**SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 
 **FORM
10-K/A**
 **AMENDMENT
NO. 1 TO**
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 For
      the Fiscal Year Ended December 31, 2003
    Commission
      File No. 0-6119
 
 
 **TRI-VALLEY
CORPORATION**
 (Exact
Name of Registrant as Specified in its Charter)
 
 **Delaware**
    **84-0617433**(State
      or other jurisdiction of incorporation or organization)
    (I.R.S.
      Employer Identification No.)
 
 **5555
Business Park South, Suite 200, Bakersfield, California
93309**
 (Address
of Principal Executive Offices)
 
 Registrant's
Telephone Number Including Area Code: **(661)
864-0500**
 
 Securities
Registered Pursuant to Section 12(b) of the Act:
 None
 
 Securities
Registered Pursuant to Section 12(g) of the Act:
 Common
Stock, $0.001 par value
 (Title of
Class)
 
 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 requirement for the past
90 days.
 Yes x  No o
 
 Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure will be contained to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, if
applicable, or any amendment to this Form 10-K.  x
 
 The
issuer's revenues for the most recent fiscal year were $6,464,245.
 
 As of
February  19 , 2004,
20,099,627 common shares were issued and outstanding, and the aggregate market
value of the common shares of Tri-Valley Corporation held by non-affiliates on
that date was approximately  $92,815,066.
 
 DOCUMENTS
INCORPORATED BY REFERENCE: None
 
 Transitional
Small Business Disclosure Format (check one): Yes **o**  No **x**
 
 Exhibit
Index appears on page 45
 
   49
   **TABLE
OF CONTENTS**
 **PART
      I****ITEM
      1.**
    **Business**
    1Competition
    1Governmental
      Regulation
    1Environmental
      Issues
    2Employees
    3Available
      Information
    3**ITEM
      2.**
    **Properties**
    3Oil
      and Gas Operations
    3Precious
      Metals
    6**ITEM
      3.**
    **Legal
      Proceedings**
    6**ITEM
      4.**
    **Submission
      of Matters To A Vote Of Security Holders**
    **7****PART
      II****ITEM
      5.**
    **Market
      Price Of The Registrant's Common Stock And Related Security Holder
      Matters**
    8Recent
      Sales of Unregistered Securities
    8**ITEM
      6.**
    **Selected
      Historical Financial Data**
    8**ITEM
      7.**
    **Management's
      Discussion And Analysis Of Financial Condition**
    9Notice
      Regarding Forward-Looking Statements
    9Critical
      Accounting Policies
    9Overview
    11Natural
      Gas Activities
    12Petroleum
      Activities
    12Precious
      Metals Activity
    13Results
      of Operations
    13Comparison
      of Years Ended December 31,2003 and 2002
    13Balance
      Sheet
    13Revenues
    14Costs
      and Expenses
    14Comparison
      of Years Ended December 31,2002 and 2001
    14Balance
      Sheet
    14Revenues
    14Costs
      and Expenses
    14Financial
      Condition
    15Commitments
    15Operating
      Activities
    15Investing
      Activities
    15Financing
      Activities
    15Liquidity
    15**ITEM
      8.**
    **Financial
      Statements**
    19Notes
      to Consolidated Financial Statements
    24**ITEM
      9.**
    **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**
    51**ITEM
      9A**
    **Controls
      and Procedures****ITEM
      10.**
    **Directors
      and Executive Officers of the Registrant**
    52**ITEM
      11.**
    **Executive
      Compensation**
    54Employment
      Agreement with Our President
    55Aggregated
      2003 Option Exercises and Year-End Values
    55Compensation
      of Directors
    55Performance
      Graph
    56**ITEM
      12.**
    **Security
      Ownership of Certain Beneficial Owners and
    Management**
    56**ITEM
      13.**
    **Certain
      Relationships and Related Transactions**
    57**ITEM
      14.**
    **Principal
      Accountant Fees and Services**
    57**ITEM
      15.**
    **Exhibits,
      Lists, and Reports on Form 8-K**
    58**SIGNATURES**
    59
  49
  **PART
I**
 
 **ITEM
1.**  **Business**
 
 Tri-Valley
Corporation, a Delaware corporation formed in 1971, is in the business of
exploring, acquiring and developing prospective and producing petroleum and
precious metals properties and interests therein. Tri-Valley has two wholly
owned subsidiaries. Tri-Valley Oil & Gas Company ("TVOG") operates the oil
& gas activities. TVOG derives the majority of its revenue from sale of oil
and gas properties. Tri-Valley Power Corporation is the other wholly owned
subsidiary. However, this subsidiary is inactive at the present time. The
precious metals activity is operated directly by Tri-Valley Corporation.
Substantially all of our oil and gas reserves are located in northern
California.
 
 TVOG
primarily generates its own exploration prospects from its internal database,
and also screens prospect submittals from other geologists and companies. TVOG
generates these geological "plays" within a certain geographic area of mutual
interest. The prospect is then presented to potential co-venturers. The company
deals with both accredited individual investors and energy industry companies.
TVOG is the operator of these co-ventures.
 
 In 1987,
we acquired precious metals claims on Alaska state lands. We have conducted
exploration operations on these properties and have reduced our original claims
to a block of approximately 27,440 acres (42.9 square miles). We have conducted
trenching, core drilling, bulk sampling and assaying activities to date and have
reason to believe that mineralization exists to justify additional exploration
activities. However, to date, we have not identified probable mineral reserves
on these properties. There is no assurance that a commercially viable mineral
deposit exists on any of these above-mentioned mineral properties. Further
exploration is required before a final evaluation as to the economic and legal
feasibility can be determined. **
 
 We sell
substantially all of our oil and gas production to ConocoPhillips. Other
gatherers of oil and gas production operate within our area of operations in
California, and we are confident that if ConocoPhillips ceased purchasing our
production we could find another purchaser on similar terms with no adverse
consequences to our income or operations.
 
 Competition
 
 The oil
and gas industry is highly competitive in all its phases. Competition is
particularly intense with respect to the acquisition of desirable producing
properties, the acquisition of oil and gas prospects suitable for enhanced
production efforts, and the hiring of experienced personnel. Our competitors in
oil and gas acquisition, development, and production include the major oil
companies in addition to numerous independent oil and gas companies, individual
proprietors and drilling programs. Many of these competitors possess and employ
financial and personnel resources substantially greater than those which are
available to us and may be able to pay more for desirable producing properties
and prospects and to define, evaluate, bid for, and purchase a greater number of
producing properties and prospects than we can. Our financial or personnel
resources to generate reserves in the future will be dependent on our ability to
select and acquire suitable producing properties and prospects in competition
with these companies.
 
 Governmental
Regulation
 
 Domestic
exploration for the production and sale of oil and gas is extensively regulated
at both the federal and state levels. Legislation affecting the oil and gas
industry is under constant review for amendment or expansion, frequently
increasing the regulatory burden. Also, numerous departments and agencies, both
federal and state, are authorized by statute to issue, and have issued, rules
and regulations affecting the oil and gas industry which often are difficult and
costly to comply with and which carry substantial penalties for noncompliance.
State statutes and regulations require permits for drilling operations, drilling
bonds, and reports concerning operations. Most states in which we will operate
also have statutes and regulations governing conservation matters, including the
unitization or pooling of properties and the establishment of maximum rates of
production from wells. Many state statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from acquired properties. Some states
have also enacted statutes prescribing ceiling prices for natural gas sold
within their states. Our operations are also subject to numerous laws and
regulations governing plugging and abandonment, the discharge of materials into
the environment or otherwise relating to environmental protection. The heavy
regulatory burden on the oil and gas industry increases its costs of doing
business and consequently affects its profitability. We cannot be sure that a
change in such laws, rules, regulations, or interpretations, will not harm our
financial condition or operating results.
 
 
 Environmental
Issues
 
 Mining
Activities
 
 Mining
activities in the United States are subject to federal and state laws and
regulations covering mining safety and environmental quality. However, because
we do not have active mining operations at present, these regulations have
little impact on our current activities. In 2003, 2002 and 2001, the regulatory
requirements had no significant effect on our precious metals activity as we
continued our exploration efforts.
 
 Should we
seek to develop our precious metals claims, development efforts would require
compliance with mining laws and regulations. State and federal laws impose
minimum safety standards to protect workers in the construction and development
of mines and conduct of mining operations. Mining activities are subject to
environmental regulation of the output of mines, particularly in the storage and
disposal of waste from mining operations. Environmental regulations restrict the
storage, use and disposal of both the materials used in mining operations and
the waste contained in mineral ore, all of which contain toxic materials that
would damage the surrounding land and ground water if not carefully
handled.
 
 In
addition, federal and state regulations call for reclamation of land which has
been altered by mining activities. These regulations may require significant
expenditures to clean up a mining site during and after mining.
 
 Before we
could begin actual mining operations on our claims, we would have to develop a
feasibility study which would, among other things, address the potential costs
of labor, safety and environmental regulation on any proposed mining activity.
We do not expect to begin a feasibility study in 2004 and do not expect to incur
any significant regulatory costs or liabilities in connection with government
regulation of our claims.
 
 Energy
Operations
 
 Our
energy operations are subject to risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental hazards, such as oil
spills, natural gas leaks, ruptures or discharges of toxic gases, the occurrence
of any of which could result in substantial losses due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of operations. In
accordance with customary industry practice, we maintain insurance against these
kinds of risks, but we cannot be sure that our level of insurance will cover all
losses in the event of a drilling or production catastrophe. Insurance is not
available for all operational risks, such as risks that we will drill a dry
hole, fail in an attempt to complete a well or have problems maintaining
production from existing wells.
 
 Oil and
gas activities can result in liability under federal, state, and local
environmental regulations for activities involving, among other things, water
pollution and hazardous waste transport, storage, and disposal. Such liability
can attach not only to the operator of record of the well, but also to other
parties that may be deemed to be current or prior operators or owners of the
wells or the equipment involved. Numerous governmental agencies issue rules and
regulations to implement and enforce such laws, which are often difficult and
costly to comply with and which carry substantial administrative, civil and
criminal penalties and in some cases injunctive relief for failure to comply.
Some laws, rules and regulations relating to the protection of the environment
may, in certain circumstances, impose "strict liability" for environmental
contamination. These laws render a person or company liable for environmental
and natural resource damages, cleanup costs and, in the case of oil spills in
certain states, consequential damages without regard to negligence or fault.
Other laws, rules and regulations may require the rate of oil and gas production
to be below the economically optimal rate or may even prohibit exploration or
production activities in environmentally sensitive areas. In addition, state
laws often require some form of remedial action, such as closure of inactive
pits and plugging of abandoned wells, to prevent pollution from former or
suspended operations.
 
