         net cash flow from use and fair  value.  In that  event,  the amount by
         which the carrying  value of an impaired  long-lived  asset exceeds its
         fair value is charged to earnings.

         INVESTMENTS

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

                                      F-10

                                      -69-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


3.       SIGNIFICANT ACCOUNTING POLICIES (continued)

         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.

         CAPITAL ASSETS

         Capital  assets,  which is  comprised of vehicles  and  equipment,  are
         recorded at cost less  accumulated  depreciation  calculated  using the
         declining balance method at a rate of 30%.

         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.


4.       CHANGE IN REPORTING CURRENCY

         For the 2004 fiscal year, on a retroactive  basis,  the Company changed
         its reporting  currency from United States dollars to Canadian dollars.
         All assets and liabilities are translated into Canadian  dollars at the
         rate of exchange  prevailing  at the balance  sheet date.  Revenues and
         expenses are translated at the average rate for the year.

         The  reporting  currency  was  changed  from United  States  dollars to
         Canadian dollars as the majority of the Company's  transactions  during
         the 2004 fiscal year were denominated in Canadian dollars.

         The figures  for the 2003  fiscal year as reported in Canadian  dollars
         versus  United  States  dollars  include  a net  loss  for the  year of
         $9,790,501  (2002  -  $42,414,241)  versus  US  $6,454,088  (2002  - US
         $27,984,522) and a deficit as at May 31, 2003, of $69,308,746 versus US
         $48,319,925.

                                      F-11

                                      -70-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


5.       OPTION INTERESTS AND DEFERRED EXPLORATION COSTS

                                    ACQUISITION    EXPLORATION
                                       COSTS           COSTS           TOTAL
                                         $               $                $

         El Nayar Project               103,971         116,611         220,582
                                   ============    ============    ============

         On October 1, 2003, the Company entered into an option agreement,  with
         a Mexican private  corporation which is at arm's length to the Company,
         whereby the Company can acquire up to a 100%  interest in five unproven
         mineral  concessions  (the "El  Nayar  Project")  in  Mexico,  covering
         approximately 6,766 hectares.

         The  Company  may earn an  initial  60%  interest,  upon  TSX  approval
         ("Approval  Date"),  in  consideration of making option payments to the
         optionor totaling US $50,000 (paid) and the issuances of a total of 1.1
         million common shares and funding US $1 million of expenditures, on the
         following basis:

         DATE                                    SHARE ISSUANCES   EXPENDITURES
                                                                        US $

         Approval Date                                  100,000               -
         Four months after Approval Date                      -          40,000
         One year after Approval Date                   200,000         250,000
         Eighteen months after Approval Date                  -         710,000
         Two years after Approval Date                  300,000               -
         Three years after Approval Date                500,000               -
                                                   ------------    ------------
                                                      1,100,000       1,000,000
                                                   ============    ============

         The Company has paid $19,741 (US $15,000) of underlying option payments
         and $18,966 land holding costs  required of the  optionor.  The Company
         has  also  agreed  to pay land  holding  costs  totaling  approximately
         $137,428.  Future  option  payments  to the  concession  holders are as
         follows:

                                                                        US $

         June 2004                                                       30,000
         December 2004                                                   35,000
         June 2005                                                       40,000
         December 2005                                                   45,000
         June 2006                                                       50,000
         December 2006                                                   85,000
                                                                   ------------
                                                                        285,000
                                                                   ============

         These option  payments and land holding  costs will be included as part
         of the expenditure commitment for the Company's earn-in.