  49
   The
federal Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, also known as the "Superfund" law, imposes liability, without regard to
fault, on certain classes of persons with respect to the release of a "hazardous
substance" into the environment. These persons include the current or prior
owner or operator of the disposal site or sites where the release occurred and
companies that transported, disposed or arranged for the transport or disposal
of the hazardous substances found at the site. Persons who are or were
responsible for releases of hazardous substances under CERCLA may be subject to
joint and several liability for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to
natural resources, and it is not uncommon for the federal or state government to
pursue such claims. It is also not uncommon for neighboring landowners and other
third parties to file claims for personal injury or property or natural resource
damages allegedly caused by the hazardous substances released into the
environment. Under CERCLA, certain oil and gas materials and products are, by
definition, excluded from the term "hazardous substances." At least two federal
courts have held that certain wastes associated with the production of crude oil
may be classified as hazardous substances under CERCLA. Similarly, under the
federal Resource, Conservation and Recovery Act, or RCRA, which governs the
generation, treatment, storage and disposal of "solid wastes" and "hazardous
wastes," certain oil and gas materials and wastes are exempt from the definition
of "hazardous wastes." This exemption continues to be subject to judicial
interpretation and increasingly stringent state interpretation. During the
normal course of operations on properties in which we have an interest, exempt
and non-exempt wastes, including hazardous wastes, that are subject to RCRA and
comparable state statutes and implementing regulations are generated or have
been generated in the past. The federal Environmental Protection Agency and
various state agencies continue to promulgate regulations that limit the
disposal and permitting options for certain hazardous and non-hazardous wastes.
 
 Compliance
with environmental requirements, including financial assurance requirements and
the costs associated with the cleanup of any spill, could have a material
adverse effect on our capital expenditures or earnings. These laws and
regulations have not had a material affect on our capital expenditures or
earnings to date. Nevertheless, changes in environmental laws have the potential
to adversely affect operations. At this time, we have no plans to make any
material capital expenditures for environmental control facilities.
 
 Employees
 
 We had a
total of five full-time employees, one part-time bookkeeper, and two consultants
on December 31, 2003.
 
 Available
Information
 
 We file
annual, annual and period reports, proxy statements and other information with
the Securities and Exchange Commission using SEC's EDGAR system. The SEC
maintains a site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding us and other
registrants that file reports electronically with the SEC. You may read and copy
any materials that we file with the SEC at its Public Reference Room at 450 5th
Street, N.W., Washington, D.C. 20549. Our common stock is listed on the American
Stock Exchange, under the symbol TIV. Please call the SEC at 1-800-SEC-0330 for
further information about their public reference rooms. Our website is located
at http://www.tri-valleycorp.com.
 
 We
furnish our shareholders with a copy of our annual report on Form 10-K, which
contains audited financial statements, and such other reports as we, from time
to time, deem appropriate or as may be required by law. We use the calendar year
as our fiscal year.
 
 **ITEM
2. Properties**
 
 Our
headquarters and administrative offices are located at 5555 Business Park South,
Suite 200, Bakersfield, California 93309. We lease approximately 4,500 square
feet of office space at that location. Our principal properties consist
of proven and unproven oil and gas properties, mining claims on unproven
precious metals properties, maps and geologic records related to prospective oil
and gas and unproven precious metal properties, office and other equipment. TVOG
has a worldwide geologic library with data on every continent except Antarctica
including over 700 leads and prospects in California, our
present area of emphasis.
 
  49
  
 Oil
and Gas Operations
 
 The oil
and gas properties in which we hold
interests are primarily located in the area of central California known as the
Sacramento Valley. We also lease
exploration acreage in the San Joaquin and Santa Maria Valleys. We
contract for the drilling of all wells and do not own any drilling equipment,
bulk storage facilities, or refineries. We do own a small segment of pipeline at
Tracy, California.
 
 We have
retained the services of Cecil Engineering, an independent engineer qualified to
estimate our net
share of proved developed oil and gas reserves on all of our
oil and gas properties at December 31, 2003 for SEC filing. We do not
include any undeveloped reserves in these reserve studies . Only
proved developed reserves are listed in
our reserve report. Price is a material factor in our
stated reserves , because
higher prices permit relatively higher-cost reserves to be produced
economically. Higher prices generally permit longer recovery, hence larger
reserves at higher values. Conversely, lower prices generally limit recovery to
lower-cost reserves, hence smaller reserves. The process of estimating oil and
gas reserve quantities is inherently imprecise. Ascribing monetary values to
those reserves, therefore, yields imprecise estimated data at best.
 
 Our
estimated future net recoverable oil and gas reserves from proved developed
properties as of December 31, 2003, December 31, 2002 and December 31, 2001 were
as follows:
 
 BBL
    MCFDecember
      31, 2003
    Condensate
    150
    Natural
      Gas
    1,319,887December
      31, 2002
    Condensate
    150
    Natural
      Gas
    1,492,245December
      31, 2001
    Condensate
    164
    Natural
      Gas
    1,684,757
 
 Using
year-end oil and gas prices and current levels of lease operating expenses, the
estimated present value of the future net revenue to be derived from our
proved developed oil and gas reserves, discounted at 10%, was $2,270,632 at
December 31, 2003, $2,224,270 at December 31, 2002, and $1,005,010 at December
31, 2001. The unaudited supplemental information attached to the consolidated
financial statements provides more information on oil and gas reserves and
estimated values.
 
 The
following table sets forth the net quantities of natural gas and crude oil that we
produced during:
 
 Year
      Ended
    Year
      Ended
    Year
      EndedDecember
      31,
    December
      31,
    December
      31,2003
    2002
    2001Natural
      Gas (MCF)
    162,314
    232,578
    230,392Crude
      Oil (BBL)
    25
    29
    14
  The
following table sets forth  our average
sales price and average production (lifting) cost per unit of oil and gas
produced during:
 
 Year
      Ended
    Year
      Ended
    Year
      EndedDecember
      31,
    December
      31,
    December
      31,2003
    2002
    2001Gas
      (Mcf)
    Oil
      (Bbl*)
    Gas
      (Mcf)
    Oil
      (Bbl*)
    Gas
      (Mcf)
    Oil
      (Bbl*)Sales
      Price
    $5.07
    29.46
    $3.07
    $19.13
    $6.93
    $22.32Production
      Costs
    $0.78
    0
    $0.98
    0
    $0.40
    0Net
      Profit
    $4.29
    29.46
    $2.09
    $19.13
    $6.53
    $22.32
 * Amount
represents total sales price of associated condensate, unable to determine price
per barrel. As of
December 31, 2003 we had
the following gross and net position in wells and developed
acreage:
  49
   
 Wells
      (1)
    Acres
      (2)Gross
    Net
    Gross
    Net11
    4.537
    2,192
    645
 
 (1)
    "Gross"
      wells represent the total number of producing wells in whichwe
      have a working interest. "Net" wells represent the number of gross
      producing wells multiplied by the percentages of the working interestswhich
      we own. "Net wells" recognizes only those wells in whichwe
      hold an earned working interest. Working interests earned at payout have
      not been included. 
 (2)
    "Gross"
      acres represent the total acres in whichwe
      have a working interest; "net" acres represent the aggregate of the
      working interestswhich
      we own in the gross acres. 
 The
following table sets forth the number of productive and dry exploratory and
development wells which we
drilled during:
 
 Year
      Ended
    Year
      Ended
    Year
      EndedDecember
      31,
    December
      31,
    December
      31,2003
    2002
    2001ExploratoryProducing
    -0-
    -0-
    -0-Recompleting
    
    1
    -0-Dry
    
    2
    1Total
    -0-
    3
    1DevelopmentProducing
    -0-
    -0-
    -0-Dry
    -0-
    -0-
    -0-Total
    -0-
    -0-
    -0-
 
 We
drilled 4 wells in 2003, which are being evaluated. No final decisions have been
made as to the results.
 
 The
following table sets forth information regarding undeveloped oil and gas acreage
in which we had an
interest on December 31, 2003:
 
 State
    
    Gross
      Acres
    
    Net
      AcresCalifornia
    
    36,271
    
    32,384Nevada
    
    21,737
    
    21,737
 
 Some of our
undeveloped acreage is held pursuant to leases from landowners. Such leases have
varying dates of execution and generally expire one to five years after the date
of the lease. In the next three years, the following lease gross acreage
expires:
 
 Expires
      in 2004
    3,376
      acresExpires
      in 2005
    7,151
      acresExpires
      in 2006
    4,260
      acres
   49
  
 Precious
Metals
 
 The
precious metals properties are located in interior Alaska. They are comprised of
626 40-acre claims and 15 160-acre claims, of which 104 claims are leased from
others, all are located solely on State owned lands requiring annual assessment
work, and an annual per claim fee. All fees are current.
 
 The
mining claim block covers about 42.9 square miles or 27,740 acres of land, all
of which is owned by the State of Alaska. The claims lie within T-5-6-7 S, R
5-6-7-8 E, Fairbanks Meridian (Plate 1), immediately north of the Richardson
Highway, an all-weather paved highway that connects Fairbanks, Alaska, with
points south and east. Fairbanks is approximately 65 miles northwest of
Richardson, and Delta Junction, also on the highway, is about 30 miles to the
southeast. The Trans Alaska Pipeline corridor is near the northeastern edge of
the claim block and the service road along the pipeline provides access to the
claims from the north. Numerous good to fair dirt roads traverse the
claims.
 
 The
following table sets forth the information regarding the acreage position we
have under lease in Alaska as of December 31, 2003:
 
 State
    
    Gross
      Acres
    
    Net
      AcresAlaska
    
    27,740
    
    26,946
 
 Mineral
properties claimed on open
state land require minimum annual assessment work of $100 worth per State of
Alaska claim. Expenditures on the Richardson, Alaska acreage have already
carried forward annual assessment requirements more than four years on all its
claims. We have no Federal claims.
 
 We have
had a joint scientific research agreement with TsNIGRI, the Central Research
Institute of Geological Prospecting for Base and Precious Metals, based in
Moscow, Russia since 1991. The proprietary technology they use for evaluating
large areas of covered sub-arctic terrain has been impressive and encouraging to
our efforts. Minute amounts of gold have been found in samples at 60 locations
along a 20-mile swath **** and over
1,000 samples have been assayed by Bondar-Clegg, a respected assay house. We
believe we have a great potential and intend to continue our exploration of
these properties.
 