         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-12

                                      -71-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


5.       OPTION INTERESTS AND DEFERRED EXPLORATION COSTS (continued)

         Exploration  costs incurred during the 2004 fiscal year on the El Nayar
         Project are as follows:

                                                                         $

         Assays                                                           4,343
         Geological                                                      87,529
         Other                                                           14,090
         Travel                                                          10,649
                                                                   ------------
                                                                        116,611
                                                                   ============


6.       OTHER ASSETS

                                                       2004             2003
                                                         $                $

         Investment                                       8,370          21,086
         Drilling advance                                57,221               -
         Loan to former officer                               -         137,080
         Deferred financing charges                           -          26,200
                                                   ------------    ------------
                                                         65,591         184,366
                                                   ============    ============

         (a)      As at May 31, 2003,  the Company held 234,286 common shares of
                  Halo  Resources  Ltd.  ("Halo")  (formerly  Trimark  Resources
                  Ltd.),  a publicly  traded  company  with common  officers and
                  directors. During the 2004 fiscal year the Company sold 80,000
                  shares for  $9,845,  realizing  a gain of $2,645.  The Company
                  also  disposed  of 61,286  shares as part of its  recovery  of
                  amounts  receivable,  as described in Note 9(b). As at May 31,
                  2004 the  Company  held  93,000  shares  of Halo with a quoted
                  market value of $67,890.

         (b)      During the 2004 fiscal year,  the loan to the former  Chairman
                  of the  Company was  retired  against  the  maturity of the US
                  $100,000  principal  of the Series A 10%  Debenture  which was
                  held by the  former  Chairman.  Interest  income of $8,742 was
                  received  (2003 -  $15,252;  2002 -  $5,948)  during  the 2004
                  fiscal year. See also Note 7(a).


7.       DEBENTURES

                                                       2004            2003
                                                         $               $

         10% Debentures                                       -       1,700,457
                                                   ============    ============

         (a)      On their maturity on January 24, 2004, the Company  retired US
                  $770,000  Series A and $600,000  Series B principal of the 10%
                  Debentures  and  $22,752  of  accrued  interest   outstanding,
                  through  the  issuance  of  6,322,149  common  shares  of  the
                  Company.  The Company retired the remaining US $100,000 Series
                  A 10% Debentures  owing to the former  Chairman of the Company
                  as  described in Note 6(b).  During the 2004 fiscal year,  the
                  Company paid $46,557 cash and issued 552,060 common shares for
                  $89,176  interest in addition to the shares  which were issued
                  on maturity.

                                      F-13

                                      -72-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


7. DEBENTURES (continued)

         (b)      During  the  2003  fiscal  year,  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 $5.00 per  share.  In June  2002,
                  holders of $2,887,252 of the 10%  Debentures and all of the 9%
                  Debentures  elected to convert and the Company  issued 876,150
                  common shares and paid $252,621 of bonus  interest.  The bonus
                  interest was recorded as part of interest expense on long-term
                  debt.   In   addition,   Canadian   GAAP  require  a  non-cash
                  calculation be made of the inducement  resulting from reducing
                  the conversion price. Accordingly,  $1,634,181 was recorded in
                  the 2003  fiscal  year as a credit  to share  capital  with an
                  offsetting charge to deficit.


8.       SHARE CAPITAL


Authorized:  Unlimited common shares without par value
Issued:
<TABLE>
<CAPTION>

                                    2004                        2003                          2002
                          --------------------------  ---------------------------  ----------------------------
                             SHARES        AMOUNT        SHARES         AMOUNT        SHARES         AMOUNT
                                             $                            $                             $
<S>                       <C>          <C>          <C>            <C>            <C>            <C>

Balance, beginning
    of year                  4,876,921    67,658,135     3,657,516     61,315,533     3,490,216      58,482,313
                          ------------  ------------  ------------   ------------  ------------   -------------