 We intend
to continue our exploration efforts for precious metals on our claim block in
Richardson, Alaska. With the help of TsNIGRI, we have explored and evaluated
this property during the summer months, due to the constraints of the weather in
the winter months. This work will consist of field activity which includes
drilling bore holes, mapping and other geological work.
 
 
 **ITEM
3. Legal Proceedings**
 
 On
November 7, 2002 a judgment of $141,500 was awarded to Armstrong Petroleum
against Tri-Valley Corporation. This was the result of a lawsuit that was filed
against Tri-Valley alleging a breach of contract. Armstrong and Tri-Valley
disagreed on the amount of royalties that were due Armstrong. Tri-Valley filed
an appeal of this judgment. On March 24, 2004, the appellate court affirmed the
decision of the trial court. We are considering whether to appeal the appellate
court judgment to the California Supreme Court. Tri-Valley Corporation created a
cash reserve for this judgment in 2002 when this verdict was
awarded.
 
  49
  
 **ITEM
4. Submission of Matters To A Vote Of Security Holders**
 
 We held
our annual meeting on October 20, 2003. At the meeting, the shareholders
re-elected all of the six directors who were recommended by the board. They also
approved the appointment of Brown Armstrong as our independent accountants.
  The
shareholder votes were as follows:
 
 Measure
      #1 - Election of Directors**FOR**
    **AGAINST**
    **ABSTAIN**F.
      Lynn Blystone
    18,983,671
    63,873Milton
      J. Carlson
    18,966,646
    80,898C.
      Chase Hoffman
    18,986,146
    61,398Dennis
      P. Lockhart
    18,986,646
    60,898Loren
      J. Miller
    18,986,796
    60,748Harold
      J. Noyes
    18,986,646
    60,898Measure
      #2 - Appoint Brown Armstrong as the Company’s independent
      accountants.**FOR**
    **AGAINST**
    **ABSTAIN**18,972,416
    75,128
 
   49
   **PART
II**
 
 **ITEM
5. Market Price Of The Registrant's Common Stock And Related Security Holder
Matters**
 
 As of
October 29, 2003, shares of Tri-Valley Corporation stock are traded on the
American Stock Exchange under the symbol “TIV”. Prior to that, shares had been
traded over-the-counter on the Electronic Bulletin Board under the symbol
"TRIL." The following table shows the high and low sales prices reported on AMEX
from 10/29/03 to year end, and the high and low bid and asked prices of
Tri-Valley stock for the quarterly periods indicated as reported by the OTC
Stock Journal:
 
 Bid
      Prices
    Asked
      PricesHigh
    Low
    High
    Low2003Fourth
      Quarter
    $6.20
    $3.44
    $6.75
    $3.35Third
      Quarter
    $3.74
    $2.90
    $3.93
    $2.95Second
      Quarter
    $3.79
    $1.21
    $4.20
    $1.21First
      Quarter
    $1.60
    $1.25
    $1.67
    $1.212002Fourth
      Quarter
    $2.14
    $1.31
    $2.25
    $1.31Third
      Quarter
    $2.45
    $1.13
    $2.65
    $1.13Second
      Quarter
    $1.60
    $1.14
    $1.75
    $1.10First
      Quarter
    $1.67
    $1.14
    $1.75
    $1.10
 
 As of
December 31, 2003, we estimate that our common stock was held by approximately
4,500 shareholders in 40 states and at least 4 foreign countries.
 
 We
historically have paid no dividends, and at this time do not plan to pay any
dividends in the immediate future. Rather, we strive to add share value through
discovery success. In 2003 trading volume exceeded 12.2 million
shares.
 
 Recent
Sales of Unregistered Securities
 
 During
2003 we issued 104,000 shares of common stock without registration under the
Securities Act of 1933. One former employee and one private individual exercised
stock options for 20,000 and 10,000 shares respectively. The exercise price of
the stock options was $0.50 per share, and the options were exercised on five
occasions when the closing price of our common stock varied between $1.51 and
$4.85 per share. 3,000 shares were sold to a private individual for $1.35 per
share. 71,000 shares were awarded to three officers, five directors and a
consultant for service. The shares issued pursuant to the exercise of options
were issued in privately negotiated transactions in reliance on the exemption
contained in Section 4(2) of the Securities Act.
 
 From
September thru October 2003, we sold 255,387 shares of common stock pursuant to
the exercise of warrants previously issued to Swartz Private Equity, an
accredited investor, as part of a private equity line investment agreement dated
February 2002, between our company and Swartz. The issuance of our stock upon
exercise of the warrants was made in reliance on the exemption contained in
Regulation D under the Securities Act of 1933. We had previously registered the
resale of the stock by Swartz under the Securities Act of 1933 on a Form S-2
registration statement, and, accordingly, the shares issued to Swartz were not
subject to restrictions on transfer imposed by the Securities Act of
1933.
 
  49
  
 **ITEM
6. Selected Historical Financial Data**
 Year
      Ended December 31,2003
    2002
    2001
    2000
    1999Income
      Statement Data:Revenues
    $6,464,245
    $6,284,908
    $2,130,187
    $2,197,369
    $2,686,129Operating
      Income (Loss)
    $456,109
    $845,130
    $(117,975)
    $(1,360,263)
    $(12,417)Basic
      Earnings Per Share
    $.02
    $.04
    $-
    $(0.07)
    $-Balance
      Sheet Data:Property
      and Equipment, net
    $1,543,121
    $1,974,501
    $2,010,457
    $1,357,959
    $1,059,755Total
      Assets
    $8,341,782
    $4,634,874
    $3,381,757
    $4,053,257
    $9,802,463Long
      Term Obligations
    $16,805
    $26,791
    $8,371
    $12,038
    $21,055Stockholder's
      Equity
    $1,851,783
    $1,262,306
    $353,776
    $391,651
    $391,651
  **ITEM
7. Management's Discussion And Analysis Of Financial
Condition**
 
 Notice
Regarding Forward-Looking Statements
 
 This
report contains forward-looking statements. The words, "anticipate," "believe,"
"expect," "plan," "intend," "estimate," "project," "could," "may," "foresee,"
and similar expressions are intended to identify forward-looking statements.
These statements include information regarding expected development of the
Company's business, lending activities, relationship with customers, and
development in the oil and gas industry. Should one or more of these risks or
uncertainties occur, or should underlying assumptions prove incorrect, actual
results may vary materially and adversely from those anticipated, believed,
estimated or otherwise indicated.
 
 Critical
Accounting Policies
 
 The
Company prepares its consolidated financial statements for inclusion in this
Report in accordance with accounting principles that are generally accepted in
the United States (“GAAP”). See Note 1 of the Notes to Consolidated Financial
Statements included in “Item 8. Financial Statements” for a comprehensive
discussion of the Company’s significant accounting policies. GAAP represents a
comprehensive set of accounting and disclosure rules and requirements, the
application of which requires management to make judgments and estimates
including, in certain circumstances, choices between acceptable GAAP
alternatives.
 
 Critical
accounting policies are those that may have a material impact on our financial
statements and also require management to exercise significant judgment due to a
high degree of uncertainty at the time the estimate is made. Our senior
management has discussed the development and selection of our accounting
policies, related accounting estimates and disclosures with the Audit Committee
of our Board of Directors. We believe our critical accounting policies include
those addressing the recoverability and useful lives of assets, oil and gas
estimates and income taxes and application of these accounting policies on a
consistent basis enables us to provide timely and reliable financial information
about our earnings results, financial condition and cash flows.
 
 Goodwill
and Intangible Assets
 
 Deferred
tax asset valuation allowances. From 1995 to 2003, the Company has maintained a
valuation allowance against a portion of its deferred tax assets. SFAS 109
requires that the Company continually assess both positive and negative evidence
to determine whether it is more likely than not that the deferred tax assets can
be realized prior to their expiration. As of December 31, 2003, the Company has
concluded that it is more likely than not that it will realize its gross
deferred tax asset position after giving consideration to relevant facts and
circumstances.
 
 Tri-Valley
will continue to monitor company-specific, oil and gas industry economic factors
and will reassess the likelihood that the Company’s net operating loss and
statutory depletion carryforwards will be utilized prior to their
expiration.
  49
   Litigation
and environmental contingencies. The Company makes judgments and estimates in
recording liabilities for ongoing litigation and environmental remediation.
Actual costs can vary from such estimates for a variety of reasons. The costs to
settle litigation can vary from estimates based on differing interpretations of
laws and opinions and assessments on the amount of damages. Similarly,
environmental remediation liabilities are subject to change because of changes
in laws, regulations, additional information obtained relating to the extent and
nature of site contamination and improvements in technology. Under GAAP, a
liability is recorded for these types of contingencies if the Company determines
the loss to be both probable and reasonably estimated. See Note 10 of Notes to
Consolidated Financial Statements included in “Item 8. Financial Statements” for
additional information regarding the Company’s commitments and
contingencies.
 
 The
Company has adopted Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets" (SFAS 142). Under SFAS 142, goodwill is a non-amortizable asset, and is
subject to an annual review for impairment. The carrying amount of goodwill is
evaluated periodically.
 
 
 The
following is a discussion of the Company’s most critical accounting estimates,
judgments and uncertainties that are inherent in the Company’s application of
GAAP:
 
 Accounting
for oil and gas producing activities: The accounting for and disclosure of oil
and gas producing activities requires the Company’s management to choose between
GAAP alternatives and to make judgments about estimates of future
uncertainties.
 
 Successful
efforts method of accounting: The Company utilizes the successful efforts method
of accounting for oil and gas activities as opposed to the alternate acceptable
full cost method. In general, the Company believes that, during periods of
active exploration, net assets and net income are more conservatively measured
under the successful efforts method of accounting for oil and gas producing
activities than under the full cost method. The critical difference between the
successful efforts method of accounting and the full cost method of accounting
is as follows: Under the successful efforts method, exploratory dry holes and
geological and geophysical exploration costs are charged against earnings during
the periods in which they occur; whereas, under the full cost method of
accounting, such costs and expenses are capitalized as assets, pooled with the
costs of successful wells and charged against the earnings of future periods as
a component of depletion expense. During the years ended December 31, 2003, 2002
and 2001, the Company recognized exploration, abandonment, geological and
geophysical expense of $0, $45,143 and $0, respectively, under the successful
efforts method.
 
 Proved
reserve estimates. Estimates of the Company’s proved reserves included in this
Report are prepared in accordance with GAAP and SEC guidelines. The accuracy of
a reserve report estimate is a function of:
 
 ·
    The
      quality and quantity of available data; ·
    The
      interpretation of that data; ·
    The
      accuracy of various mandated economic assumptions;
and ·
    The
      judgment of the persons preparing the estimate. 
 The
Company’s proved reserve information included in this Report as of December 31,
2003 and 2002 was based on evaluations audited by independent petroleum
engineers with respect to the Company’s major properties. Estimates prepared by
other third parties may be higher or lower than those included
herein.
 
 Because
these estimates depend on many assumptions, all of which may substantially
differ from future actual results, reserve estimates will be different from the
quantities of oil and gas that are ultimately recovered. In addition, results of
drilling, testing and production after the date of an estimate may justify
material revisions to the estimate.
 
  49
  
 It should
not be assumed that the present value of future net cash flows included in this
Report as of December 31, 2003 is the current market value of the Company’s
estimated proved reserves. In accordance with SEC requirements, the Company has
based the estimated present value of future net cash flows from proved reserves
on prices and costs on the date of the estimate. Actual future prices and cost
may be materially higher or lower than the prices and costs as of the date of
the estimate.
 
 The
Company’s estimates of proved reserves materially impact depletion expense. If
the estimates of provide reserves decline, the rate at which the Company records
depletion expense will increase, reducing future net income. Such a decline may
result from lower market prices, which may market uneconomic to drill for and
produce higher cost fields. In addition, a decline in provided reserve estimates
may impact the outcome of the Company’s assessment of its oil and gas producing
properties for impairment.
 
 Impairment
of proved oil and gas properties: The Company reviews its long-lived proved
properties to be held and used whenever management determines that events or
circumstances indicate that the recorded carrying value of the properties may
not be recoverable. Management assesses whether or not an impairment provision
is necessary based upon its outlook of future commodity prices and net cash
flows that may be generated by the properties. Provide oil and gas properties
are reviewed for impairment by depletable field pool, which is the lowest level
at which depletion of proved properties are calculated.
 
 Impairment
of unproved oil and gas properties: Management periodically assesses
individually significant unproved oil and gas properties for impairment, on a
project-by-project basis. Management’s assessment of the results of exploration
activities, commodity price outlooks, planned future sales or expiration of all
or a portion of such projects impact the amount and timing of
impairments.
 
 Asset
Retirement Obligations: The Company has adopted SFAS No. 143, “Accounting for
Asset Retirement Obligations” effective January 1, 2003. Under this guidance,
management is required to make judgments based on historical experience and
future expectations regarding the future abandonment cost of its oil and gas
properties and equipment as well as an estimate of the discount rate to be used
in order to bring the estimated future cost to a present value. The discount
rate is based on the risk free interest rate which is adjusted for the credit
worthiness of the Company. The adjusted risk free rate is then applied to the
estimated abandonment costs to arrive at the obligation existing at the end of
the period under review. The Company reviews its estimate of the future
obligation quarterly and accrues the estimated obligation based on the
above.
 
 Overview
 
 Production
from TVOG's existing reserves continues to decline, while demand increases.
While the trend for demand to outstrip available supplies is
worldwide as well as national, we believe that it is particularly acute in
California, our primary venue for exploration and production, which imports
nearly 60% of its oil and nearly 90% of its natural gas demand. Oil prices tend
to be set based on worldwide supplies and prices, while natural gas prices seem
to be more dependent on local conditions. We expect that gas prices will hold
steady or possibly increase over this year. If, however, prices should fall, for
instance due to new regulatory measures or the discovery of new and easily
producible reserves, our revenue from oil and gas sales would also
fall.
 
 In 2002
the Company created a limited partnership called the OPUS-I. The purpose of this
partnership is to raise one hundred million dollars by selling partnership
interests. With the funds raised we will drill up to twenty-six exploratory
wells, mostly in California, of which three are targeted for Nevada. We begin
drilling as sufficient funds are invested to drill the next target. For the year
ended December 31, 2003, we have raised $12,755,000 and spent $10,267,787 on 4
wells. The 4 wells are being evaluated to determine further activity.
 
 We are
continuing grading and prioritizing our geologic library, which contains over
700 California leads and prospects, for exploratory drilling. We use our library
to decide where we should seek oil and gas leases for future exploration. From
this library we were able to put together many of the prospects currently in
OPUS-I. Of course, we cannot be sure that any future prospect can be obtained at
an attractive lease price or that any exploration efforts would result in a
commercially successful well.
 
 
 We seek
to fund and drill enough exploratory wells for commercial discoveries to make up
for the cost of the inevitable dry holes that we can expect in the exploration
business. We believe our existing inventory of projects bears a high enough
ratio of potentially successful to unsuccessful projects to deliver value to our
drilling partners and our shareholders from successful wells, in excess of the
total costs of all successful and unsuccessful projects. Our future results will
depend on our success in finding new reserves and commercial production, and
there can be no assurance what revenue we can ultimately expect from any new
discoveries. Tri-Valley
Corporation does not engage in hedging activities and does not use commodity
futures or forward contracts for cash management functions.
 
 Natural
Gas Activities
 
 The
Company generally sells a percentage of production at the monthly spot price. In
times when we expect the price of gas to weaken, we try to increase the amount
we sell under fixed prices. When we expect the price of gas to rise, we seek to
sell more gas in the spot market. In 2003, 2002 and 2001, we sold our gas 100%
on the spot market. Because we expect gas prices to rise, we intend to sell 100%
of our production on the spot market in 2004. Because we plan to sell only on
the spot market in 2004, a drop in the price of gas could possibly have a more
adverse impact on us than if we entered into some fixed price contracts for sale
of future production.
 
 Our
proved hydrocarbon reserves were valued using a standardized measure of
discounted future net cash flows of $2,270,632 at December 31, 2003, compared to
$2,224,270 on December 31, 2002, after taking into account a 10% discount rate
and also taking into consideration the effect of income tax. This was due
primarily to the fluctuations in gas prices. Estimates such as these are subject
to numerous uncertainties inherent in the estimation of quantities of proved
reserves. Because of unpredictable variances in expenses and capital forecasts,
crude oil and natural gas price changes, largely influenced and controlled by
U.S. and foreign government actions, and the fact that the basis for such
estimates vary significantly, management believes the usefulness of these
projections is limited. Estimates of future net cash flows presented do not
represent management's assessment of future profitability or future cash flows
to the Company. This value does not appear on the balance sheet because
accounting rules require discovered reserves to be carried on the balance sheet
at the cost of obtaining them rather than the actual future net revenue from
producing them. Tri-Valley typically has no discovery cost to put on the balance
sheet as explained below.
 
 Tri-Valley
usually sells most of the working interest in its test wells on prospects to
third parties. The sales price of the interest is intended to pay for all
drilling and testing costs on the property. Tri-Valley retains a minority
"carried" ownership interest in the well and does not pay its proportionate
share of drilling and testing costs for the first well drilled on each prospect.
However, the Company does pay its proportionate cost of any subsequent well
drilled on each prospect. Under these arrangements, we usually minimize the
Company's cost to drill and also receive a minority interest from the reserves
we discover. On the other hand, we occasionally incur extra expenses for
drilling or development that we choose, in our discretion, not to pass on to
other venture participants.
 
 We
drilled the Sunrise-Mayel #1 in December of 2000, with independent
interpretations of an exceptional amount of dry natural gas in place in a tight
formation known as the McClure Shale; in 2001 we artificially fractured (frac'd)
the well with no success. We determined to try an acid wash and performed this
procedure in 2003. There has been no commercial success because the sand
formation is too tight to allow hydrocarbons to produce. The well will probably
be used as a water disposal well.
 
 It was
decided that a horizontal well should be drilled to exploit this tight sand.
This was named the Sunrise-Mayel #2-H. It was drilled in July of 2002, frac'd in
September 2002, and acidized January 2003, with no success. It was redrilled as
the Sunrise-Mayel #2-HR in May of 2003. In June of 2003, we perforated the well
and frac'd it in July 2003. This did not result in commercial success. We are
currently preparing to re-frac the well utilizing diesel oil to test the concept
of whether this will result in commercial production.
 
 The Oil
Lake well began drilling October 2003; in attempts to complete the well, we have
perforated one of several zones so far. The first zone is tight, but is a major
target. We are currently designing a program to properly evaluate this first
zone before proceeding ahead.
 
 The Elk
Ridge well was drilled in December 2003. We have perforated and tested five
zones without commercial success so far, with five more remaining to be
tested.
 
 
 Petroleum
Activities
 
 The Oil
Creek #1-23 was drilled in August of 2003 with several hundred feet of
hydrocarbon "shows" or indicators. Completion operations began in October 2003
in which we evaluated six major target zones, which were either wet or there was
no permeability. We are currently evaluating what should be done next.
 
  Precious
Metals Activity
 
 The price
of gold has fluctuated in the last 12 months from a low of $320 per oz. to a
high of $417 per oz. As funds become available the Company will continue to
explore its claim block for discovery success. Historically the Company has done
its exploration on a seasonal basis, normally in the warmer months. We are in
the process of raising capital to continue our work in the area.
 
 In 2003,
Tri-Valley Corporation began implementation of a two phase reverse circulation
drilling program to confirm a suspected high grade potential deep placer gold
target (“the Target”) at First Chance Creek along the northeast boundary of its
42-square mile claim block at Richardson, Alaska.
 
 Very high
grade samples from shafts dug near the creek had been reported in old Fairbanks
newspapers around 1906 and Tri-Valley sampling of the creek and surrounds found
distributed placer gold at surface. Tri-Valley’s project manager designed a
program to test to bedrock 60-90 feet deep by drilling with reverse circulation
equipment to bring material up the drill hole and pass it through a Denver Gold
Saver to strip any gold before disposing of the drill spoil. The first phase
called for 42 such holes to be drilled at three locations crossing the Creek
valley and, if results were encouraging, an additional 66 holes in Phase II for
a program total of 108 holes.
 
 The
general target area was 2,000 yards in length by 70 yards wide, covering
approximately 29 acres in the claim block. It was management’s belief that the
odds were favorable to indicate more than enough resource to justify the
$265,000 expenditure of Phase I. And the results certainly did
that.
 
 Results
indicated a potential resource of 38,000 ounces inferred and probable and
management believes that an expanded Phase II of some 80 holes for greater
density as well as two additional lines. We may establish an estimated resource
in the range of +/- 100,000 ounces. We believe this would justify some
arrangement to mine either as an operator or to contract out.
 
 Mining
would most likely be a form of open pit with a gravity circuit to strip the
gold. The pit would be back-filled and reclaimed as mined. All equipment would
be portable and no milling or metallurgical facilities would need to be
constructed.
 