Issued during the year
For cash
    Private placements       6,130,000       865,750             -              -       167,300       2,844,100
    Exercise of warrants       490,000        68,600             -              -             -               -
Retirement of debentures     6,233,843     2,041,932             -              -             -               -
Conversion on debentures             -             -       876,150      6,210,381             -               -
Debenture interest             640,366        65,371       343,255         42,221             -               -
Finders fee                    166,225        16,623             -              -             -               -
                          ------------  ------------  ------------   ------------  ------------   -------------
                            13,660,434     3,058,276     1,219,405      6,252,602       167,300       2,844,100
Less:  Share issue costs             -       (32,698)            -              -             -         (10,880)
                          ------------  ------------  ------------   ------------  ------------   -------------
                            13,660,434     3,025,578     1,219,405      6,252,602       167,300       2,833,220
                          ------------  ------------  ------------   ------------  ------------   -------------
Balance, end of year        18,537,355    70,593,713     4,876,921     67,568,135     3,657,516      61,315,533
                          ============  ============  ============   ============  ============   =============
</TABLE>


         (a)      During  the  2004  fiscal  year,  the  Company  completed  the
                  following private placements:

                  i)       4,030,000 units at $0.10 per unit, for gross proceeds
                           of $403,000. Each unit comprised one common share and
                           one share purchase warrant. Each warrant entitles the
                           holder to  purchase  an  additional  common  share at
                           $0.14 per share on or before  November 25, 2005.  The
                           Company issued  100,000  units,  on the same terms as
                           the private placement units, and 66,225 common shares
                           in  consideration  of  $16,623 of  finders'  fees and
                           incurred $8,330 of costs  associated with the private
                           placement;

                                      F-14

                                      -73-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


8.       SHARE CAPITAL (continued)

                  ii)      675,000 units at $0.20 per unit,  for gross  proceeds
                           of $135,000. Each unit comprised one common share and
                           one share purchase warrant. Each warrant entitles the
                           holder to  purchase  an  additional  common  share at
                           $0.26 per share on or before  February 19, 2005.  The
                           Company  incurred $7,745 of costs associated with the
                           private placement. Certain directors,  officers and a
                           private  company  controlled by a director  purchased
                           450,000 units; and

                  iii)     1,425,000  units at $0.23 per unit,  for  proceeds of
                           $327,750.  Each unit  comprised  one common share and
                           one share purchase warrant. Each warrant entitles the
                           holder to purchase an  additional  common share for a
                           period  of two  years at $0.31 per share on or before
                           March 4, 2006.

         (b)      During the 2002 fiscal year,  the Company  completed a private
                  placement  of  167,300  units at  $17.00  per  unit for  gross
                  proceeds of  $2,844,100.  Each unit comprised one common share
                  and one share  purchase  warrant.  Two  warrants  entitle  the
                  holder to purchase an  additional  common  share at $18.80 per
                  share on or before  July 6, 2004.  The  Company  paid  $10,880
                  share issue costs and issued warrants (the "Agent's Warrants")
                  for the purchase of 40,000  common  shares and 285,200  common
                  shares,  until July 6, 2002 and July 11,  2002,  at $18.80 per
                  share. The Agent's Warrants expired without exercise.

         (c)      A summary of the  Company's  outstanding  stock options at May
                  31, 2004,  2003 and 2002, and the changes for the years ending
                  on those dates is presented below:

<TABLE>
<CAPTION>

                                               2004                       2003                      2002
                                       -----------------------   ------------------------  ------------------------
                                                     WEIGHTED                  WEIGHTED                   WEIGHTED
                                         NUMBER      AVERAGE       NUMBER       AVERAGE       NUMBER      AVERAGE
                                       OF OPTIONS    EXERCISE    OF OPTIONS    EXERCISE     OF OPTIONS    EXERCISE
                                       OUTSTANDING    PRICE      OUTSTANDING     PRICE     OUTSTANDING     PRICE
                                                        $                          $                         $
                <S>                  <C>            <C>         <C>            <C>        <C>             <C>

                  Balance,
                     beginning of year     186,200     11.38         186,825      13.60        236,375      21.90
                  Granted                  700,000      0.25               -          -        100,000       4.50
                  Cancelled/expired       (186,200)    11.38            (625)     27.00       (149,550)     20.40
                                       -----------               -----------              ------------
                  Balance, end of year     700,000      0.25         186,200      11.38        186,825      13.60
                                       ===========               ===========              ============

</TABLE>

                  The following  table  summarizes  information  about the stock
                  options outstanding and exercisable at May 31, 2004.

                  NUMBER                 EXERCISE PRICE        EXPIRY DATE
                                               $

                  700,000                     0.25             February 18, 2007
                  =======                     ====


                                      F-15

                                      -74-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


8.       SHARE CAPITAL (continued)

                  During the 2002 fiscal year, the Company granted 100,000 stock
                  options  to  its  employees  and  directors  and  applied  the
                  intrinsic  value based method of  accounting.  Had the Company
                  followed  the fair value based  method of  accounting  for the
                  2002  fiscal  year,   the  Company   would  have  recorded  an
                  additional  compensation expense of $228,350 in respect of its
                  employees and  directors'  stock  options.  Pro-forma loss and
                  loss per share  information  determined  under the fair  value
                  method for the 2002 fiscal year are as follows:

                                                                        $
                  Net loss for fiscal 2002
                      - as reported                                 (42,414,241)
                      - compensation expense                           (228,350)
                                                                   ------------
                      - pro-forma                                   (42,642,591)
                                                                   ============
                  Basic and diluted loss per share
                      - as reported                                      (11.65)
                      - pro-forma                                        (11.71)

                  No stock  options were granted by the Company  during the 2003
                  fiscal year.

                  The  fair  value  of  stock  options   granted  to  employees,
                  directors and  consultants is estimated on the dates of grants
                  using  the   Black-Scholes   option  pricing  model  with  the
                  following  assumptions  used for the  grants  made  during the
                  periods:

                                                       2004            2002

                  Risk-free interest rate              2.54%            3.69%
                  Estimated volatility                 140%             125%
                  Expected life                      1.5 years        3 years

                  The weighted  average  fair value per share of stock  options,
                  calculated  using  the  Black-Scholes  option  pricing  model,
                  granted   during  the  2004  fiscal  year  to  the   Company's
                  employees, directors and consultants was $0.22 per share (2002
                  - $2.28).

                  Option-pricing   models  require  the  use  of  estimates  and
                  assumptions including the expected volatility.  Changes in the
                  underlying  assumptions  can materially  affect the fair value
                  estimates and,  therefore,  existing models do not necessarily
                  provide  reliable  measure of the fair value of the  Company's
                  stock options.

         (d)      As at May 31,  2004,  the  Company  had  outstanding  warrants
                  issued pursuant to private placements,  which may be exercised
                  to purchase  5,823,650 shares.  The warrants expire at various
                  times until 2006 and may be exercised  at prices  ranging from
                  $0.14 per share to $18.80 per share.



                                      F-16

                                      -75-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


8. SHARE CAPITAL (continued)

                  A  summary  of  the   Company's   warrants   outstanding   and
                  exercisable  at May 31, 2004,  2003 and 2002,  and the changes
                  for the years ending on those dates is presented below:
<TABLE>
<CAPTION>

                                                2004                       2003                      2002
                                       -----------------------   ------------------------  ------------------------
                                         NUMBER      EXERCISE      NUMBER      EXERCISE       NUMBER      EXERCISE
                                       OF WARRANTS    PRICE      OF WARRANTS     PRICE     OF WARRANTS     PRICE
                                       OUTSTANDING      $        OUTSTANDING       $       OUTSTANDING       $
                <S>                   <C>           <C>         <C>           <C>         <C>             <C>

                  Balance,
                     beginning of year     340,025     6.74          705,559     18.13          837,191    25.72
                  Issued                 6,230,000     0.19                -       -            116,170    18.80
                  Exercised               (490,000)    0.14                -       -                  -      -
                  Expired                 (256,375)    2.81         (365,534)    21.21         (247,802)   44.07
                                       -----------               -----------               ------------
                  Balance, end of year   5,823,650     0.46          340,025     6.74           705,559    18.13
                                       ===========               ===========               ============
</TABLE>

         (e) See also Notes 7 and 15.