 Testing
of the three hard rock lode targets will require separate budgets for reverse
circulation and diamond drill coring operations. Tri-Valley expects to either
joint venture these targets with another mining company doing the work to earn a
majority interest or to arrange favorable equity financing to conduct the drill
program itself.
 
 We are
confident that other parties will be willing to participate.
  **Results
of Operations**
 
 Comparison
of years Ended December 31, 2003 and 2002
 
 Balance
Sheet
 
 At
December 31, 2003 we had $6,006,975 in cash compared to $1,936,294 for December
31, 2002. This represents, for the most part, cash invested by the OPUS I
partners for the drilling of oil and gas wells in that limited partnership.
Property and equipment is $431,380 less for the current period compared to last
year because we sold to the OPUS I partnership some of the property that we had
acquired in 2002. Deposits are $55,400 higher in 2003 than in 2002 because of a
required increase in the deposit related to the Armstrong lawsuit.
 
  49
  
 Shareholder
equity increased from $1,262,306 in 2002 to $1,851,783 for 2003. This increase
was due mainly from net income after taxes.
 
 
 
 Revenue
 
 Revenue
from oil and gas sales was $148,768 higher for the year ended 2003 compared to
year ending 2002 due to increased price we received for our natural gas.
Partnership income was up almost $12,000 this year over last year due to
increased distribution to Tri-Valley from the operator of the partnership
primarily attributable to higher natural gas prices. Interest income was $14,945
more for the year ended December 31, 2003 compared to year end 2002 due to more
cash on hand during the year earning interest. Sales of oil and gas prospects is
$18,998 higher this period compared to the same period last year.
 
 Costs
and Expenses
 
 Mining
expenses were $196,928 more for the period ended December 31, 2003 than for the
same period in 2002. The costs increased this year because our 42 well reverse
circulation exploratory drilling activity. Please see the precious metals
section. Oil and gas lease activity was $183,362 for year-end 2003 and $224,320
for December 31, 2002. We did not acquire as many leases this year as we did in
2002. Cost of oil and gas prospects sold were $366,800 higher this year than in
2002. The prospects we sold this year had higher acquisition costs associated
with them than prospects sold in 2002. General and administrative costs were
higher this year than last year due in large part to increased travel costs and
insurance premiums.
 
 Comparison
of Years Ended December 31, 2002 and 2001
 
 Balance
Sheet
 
 We had
$1,936,294 cash on hand at December 31, 2002 compared to $911,913 at December
31, 2001. This change was from receipt of funding of the OPUS-I drilling
program. Accounts receivable were $44,393 greater this year compared to 2001 due
to revenue due us from gas sold the end of 2002. Deposits were $212,000 higher
due to our posting a bond in this amount pending the appeal of our judgment. *See
Litigation*
 
 State
income taxes are $76,000 more in 2002 because the State of California removed
the ability of companies to utilize tax loss carry-forward for two years. Prior
to 2002 we were able to reduce our tax liability by using tax loss carry
forwards accumulated from prior years. Accounts payable are $564,240 for the
year ended December 31, 2002 compared to $297,001 for the same period in 2001.
This increase is due to increased drilling activity in 2002.
 
 Revenues
 
 Oil and
gas income was $844,800 less in 2002 than in 2001 due to decreased gas prices in
2002. Partnership income was $33,243 less in 2002 compared to 2001 because of
decreased gas prices in 2002. Sale of oil and gas prospects was $5,421,782 for
the year ended December 2002 compared to $218,426 for the same period in 2001
due to increased prospect sales in 2002. Other income was $71,973 for the year
ended December 31, 2002 compared to $231,899 for the year ended 2001, because in
2001 we settled a claim related to a loan made to a telecommunications
partnership.
 
  49
   Costs and
Expenses
 
 Mining
costs were $54,532 less in 2002 due to no exploration activity on our claim
block in 2002. Oil and gas lease costs were $132,880 higher in 2002 than 2001
due to increased lease operating activity. Well workover expenses were $240,718
less in 2002 because we did not work over any wells in 2002. Cost of oil and gas
prospects sold were $3,139,268 higher for the period ending December 31, 2003
compared to the same period last year cost of prospect sold varies directly in
proportion to the cost of prospect sales. Depreciation, depletion and
amortization expenses are $26,578 less in 2002 due to Statements of Financial
Accounting Standards 142 that no longer allows annual amortization. Therefore,
no amortization was taken in 2002. These assets will now be tested for
impairment annually. If required we would then take an impairment charge. The
$45,143 charge for impairment of acquisition costs are from the write off of a
prospect that the Company believes is no longer prospective. The Company has a
profit of $769,130 after taxes due to increased drilling activity and sale of
prospects. .
 
 
 **Financial
Condition**
 
 Commitments
 
 Generally,
our financial commitments arise from selling interests in our drilling prospects
to third parties, which results in an obligation to drill and develop the
prospect. If we are unable to sell sufficient interests in a prospect to fund
its drilling and development, we must either amend our agreements to drill the
prospect, locate a substitute prospect acceptable to the participants or refund
the participants' funds.
 
 We have a
private placement drilling program to raise up to one hundred million dollars to
drill and complete 26 prospects. We turnkey the drilling portion and the
completion portion is based on costs incurred. In a turnkey program we guarantee
to drill a well(s) for a certain amount. If the drilling amount is greater than
the turnkey costs the Company would lose money on that well, if the cost is less
than the turnkey costs the Company would make a profit on that
well.
 
 Delay
rentals for oil and gas leases amounted to $317,801 in 2003.
Advance royalty payments and gold mining claims maintenance fees were $204,755 for the
same period. We expect that approximately equal delay rentals and fees will be
paid in 2004 from operating revenues.
 
 Operating
Activities
 
 Net cash
provided by operating activities was $3,548,942 for the year-end December 31,
2003, compared to $1,154,919 for the same period in 2002. This was primarily
because we had an increase in advances from joint venture partners of
$3,067,197. Net income was $313,021 less in 2003 ($456,109 for 2003 compared to
$769,130 for 2002).
 
 Investing
Activities
 
 Cash
provided by investing activities in 2003 was $402,164 compared to ($174,185) for
the same period in 2002. In 2003, this increase was from the sale of oil and gas
prospects to the OPUS I drilling partnership and the reduction of capital
expenditures.
 
 Financing
Activities
 
 Cash
provided by financing activities was $119,575 for the period ending December 31,
2003 compared to $43,647 for the same period in 2002. This was due to additional
paid in capital resulting from issuance of stock to outside directors and the
exercise of stock options.
 
  49
  
 Liquidity
 
 The
recoverability of the our oil and gas reserves depends on future events,
including obtaining adequate financing for our exploration and development
program, successfully completing our planned drilling program, and achieving a
level of operating revenues that is sufficient to support our cost structure. At
various times in our history, it has been necessary for us to raise additional
capital through private placements of equity financing. When such a need has
arisen, we have met it successfully. It is management’s belief that we will
continue to be able to meet our needs for additional capital as such needs arise
in the future. We may need additional capital to pay for our share of costs
relating to the drilling prospects and development of those that are successful,
and to acquire additional oil and gas leases. The total amount of our capital
needs will be determined in part by the number of prospects generated within our
exploration program and by the working interest that we retain in those
prospects.
 
 Should we
choose to make an acquisition of producing oil and gas properties, such an
acquisition would likely require that some portion of the purchase price be paid
in cash, and thus would create the need for additional capital. Additional
capital could be obtained from a combination of funding sources. The potential
funding sources include:
 
 ·
    Cash
      flow from operating activities, ·
    Borrowings
      from financial institutions, ·
    Debt
      offerings, which could increase our leverage and add to our need for cash
      to service such debt, ·
    Additional
      offerings of our equity securities, which would cause dilution of our
      common stock, ·
    Sales
      of portions of our working interest in the prospects within our
      exploration program, which would reduce future revenues from its
      exploration program, ·
    Sale
      to an industry partner of a participation in our exploration
      program, ·
    Sale
      of all or a portion of our producing oil and gas properties, which would
      reduce future revenues. 
 Our
ability to raise additional capital will depend on the results of our operations
and the status of various capital and industry markets at the time such
additional capital is sought. Accordingly, there can be no assurances that
capital will be available to us from any source or that, if available, it will
be on terms acceptable to us.
   49
  
 **ITEM
8: FINANCIAL STATEMENTS**
 
 **TRI-VALLEY
CORPORATION**
 INDEX
 
 
 
 
 Page(s)Report
      of Independent Auditor
    18Consolidated
      Balance Sheets at December 31, 2003 and 2002
    19Consolidated
      Statements of Operations for the Years EndedDecember
      31, 2003, 2002 and 2001
    21Consolidated
      Statements of Changes in Shareholders' Equity for theYears
      Ended December 31, 2003, 2002 and 2001
    22Consolidated
      Statements of Cash Flows for the Years EndedDecember
      31, 2003, 2002 and 2001
    23Notes
      to Consolidated Financial Statements
    24-43Supplemental
      Information about Oil and Gas ProducingActivities
      (Unaudited)
    44-64
 
  49
  
 **REPORT
OF INDEPENDENT AUDITOR**
 
 
 The Board
of Directors
 Tri-Valley
Corporation
 Bakersfield,
California
 
 
 We have
audited the accompanying consolidated balance sheets of Tri-Valley Corporation
as of December 31, 2003 and 2002, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2003. 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 auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly
in all material respects the financial position of Tri-Valley Corporation at
December 31, 2003 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States of
America.
 