9.       RELATED PARTY TRANSACTIONS

         (a)      During the 2004 fiscal  year,  the Company  incurred  $110,066
                  (2003 - $321,300; 2002 - $291,014) for accounting, management,
                  professional and consulting  services  provided by current and
                  former directors and officers of the Company.

         (b)      During the 2003 fiscal year, the Company wrote-off $346,109 of
                  loans  receivable from Halo.  During the 2004 fiscal year, the
                  Company negotiated a settlement with Halo and third parties in
                  which it  relinquished  61,286  shares  of Halo  and  received
                  $78,120 from Halo,  resulting in a recovery of $72,604,  which
                  was included as part of interest and other income.

         (c)      See also Note 8(a).


10.      INCOME TAXES

         As at May 31, 2004, the Company has accumulated  non-capital losses for
         Canadian income tax purposes of approximately $7 million, expiring from
         2005 to 2014,  which  are  available  for  application  against  future
         taxable income,  the related benefits of which have not been recognized
         in these financial statements.


11.      SEGMENTED INFORMATION

         During the 2004  fiscal  year,  the Company  operated  in one  industry
         segment,  the  exploration  of unproven  mineral  interests  in Mexico.
         During the 2003 and 2002  fiscal  years,  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. See Note 1.

                                      F-17

                                      -76-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


11.      SEGMENTED INFORMATION (continued)

         Identifiable  assets,  revenues and net loss in each of these  industry
         segments are as follows:

<TABLE>
<CAPTION>

                                                                       2004
                                                   --------------------------------------------
                                                   IDENTIFIABLE                        NET
                                                      ASSETS         REVENUES          LOSS
                                                         $              $               $
        <S>                                      <C>             <C>             <C>

         Mineral operations (Mexico)                    293,529               -               -
         Corporate (Canada)                             579,399          95,400        (582,395)
                                                   ------------    ------------    ------------
                                                        872,928          95,400        (582,395)
                                                   ============    ============    ============

</TABLE>

<TABLE>
<CAPTION>

                                                                       2003
                                                   --------------------------------------------
                                                   IDENTIFIABLE                        NET
                                                      ASSETS         REVENUES          LOSS
                                                         $              $               $
        <S>                                      <C>             <C>             <C>

         Petroleum and natural gas
             operations (United States)                       -         127,782      (6,241,012)
         Software (Canada)                                    -           1,441        (771,487)
         Corporate (Canada)                             411,006          56,108      (2,778,002)
                                                   ------------    ------------    -----------
                                                        411,006         185,331      (9,790,501)
                                                   ============    ============    ===========

</TABLE>

<TABLE>
<CAPTION>

                                                                       2002
                                                   --------------------------------------------
                                                   IDENTIFIABLE                        NET
                                                      ASSETS         REVENUES          LOSS
                                                         $              $               $
        <S>                                      <C>             <C>             <C>

         Petroleum and natural gas
             operations (United States)               7,821,808         361,665     (38,764,681)
         Software (Canada)                                    -               -        (793,237)
         Corporate (Canada)                           3,843,700       1,338,738      (2,856,323)
                                                   ------------    ------------    ------------
                                                     11,665,508       1,700,403     (42,414,241)
                                                   ============    ============    ============

</TABLE>






                                      F-18


                                      -77-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN 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>

                                                                       2004            2003            2002
                                                                         $               $               $

                <S>                                               <C>             <C>             <C>

                  CONSOLIDATED STATEMENTS OF OPERATIONS
                      AND COMPREHENSIVE INCOME

                  Loss for the year
                      Canadian GAAP                                    (582,395)     (9,790,501)    (42,414,241)
                      Write-down of investment (i)                            -          69,273         901,715
                      Write-off of option interests and
                         exploration costs (ii)                        (220,582)              -               -
                      Impairment expense (iii)                                -               -      (2,792,345)
                      Other compensation expense (v)                    (27,000)              -        (285,050)
                      Accretion of liability component of
                         long-term debt (vi)                             92,139         156,183         357,732
                      Induced early conversion of
                         convertible debt securities (vii)                    -      (1,634,181)              -
                                                                   ------------    ------------    ------------
                      US GAAP                                          (737,838)    (11,199,226)    (44,232,189)
                                                                   ------------    ------------    ------------

                  OTHER COMPREHENSIVE INCOME

                      Unrealized holding gain (loss) on
                         available-for-sale marketable
                             securities(i)                               59,520         (69,273)       (941,486)
                      Reclassification adjustment for gain on
                         available for sale marketable securities
                         included in net loss (i)                             -               -           3,209
                                                                   ------------    ------------    ------------
                                                                         59,520         (69,273)       (938,277)
                                                                   ------------    ------------    ------------
                  Comprehensive (loss) for the year                    (678,318)    (11,268,499)    (45,170,466)
                                                                   ============    ============    ============
                      Loss per share basic and
                         fully diluted - US GAAP                         $(0.07)         $(2.50)        $(12.41)
                                                                   ============    ============    ============

</TABLE>



                                      F-19

                                      -78-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


12.      DIFFERENCES  BETWEEN  CANADIAN  AND UNITED  STATES  GENERALLY  ACCEPTED
         ACCOUNTING PRINCIPLES (continued)
<TABLE>
<CAPTION>


                                                                       2004            2003
                                                                         $               $
        <S>                                                      <C>              <C>

         CONSOLIDATED BALANCE SHEETS

         Total Assets

             Canadian GAAP                                              872,928         411,006
             Available for sale securities (i)                           59,520               -
             Option interests and deferred
                  exploration costs expensed (ii)                      (220,582)              -
                                                                   ------------    ------------
             US GAAP                                                    711,866         411,006
                                                                   ============    ============

         Total Liabilities

             Canadian GAAP                                               16,356       1,720,695
             Equity component of long-term debt (vi)                          -         430,922
             Accretion of liability component of
                  long-term debt(vi)                                          -        (338,860)
                                                                   ------------    ------------
             US GAAP                                                     16,356       1,812,757
                                                                   ============    ============

         Shareholders' Equity

             Canadian GAAP                                              856,572      (1,309,689)
             Available for sale securities (i)                           59,520               -
             Option interests and deferred exploration
                   costs expensed (ii)                                 (220,582)              -
             Equity component of long-term debt (vi)                          -        (430,922)
             Accretion of long-term component of
                  long-term debt (vi)                                         -         338,860
                                                                   ------------    ------------
             US GAAP                                                    695,510      (1,401,751)
                                                                   ============    ============
</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)   Option interests and deferred exploration costs

                         Option  interests  and deferred  exploration  costs are
                         accounted  for in  accordance  with  Canadian  GAAP  as
                         disclosed in Note 3. The Company has  determined for US
                         GAAP  purposes  to  expense  the  option  payments  and
                         exploration  costs relating to unproven  mineral claims
                         as  incurred.   In  addition,  US  GAAP  requires  that
                         exploration  costs not be capitalized  until a positive
                         feasibility  study is completed.  The capitalized costs
                         of such claims would then be assessed  for  impairment,
                         on a periodic  basis, to ensure that the carrying value
                         can be recovered on an undiscounted cash flow basis. If
                         the  carrying  value cannot be recovered on this basis,
                         the  mineral  claims  would  be  written  down  to  net
                         recoverable value on a discounted cash flow basis.

                                      F-20


                                      -79-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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

                  (iii)  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
                         $41,966,439 was required to be recorded.