 BROWN
      ARMSTRONG PAULDENMcCOWN
      STARBUCK & KEETERACCOUNTANCY
      CORPORATION
 
 
 
 Bakersfield,
      CaliforniaFebruary
      13, 2004, except for Note 11,whose
      date is March 24, 2004
 
  49
  
 **TRI-VALLEY
CORPORATIONONSOLIDATED BALANCE SHEETS**
 
 December
      31,2003
    
    2002(restated)**ASSETS**Current
      AssetsCash
    $
      6,006,975
    
    $
      1,936,294Accounts
      receivable, trade
    163,825
    
    151,618Prepaid
      expenses
    12,029
    
    12,029Total
      Current Assets
    6,182,829
    
    2,099,941Property
      and Equipment, NetProved
      Properties
    148,482
    
    165,675Unproved
      Properties
    1,251,953
    
    1,654,117Other
      Property and Equipment
    142,686
    
    154,709Total
      Property and Equipment, Net(Notes 1 and 2)
    1,543,121
    
    1,974,501Other
      AssetsDeposits
    372,105
    
    316,705Investments
      in partnerships (Note 1)
    17,400
    
    17,400Goodwill
      (net of accumulated amortization of$221,439
      at December 31, 2002 and 2003)
    212,414
    
    212,414Other
    13,913
    
    13,913Total
      Other Assets
    615,832
    
    560,432TOTAL
      ASSETS
    $
      8,341,782
    
    $
      4,634,874**LIABILITIES
      AND SHAREHOLDERS' EQUITY**Current
      LiabilitiesNotes
      payable (Note 3)
    $
      9,985
    
    $
      13,792Income
      taxes payable
    39,000
    
    76,000Accounts
      payable and accrued expenses
    685,784
    
    564,240Amounts
      payable to joint venture participants
    91,275
    
    74,412Advances
      from joint venture participants, net (Note 1)
    5,647,150
    
    2,617,333Total
      Current Liabilities
    6,473,194
    
    3,345,777Non-Current
      LiabilitiesDeferred
      Tax LiabilityLong-Term
      Portion of Notes Payable (Note 3)
    16,805
    
    26,791Total
      Non-Current Liabilities
    16,805
    
    26,791Total
      Liabilities
    6,489,999
    
    3,372,568Shareholders’
      EquityCommon
      stock, $.001 par value; 100,000,000 sharesauthorized;
      20,097,627 and 19,726,348issued
      and outstanding at December 31, 2003 and 2002,Respectively
    20,115
    
    19,726Less:
      common stock in treasury, at cost,100,025
      shares at December 31,2003
      and 2002.
    (13,370)
    
    (13,370)Common
      stock receivable
    -
    
    (2,250)Capital
      in excess of par value
    9,010,453
    
    8,879,724Accumulated
      deficit
    (7,165,415)
    
    (7,621,524)Total
      Shareholders’ Equity
    1,851,783
    
    1,262,306TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
    $
      8,341,782
    
    $
      4,634,874
 
  49
  
 **TRI-VALLEY
CORPORATION**
 **CONSOLIDATED
STATEMENTS OF OPERATIONS**
 
 
 
 For
      the Years Ended December 31,2003
    
    2002
    
    2001(restated)RevenuesSale
      of oil and gas
    $
      901,739
    
    $
      752,971
    
    $
      1,597,771Royalty
      income
    529
    
    351
    
    6,952Partnership
      income
    30,000
    
    18,299
    
    51,542Gain
      on sale of property
    -
    
    -
    
    -Interest
      income
    34,479
    
    19,534
    
    23,597Sale
      of oil and gas prospects
    5,440,780
    
    5,421,782
    
    218,426Other
      income
    56,718
    
    71,971
    
    231,899Total
      Revenues
    6,464,245
    
    6,284,908
    
    2,130,187Costs
      and ExpensesMining
      exploration costs
    366,039
    
    169,111
    
    223,643Oil
      and gas leases
    183,362
    
    224,320
    
    91,440Well
      workover
    -
    
    -
    
    240,718Severed
      acreage
    -
    
    -
    
    174Cost
      of oil and gas prospects sold
    4,014,889
    
    3,648,089
    
    508,821General
      and administrative
    1,373,058
    
    1,316,894
    
    1,117,643Depreciation,
      depletion and amortization
    29,216
    
    34,384
    
    60,962Interest
    2,572
    
    1,838
    
    4,761Well
      write-off
    -
    
    -
    
    -Impairment
      of acquisition costs
    -
    
    45,143
    
    -Total
      Costs and Expenses
    5,969,136
    
    5,439,779
    
    2,248,162Net
      Income (Loss) before Income Taxes
    495,109
    
    845,130
    
    (117,975)Tax
      Provision (Note 6)
    39,000
    
    76,000
    
    -Net
      Income (Loss)
    $
      456,109
    
    $
      769,130
    
    $
      (117,975)Basic
      and Diluted Earnings (Loss) per Common Share
    $
      0.02
    
    $
      0.04
    
    $
      (0.00)and
      Common Equivalent ShareWeighted
      Average Number of Shares Outstanding
    19,801,785
    
    19,702,054
    
    19,495,693
 
  49
  
 **TRI-VALLEY
CORPORATION**
 **CONSOLIDATED
STATEMENTS OF CHANGES IN**
 **SHAREHOLDERS'
EQUITY**
 
 
 
 
 
 Total
    
    
    
    
    
    Capital
      in
    
    CommonCommon
    
    Treasury
    
    
    
    Excess
      of
    
    Stock
    
    Accumulated
    
    Treasury
    
    Shareholders'Shares
    
    Shares
    
    Par
      Value
    
    Par
      Value
    
    Receivable
    
    Deficit
    
    Stock
    
    EquityBalance
      atDecember
      31, 2000,
    19,554,748
    
    163,925
    
    19,555
    
    8,666,688
    
    -
    
    (8,272,679)
    
    (21,913)
    
    391,651Issuance
      of common stock
    135,000
    
    -
    
    135
    
    79,965
    
    -
    
    -
    
    -
    
    80,100Net
      loss
    -
    
    -
    
    -
    
    -
    
    -
    
    (117,975)
    
    -
    
    (117,975)Balance
      atDecember
      31, 2001
    19,689,748
    
    163,925
    
    19,690
    
    8,746,653
    
    -
    
    (8,390,654)
    
    (21,913)
    
    353,776Issuance
      of common stock
    36,600
    
    (63,900)
    
    36
    
    133,071
    
    -
    
    -
    
    8,543
    
    141,650Common
      stock receivable
    -
    
    -
    
    -
    
    -
    
    (2,250)
    
    -
    
    -
    
    (2,250)Net
      income
    -
    
    -
    
    -
    
    -
    
    -
    
    769,130
    
    -
    
    769,130Balance
      atDecember
      31, 2002
    19,726,348
    
    100,025
    
    19,726
    
    8,879,724
    
    (2,250)
    
    (7,621,524)
    
    (13,370)
    
    1,262,306Issuance
      of common stock
    371,279
    
    -
    
    389
    
    1,442,439
    
    -
    
    -
    
    -
    
    1,442,828Stock
      issuance cost
    -
    
    -
    
    -
    
    (1,311,710)
    
    -
    
    -
    
    -
    
    (1,311,710)Common
      stock receivable
    -
    
    -
    
    -
    
    -
    
    2,250
    
    -
    
    -
    
    2,250Net
      income
    -
    
    -
    
    -
    
    -
    
    -
    
    456,109
    
    -
    
    456,109Balance
      atDecember
      31, 2003
    20,097,627
    
    100,025
    
    $
      20,115
    
    $
      9,010,453
    
    $ -
    
    $(7,165,415)
    
    $
      (13,370)
    
    $
      1,851,783
 
  49
  
 **TRI-VALLEY
CORPORATION**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 
 
 For
      the Years Ended December 31,2003
    
    2002
    
    2001(restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
    $
      456,109
    
    $
      769,130
    
    $
      (117,975)Adjustments
      to reconcile net income (loss) to net cashprovided
      (used) by operating activities:Depreciation,
      depletion, and amortization
    29,216
    
    34,384
    
    60,962Impairment,
      dry hole and other disposals of property
    -
    
    45,143
    
    -Land
      acquisition costs sold
    -
    
    122,315
    
    -(Gain)
      on sale of property
    -
    
    -
    
    -Non-employee
      stock compensation
    -
    
    119,700
    
    23,100Impairment,
      dry hole and other disposals of propertyand
      equipment
    -
    
    -
    
    -Changes
      in operating capital:(Increase)
      decrease in accounts receivable
    (12,207)
    
    (44,393)
    
    711,136Increase
      in prepaids
    -
    
    -
    
    -Increase
      in deposits and other assets
    (55,400)
    
    (212,000)
    
    (4,600)Increase
      (decrease) in income taxes payable
    (37,000)
    
    76,000
    
    -Increase
      (decrease) in accounts payable and accrued expenses
    121,544
    
    267,239
    
    (284,016)Increase
      (decrease) in amounts payable to joint ventureparticipants
      and related parties
    16,863
    
    14,781
    
    (480,511)Increase
      (decrease) in advances from joint ventureParticipants
    3,029,817
    
    (37,380)
    
    136,976Net
      Cash Provided by Operating Activities
    3,548,942
    
    1,154,919
    
    45,072CASH
      FLOWS FROM INVESTING ACTIVITIESPayments
      on notes receivable
    -
    
    -
    
    125,000Proceeds
      from sale of property
    402,164
    
    -
    
    -Capital
      expenditures
    -
    
    (184,185)
    
    (702,613)(Investment
      in) distribution from partnerships
    -
    
    10,000
    
    19,958Net
      Cash Provided (Used) by Investing Activities
    402,164
    
    (174,185)
    
    (557,655)CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from long-term debt
    -
    
    29,686
    
    -Principal
      payments on long-term debt
    (13,793)
    
    (5,739)
    
    (6,074)Proceeds
      from issuance of common stock
    133,368
    
    19,700
    
    57,000Sale
      of treasury stock
    -
    
    -
    
    -Stock
      issuance costs
    -
    
    -
    
    -Net
      Cash Provided by Financing Activities
    119,575
    
    43,647
    
    50,926Net
      Increase (Decrease) in Cash and Cash Equivalents
    4,070,681
    
    1,024,381
    
    (461,657)Cash
      at Beginning of Year
    1,936,294
    
    911,913
    
    1,373,570Cash
      at End of Year
    $
      6,006,975
    
    $
      1,936,294
    
    $
      911,913**SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:**Interest
      paid
    $
      2,572
    
    $
      1,838
    
    $
      4,761Income
      taxes paid
    $
      40,000
    
    $
      800
    
    $ -**SUPPLEMENTAL
      NON-CASH ACTIVITIES:**Services paid with common stocks
    $
      23,247
    
    $ -
    
    $ -
 
  49
  
 **TRI-VALLEY
CORPORATION**
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
31, 2003, 2002 AND 2001**
 
 **NOTE
1 - GENERAL**
 
 History
and Business Activity
 Tri-Valley
Corporation (“TVC” or the Company), a Delaware corporation formed in 1971, is in
the business of exploring, acquiring and developing petroleum and precious
metals properties and interests therein. Tri-Valley has two wholly owned
subsidiaries. Tri-Valley Oil & Gas Company (“TVOG”) operates the oil &
gas activities, and derives the majority of its revenue from sale of oil and gas
properties. Tri-Valley Power Corporation is the other wholly owned subsidiary
which is inactive at present time.
 