                  (iv)   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 2004 fiscal
                         year,  directors,  officers and companies controlled by
                         the directors or officers acquired 450,000 shares (2003
                         - nil;  2002 - 159,300)  of the  Company,  pursuant  to
                         private placements  conducted by the Company,  for cash
                         proceeds of $90,000 (2002 - $2,708,100);

                  (v)    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
                         2004  fiscal  year would  increase  by $27,000  (2003 -
                         $nil;  2002 - $285,050) and $295,349 (2003 - $nil; 2002
                         - $14,315),  respectively, and share capital, as at May
                         31,  2004  would   increase  by   $3,323,078   (2003  -
                         $3,000,729; 2002 - $3,000,729).  There is no net change
                         to shareholders' equity.

                  (vi)   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.




                                      F-21

                                      -80-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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

                  (vii)  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.

                  (viii) 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, 2004,  the Company has fully reserved the
                         $2,800,000 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  $150,000 is
                         attributable to the 2004 fiscal year.

                  (ix)   Functional Currency

                         The  Company's  functional  currency  is  the  Canadian
                         dollar.

                  (x)    Development Stage Company

                         The Company is in the exploration stage and, as of June
                         1, 2003, is  considered a development  stage company as
                         defined by Statement of Financial  Accounting Standards
                         ("SFAS")  No.  7.  To May 31,  2004,  the  Company  has
                         accumulated   a  deficit  of  $582,395   while  in  the
                         development stage.

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

         (c)      New Accounting Standards

                  In May 2003, the Financial Accounting Standards Board ("FASB")
                  issued  Statement No. 150,  "ACCOUNTING FOR CERTAIN  FINANCIAL
                  INSTRUMENTS  WITH  CHARACTERISTICS  OF  BOTH  LIABILITIES  AND
                  EQUITY" ("SFAS No. 150"),  which addresses how to classify and
                  measure certain financial  instruments with characteristics of
                  both liabilities (or assets in some circumstances) and equity.
                  SFAS No. 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.  Adoption  of SFAS No. 150 on
                  July 1, 2003 had no impact on the Company's financial position
                  and results of operations.

                                      F-22

                                      -81-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)


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

                  In  January  2003,  the  FASB  issued  Interpretation  No.  46
                  "CONSOLIDATION OF VARIABLE  INTEREST  ENTITIES" ("FIN No. 46")
                  (revised  December 2003). FIN No. 46 clarifies the application
                  of Accounting Research Bulletin No. 51 "CONSOLIDATED FINANCIAL
                  STATEMENTS" to only certain entities in which equity investors
                  do not have the  characteristics  of a  controlling  financial
                  interest  or do not  have  sufficient  equity  at risk for the
                  equity  to   finance   its   activities   without   additional
                  subordinated  financial support from other parties. FIN No. 46
                  applies  immediately  to variable  interest  entities  created
                  after  January 31, 2003,  and the variable  interest  entities
                  obtained  after that date.  It applies at the end of the first
                  annual  reporting  period  beginning  after June 15, 2003,  to
                  variable  interests  in which an  enterprise  holds a variable
                  interest which was acquired before February 1, 2003.  Adoption
                  of FIN No. 46 on  January 1, 2004 will not  materially  impact
                  the Company's financial position or results of operations.

                  A similar guideline has been introduced in Canada,  Accounting
                  Guideline 15 "CONSOLIDATION  OF VARIABLE  INTEREST  ENTITIES".
                  This guideline applies to annual and interim periods beginning
                  on or after  November 1, 2004.  The Company is  continuing  to
                  evaluate the potential impact of Accounting Guideline 15.

                  In July  2003,  the  CICA  released  Section  1100  "GENERALLY
                  ACCEPTED ACCOUNTING PRINCIPLES".  This new section establishes
                  standards for financial reporting in accordance with generally
                  accepted accounting principles.  It describes what constitutes
                  Canadian GAAP and its sources,  replacing "FINANCIAL STATEMENT
                  CONCEPTS" paragraph  1000.59-61.  Also, in July 2003, the CICA
                  released  Section  1400,   "GENERAL   STANDARDS  OF  FINANCIAL
                  STATEMENT   PRESENTATION".   This   section   clarifies   what
                  constitutes  fair  presentation  in  accordance  with Canadian
                  GAAP.  Both these  sections  are  effective  for fiscal  years
                  beginning  on or after  October  1,  2003 and the  Company  is
                  currently evaluating their impact.


13.      FINANCIAL INSTRUMENTS

         The fair value of financial  instruments  at May 31, 2004 and 2003, 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, 2004,
         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  and  accounts  payable  and
         accrued liabilities.  The quoted market value of investments at May 31,
         2004 was $67,890.



                                      F-23

                                      -82-

<PAGE>


                              HILTON RESOURCES LTD.
                        (FORMERLY HILTON PETROLEUM LTD.)
                         (AN EXPLORATION STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED MAY 31, 2004, 2003 AND 2002
            (EXPRESSED IN CANADIAN DOLLARS, UNLESS OTHERWISE STATED)

14.      SUPPLEMENTARY CASH FLOW INFORMATION

         Non-cash operating,  investing and financing  activities were conducted
         by the Company as follows:

<TABLE>
<CAPTION>

                                                                       2004            2003            2002
                                                                         $               $               $
        <S>                                                       <C>             <C>             <C>

         Operating activities

              Decrease in amounts receivable                                  -               -         190,938
              Accounts payable and accrued liabilities on
                  abandonment of petroleum subsidiaries                       -      (1,316,203)              -
              Reversal of accounts payable and accrued liabilities            -               -      (1,103,126)
                                                                   ------------    ------------    ------------
                                                                              -      (1,316,203)       (912,188)
                                                                   ============    ============    ============

         Financing activities

              Increase in other assets                                        -               -        (190,938)
              Decrease in liability component of debentures on
                  conversion                                                  -         332,228               -
              Decrease in equity component of debentures on
                  conversion                                           (430,922)       (642,273)              -
              Decrease in deferred financing charges on conversion            -         114,597               -
              Capital distribution on early conversion of debentures          -      (1,634,181)              -
              Issuance of common shares for capital distribution              -       1,829,629               -
              Issuance of common shares on conversion of debentures           -       4,380,752               -
              Conversion of debentures                                        -      (4,380,752)              -
              Issuance of common shares on retirement of debentures   2,041,932               -               -
              Retirement of debentures                               (1,748,090)              -               -
              Issuance of common shares for finder's fees                16,623               -               -
              Share issue costs                                         (16,623)              -               -
                                                                   ------------    ------------    ------------
                                                                       (137,080)              -        (190,938)
                                                                   ============    ============    ============

         Investing activities

              Retirement of loan                                        137,080               -               -
              Reversal of petroleum and natural gas interests
                  expenditures                                                -       1,316,203       1,103,126
                                                                   ------------    ------------    ------------
                                                                        137,080       1,316,203       1,103,126
                                                                   ============    ============    ============
</TABLE>


         Other supplementary cash flow information:

<TABLE>
<CAPTION>

                                                                       2004            2003            2002
                                                                         $               $               $
        <S>                                                       <C>             <C>             <C>

         Interest paid in cash                                           46,557         395,362         614,327
                                                                   ============    ============    ============

         Income taxes paid in cash                                            -               -               -
                                                                   ============    ============    ============
</TABLE>


15.      SUBSEQUENT EVENT

         Subsequent  to  May  31,  2004,  the  Company  granted  options  to its
         directors,  employees and consultants to purchase 760,000 shares of the
         Company at a price of $0.10 per share, expiring September 3, 2007.

                                      F-24

                                      -83-

<PAGE>