 The
Company conducts its oil and gas business primarily through Tri-Valley Oil &
Gas Company. TVOG is engaged in the exploration, acquisition and production of
oil and gas properties. Substantially all of the Company’s oil and gas reserves
are located in northern California. In the fiscal year 1987, the Company added
precious metals exploration. At present, the precious metals exploration
activities are conducted directly by the parent, Tri-Valley Corporation. TVC has
traditionally sought acquisition or merger opportunities within and outside of
petroleum and mineral industries.
 
 For
purposes of reporting operating segments, the Company is involved in three
areas. These are drilling and development, oil and gas production, and precious
metals.
 
 
 **NOTE
2 - RESTATEMENT**
 
 Management
determined that its accounting procedures for revenue and cost of sales related
to turnkey drilling are no longer appropriate and required an adjustment for the
fiscal year ended 2003.
 
 The
restatements for the year ended December 31, 2003 and the quarter ended March
31, 2004 have resulted from a change in the Company’s revenue recognition
policy. The Company previously recognized revenues on turnkey drillings before
the close of the books because full payment had been collected and the amounts
were non refundable. The Company has changed its revenue recognition policy to
book revenue only when the well is drilled to its target depth and/or logged.
This change has caused drilling revenue and the related costs to decrease during
the year ended December 31 2003 and increase in the first quarter of the year
ended December 31 2004.
  49
  **NOTE
2 - RESTATEMENT (Continued)**
 
 The
following sets forth the significant effects of the aforementioned restatements
to the Company’s consolidated financial statements for the fiscal year ended
December 31, 2003:
 
 As
      Previously
    
    AsReported
    Adjustment
    Restated
    ReferenceSales
      of oil and gas prospects
    $
      6,585,780
    $(1,145,000)
    $
      5,440,780
    [1]**Total
      revenues**
    **$
      7,609,245**
    **$(1,145,000)**
    **$
      6,464,245**Cost
      of oil and gas prospects sold
    4,360,679
    (345,790)
    4,014,889
    [2]General
      and administrative
    1,449,589
    (76,531)
    1,373,058
    [3]**Total
      cost and expenses**
    **6,391,463**
    **(422,327)**
    **5,969,136****Net
      income (loss) before income tax**
    **1,217,782**
    **(722,673)**
    **495,109**Tax
      provision
    58,000
    (19,000)
    39,000
    [4]**Net
      income (loss)**
    **1,159,782**
    **(664,673)**
    **456,109**Basic
      and diluted earnings (loss) percommon
      share and common equivalent
    0.06
    (0.04)
    0.02Property
      and equipment, net
    $
      1,522,333
    $
      20,788
    $
      1,543,121
    [5]**Total
      assets**
    **8,320,992**
    **20,790**
    **8,341,782**Income
      tax payable
    58,000
    (19,000)
    39,000
    [4]Accounts
      payable & accrued expenses
    777,729
    (91,945)
    685,784
    [3]Advances
      from joint venture participants,
      net
    4,811,742
    835,408
    5,647,150
    [6]**Total
      current liabilities**
    **5,748,731**
    **724,463**
    **6,473,194****Total
      liabilities**
    **5,765,536**
    **724,463**
    **6,489,999**Accumulated
      deficit
    (6,461,742)
    (703,673)
    (7,165,415)
    [7]**Total
      shareholders' equity**
    **2,555,456**
    **(703,673)**
    **1,851,783****Total
      liabilities and shareholders'**
      **equity**
    **$
      8,320,992**
    **$
      20,790**
    **$
      8,341,782**
  49
  **NOTE
2 - RESTATEMENT (Continued)**
 
 The
restatements to the financial statements for fiscal year ended December 1, 2003
are as follows:
 
 1.
    Recognition
      of sales related to turnkey drilling of total $1,145,000 was deferred to
      2004 when oil or gas well was drilled to its target depth and/or
      logged. 2.
    This
      amount of cost of oil and gas prospects was erroneously omitted in the
      previously filed statements of operations, although it’s included in the
      total cost 3.
    Certain
      general and administration costs associated with the deferred turnkey
      revenue were also deferred to match with the revenue
      recognition. 4.  Tax
provision decreased due to decrease in revenue recognized.
 5.  The
Company capitalized unproven properties that were previously
expensed.
 6.
    Majority
      of the deferred turnkey revenue was adjusted as increase in advances from
      joint venture participants. 7.
    The
      accumulated deficits were revised to mainly reflect the decrease in net
      turnkey drilling revenue. 
 
 **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 This
summary of significant accounting policies of Tri-Valley Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of the
financial statements.
 
 Principles
of Consolidation
 The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Tri-Valley Oil & Gas Co. All material intercompany
accounts and transactions have been eliminated in consolidation.
 
 Use of
Estimates in the Preparation of Financial Statements
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures at the date of the financial statements as well as
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
 
 Material
estimates that are particularly susceptible to significant change relate to the
estimate of Company oil and gas reserves prepared by an independent engineering
consultant. Such estimates are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Use of
Estimates in the Preparation of Financial Statements (Continued)
 Estimated
reserves are used in the calculation of depletion, depreciation and amortization
as well as the Company's assessment of proved oil and gas properties for
impairment.
 
 Cash
Equivalent and Short-Term Investments
 Cash
equivalents include cash on hand and on deposit, and highly liquid debt
instruments with original maturities of three months or less.
 
 Goodwill
 The
consolidated financial statements include the net assets purchased of Tri-Valley
Corporation’s wholly owned oil and gas subsidiary, TVOG. Net assets are carried
at their fair market value at the acquisition date. On January 1, 2002,
Tri-Valley Corporation adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other
Intangible Assets” (SFAS 142). Under SFAS 142, goodwill is a non-amortizable
asset, and is subject to an annual review for impairment. Prior to the
implementation of SFAS 142, the Company had goodwill of $433,853 that was being
amortized. The carrying amount of goodwill is evaluated periodically. Factors
used in the evaluation include the Company’s ability to raise capital as a
public company and anticipated cash flows from operating and non-operating
mineral properties.
 
 Advances
from Joint Venture Participants
 Advances
received by the Company from joint venture partners for contract drilling
projects, which are to be spent by the Company on behalf of the joint venture
partners, are classified within operating inflows on the basis they do not meet
the definition of financing or investing activities. When the cash advances are
spent, the payable is reduced accordingly. These advances do not contribute to
the Company's operating profits and are accounted or/disclosed as balance sheet
entries only i.e. within cash and payable to joint venture
participants.
 
 Supplemental
Disclosure of Non-Cash Activities
 During
2003, the Company issued 9,000 shares of common stock valued at $23,247, to
outside consultants for services. The Company also issued 65,000 shares of
common stock valued at $86,450, of which 50,000 shares were issued to its
directors and 15,000 shares to its officers. In addition, a third party vendor
exercised 500,000 common stock warrants in exchange for 255,387 shares of common
stock (see Note 11 for detail).
 
 Revenue
Recognition
 
 *Sale
of Oil and Gas*
 Crude oil
and natural gas revenues are recognized as production takes place the title and
risk of loss transfers to a third party purchaser, net of royalties, discounts,
and allowances, as applicable.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Revenue
Recognition (Continued)
 
 *Sale
of Oil and Gas Prospects*
 Oil and
gas prospects are developed by the Company for sale to industry partners and
investors. These prospects are usually exploratory, and include costs of
leasing, acquisition, and other geological and geophysical costs (hereafter
referred to as “GGLA”) plus a profit to the Company. Prior to 2002, the Company
recognized revenue and profit from prospects sales when sold, irrespective of
drilling commencement (“spudding”).
 
 In 2003
and 2002 the Company changed its prospect offerings by inclusion of estimated
costs of drilling in addition to GGLA costs. This offering is termed a “turnkey”
exploratory drilling opportunity because investors are charged only one certain
amount in return for Tri-Valley drilling a well to the agreed total
depth.
 
 Once the
well is spudded, investor money is not refundable, and Tri-Valley recognizes
revenue together with estimated and actual costs to complete the drilling to
total depth. Amounts charged are included in an Authority for Expenditure (AFE),
which is a budget for each project well. Tri-Valley prepares the AFE and bears
all risk of well completion to total depth. If the well is drilled to total
depth for actual costs less than the AFE amounts, the Company realizes a profit.
Conversely, if actual costs exceed the AFE, Tri-Valley realizes a
loss.
 
 *Drilling
Agreements/Joint Ventures*
 Tri-Valley
frequently participates in drilling agreements whereby it acts as operator of
drilling and producing activities. As operator, TVOG is liable for the
activities of these ventures. In the initial well in a prospect, the Company
owns a carried interest and/or overriding royalty interest in such ventures,
earning a working interest upon commencement of drilling. Costs of subsequent
wells drilled in a prospect are shared by a pro rata interest.
 
 Receivables
from and amounts payable to these related parties (as well as other related
parties) have been segregated in the accompanying financial statements. For
turnkey projects, amounts received for drilling activities, which have not been
spudded are deferred and remain within the joint venture liability, in
accordance with the Company’s revenue recognition policies. Revenue is
recognized upon the commencement of drilling operations. Actual or estimated
costs to complete the drilling are charged as costs against this
revenue.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Oil
and Gas Property and Equipment (Successful Efforts)
 The
Company accounts for its oil and gas exploration and development costs using the
Successful Efforts Method. Under this method, costs to acquire mineral interests
in oil and gas properties, to drill and complete exploratory wells that find
proved reserves and to drill and complete development wells are capitalized.
Exploratory dry-hole costs, geological and geophysical costs and costs of
carrying and retaining unproved properties are expensed when incurred, except
those GGLA expenditures incurred on behalf of joint venture drilling projects,
which the Company defers until the GGLA is sold at the completion of project
funding and the target prospect is drilled. Expenditures incurred in drilling
exploratory wells are accumulated as work in process until the Company
determines whether the well has encountered commercial oil and gas reserves.
 
 If the
well has encountered commercial reserves, the accumulated cost is transferred to
oil and gas properties; otherwise, the accumulated cost, net of salvage value,
is charged to dry hole expense. If the well has encountered commercial reserves
but cannot be classified as proved within one year after discovery, then the
well is considered to be impaired, and the capitalized costs (net of any salvage
value) of drilling the well are charged to expense. In 2003, 2002, and 2001
there was $0, $45,143, and $0 respectively, charged to expense for impairment of
exploratory well costs. Depletion, depreciation and amortization of oil and gas
producing properties are computed on an aggregate basis using the
units-of-production method based upon estimated proved developed
reserves.
 
 At
December 31, 2003 and 2002, the Company carried unproved property costs of
$1.081 million and $1.449 million, respectively. Generally accepted accounting
principles require periodic evaluation of these costs on a project-by-project
basis in comparison to their estimated value. These evaluations will be affected
by the results of exploration activities, commodity price outlooks, planned
future sales or expiration of all or a portion of the leases, contracts and
permits appurtenant to such projects. If the quantity of potential reserves
determined by such evaluations is not sufficient to fully recover the cost
invested in each project, the Company will recognize non cash charges in the
earnings of future periods.
 
 Capitalized
costs relating to proved properties are depleted using the unit-of-production
method based on proved reserves. Costs of significant non-producing properties,
wells in the process of being drilled and development projects are excluded from
depletion until such time as the related project is completed and proved
reserves are established or, if unsuccessful, impairment is
determined.
 
 Upon the
sale of oil and gas reserves in place, costs less accumulated amortization of
such property are removed from the accounts and resulting gain or loss on sale
is reflected in operations. Impairment of non-producing leasehold costs and
undeveloped mineral and royalty interests are assessed periodically on a
property-by-property basis, and any impairment in value is currently charged to
expense.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Oil
and Gas Property and Equipment (Successful Efforts) (Continued)
 In
addition, we assess the capitalized costs of unproved properties periodically to
determine whether their value has been impaired below the capitalized costs. We
recognize a loss to the extent that such impairment is indicated. In making
these assessments, we consider factors such as exploratory drilling results,
future drilling plans, and lease expiration terms. When an entire interest in an
unproved property is sold, gain or loss is recognized, taking into consideration
any recorded impairment. When a partial interest in an unproved property is
sold, the amount is treated as a reduction of the cost of the interest retained,
with excess revenue and carrying costs being recognized. Upon abandonment of
properties, the reserves are deemed fully depleted and any unamortized costs are
recorded in the statement of operations under leases sold, relinquished and
impaired.
 
 Gold
Mineral Property
 The
Company has invested in several gold mineral properties with exploration
potential. All mineral claim acquisition costs and exploration and development
expenditures are charged to expense as incurred. We capitalize acquisition and
exploration costs only after persuasive engineering evidence is obtained to
support recoverability of these costs (ideally upon determination of proven
and/or probable reserves based upon dense drilling samples and feasibility
studies by a recognized independent engineer). Currently no amounts have been
capitalized.
 
 Other
Properties and Equipment
 Properties
and equipment are depreciated using the straight-line method over the following
estimated useful lives:
 
 Office
      furniture and fixtures
      Building
    3 -
      7 years
      40
      years
 
 Leasehold
improvements are amortized over the life of the lease.
 
 Maintenance
and repairs, which neither materially add to the value of the property nor
appreciably prolong its life, are charged to expense as incurred. Gains or
losses on dispositions of property and equipment other than oil and gas are
reflected in operations.
 
 Concentration
of Credit Risk and Fair Value of Financial Instruments
 As
discussed in Note 7, the Company sells oil, gas and natural gas liquids to
primarily one purchaser located in the northern California region.
 
 The
Company places its temporary cash investments with high credit quality financial
institutions and limits the amount of credit exposure to any one financial
institution.
 
 Fair
value of financial instruments is estimated to approximate the related book
value, unless otherwise indicated, based on market information available to the
Company.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Stock
Based Compensation Plans
 The
Company has adopted only the disclosure requirements of SFAS No. 123, Accounting
for Stock-Based Compensation, and has elected to continue to record stock-based
compensation expense using the intrinsic-value approach prescribed by Accounting
Principles Board ("APB") Opinion 25. The application of APB Opinion 25 has
further been clarified by Financial Accounting Standards Board ("FASB")
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation". Under APB No. 25, because the exercise price of the company’s
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. However, SFAS No. 123,
“Accounting for Stock-Based Compensation,” requires presentation of pro forma
information as if the company had accounted for its employee stock options and
performance awards granted subsequent to December 31, 1994, under the fair value
of that statement.
 
 For
purposes of pro forma disclosure, the estimated fair value of the options and
performance awards at the date of grant is charged to expense as the employee
stock options are fully vested upon grant. Under the fair value method, the
company’s net income (loss) and earnings (loss) per share would have been as
follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Net
      Income
    As
      reported
    $
      456,109
    
    $
      769,130
    
    $
      (117,975)Pro
      forma
    399,009
    
    769,130
    
    (978,415)Earnings
      per share
    As
      reported
    0.02
    
    0.04
    
    (0.01)Pro
      forma
    0.05
    
    0.04
    
    (0.05)Diluted
      earnings
    As
      reported
    0.02
    
    0.04
    
    (0.01)per
      share
    Pro
      forma
    0.05
    
    0.03
    
    (0.05)
 
 Reclassification
 Certain
amounts in the financial statements have been reclassified to be consistent and
comparable from year-to-year.
 
 Treasury
Stock
 The
Company records acquisition of its capital stock for treasury at cost.
Differences between proceeds for reissuance of treasury stock and average cost
are charged to retained earnings or credited thereto to the extent of prior
charges and thereafter to capital in excess of par value.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Recently
Issued Accounting Pronouncements
 In June
2001, the Financial Accounting Standards Board ("FASB") issued Statements of
Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and
No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires
all business combinations initiated after June 30, 2001 to be accounted for
under the purchase method. The most significant changes made by SFAS 142 are: 1)
goodwill and intangible assets with indefinite lives will no longer be
amortized; 2) goodwill and intangible assets with indefinite lives must be
tested for impairment at least annually; and 3) the amortization period for
intangible assets with finite lives will no longer be limited to 40
years.
 
 Goodwill
and intangible assets acquired in business combinations completed before July 1,
2001 will continue to be amortized prior to the adoption of Statement No. 142.
Statement No. 141 will require, upon adoption of Statement No. 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in a prior purchase business combination, and to make any necessary
reclassifications in order to conform with the new criteria in Statement No. 141
for recognition apart from goodwill. Upon adoption of Statement No. 142, the
Company has reassessed the useful lives and residual values of all intangible
assets acquired in purchase business combinations. No material amortization
adjustments have been necessary. The Company had unamortized goodwill in the
amount of $212,414 all of which was, at the date of adoption, subject to the
provisions of Statements 141 and 142. Amortization expense related to goodwill
was $10,846 for the fiscal years 2001. There was no goodwill impairment
recognition for either 2002 or 2003. The adoption of these statements did not
have a material effect on its financial position, results of operations or cash
flows.
 
 In June
2001, the FASB approved for issuance SFAS 143 "Asset Retirement Obligations."
SFAS 143 establishes accounting requirements for retirement obligations
associated with tangible long-lived assets such as wells and production
facilities. SFAS 143 guidance covers (1) the timing of the liability
recognition, (2) initial measurement of the liability, (3) allocation of asset
retirement cost to expense, (4) subsequent measurement of the liability and (5)
financial statement disclosures. SFAS 143 requires that an asset retirement cost
should be capitalized as part of the cost of the related long- lived asset and
subsequently allocated to expense using a systematic and rational method. The
adoption of SFAS 143 could result in (1) an increase of total liabilities,
because more retirement obligations are required to be recognized, (2) an
increase in the recognized cost of assets, because the retirement costs are
added to the carrying amount of the long-lived asset and (3) an increase in
operating expense because of the accretion of the retirement obligation and
additional depreciation and depletion. The Company adopted the statement on
January 1, 2003. The transition adjustment resulting from the adoption of SFAS
143 will be reported as a cumulative effect of a change in accounting principle
in January 2003. The adoption of this standard had no material impact, i.e.,
$4,000, on its financial position, results of operations, or cash
flows.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Recently
Issued Accounting Pronouncements (Continued)
 In August
2001, the FASB also approved SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144 replaces SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The new accounting model for long-lived assets to be disposed
of by sale applies to all long-lived assets, including discontinued operations,
and replaces the provisions of APB Opinion No. 30, "Reporting Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business", for
the disposal of segments of a business. SFAS 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations.
 
 Therefore,
discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet occurred. SFAS 144 also
broadens the reporting of discontinued operations to include all components of
an entity with operations that can be distinguished from the rest of the entity
and that will be eliminated from the ongoing operations of the entity in a
disposal transaction. The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and
therefore were adopted by the Company in 2002. The adoption of this statement
did not impact the Company's financial position, results of operations, or cash
flows.
 
 In April
2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13 and Technical Corrections". SFAS 145,
which is effective for fiscal years beginning after May 15, 2002, provides
guidance for income statement classification of gains and losses on
extinguishment of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The adoption
of this statement did not impact the Company's financial position, results of
operations, or cash flows.
 
 In June
2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities." SFAS 146 nullifies the guidance of the Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." SFAS 146 requires that a liability for a
cost that is associated with an exit or disposal activity be recognized when the
liability is incurred. SFAS 146 also establishes that fair value is the
objective for the initial measurement of the liability. The provisions of SFAS
146 are required for exit or disposal activities that are initiated after
December 31, 2003. The adoption of this statement did not impact the Company's
financial position, results of operations, or cash flows.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Recently
Issued Accounting Pronouncements (Continued)
 In
December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS 148 amends FASB Statement No.
123, "Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of this
statement did not impact the Company's financial position, results of
operations, or cash flows.
 
 During
January 2003, the Financial Accounting Standards Board issued interpretation No.
46, "Consolidation of Variable Interest Entities" ("FIN46"), which requires the
consolidation of certain entities that are determined to be variable interest
entities ("VIE's").
 
 An entity
is considered to be a VIE when either (i) the entity lacks sufficient equity to
carry on its principal operations, (ii) the equity owners of the entity cannot
make decisions about the entity's activities or (iii) the entity's equity
neither absorbs losses or benefits from gains.
 
 Sarbanes-Oxley
Act Of 2002
 Section
404 of the Sarbanes-Oxley Act of 2002 requires public Companies to report on
both internal controls over financial reporting and disclosure controls and
procedures. Internal controls over financial reporting refers to:
 
 (a)  controls
to ensure that a Company’s information systems record financial information that
allows the Company to issue fair and accurate financial statements;
 (b)  controls
that ensure against unauthorized receipts and expenditures; and
 (c)  controls
to prevent and detect unauthorized acquisition, use or disposition of the
assets.
 
 Disclosure
controls and procedures refer to controls that ensure that all information that
must be reported to the Securities and Exchange Commission is received by
management on a timely basis.
 
 The
Company must report on the effectiveness of both financial reporting controls
and disclosure controls. The effectiveness of internal controls over financial
reporting must be evaluated by management, and reported on in the Company’s
annual report filed with the SEC.
  49
  **NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**
 
 Sarbanes-Oxley
Act Of 2002 (Continued)
 The
Company’s independent auditors must attest to management’s evaluation of
internal controls, and must issue their report, stating whether they agree with
management’s assessment. In addition, the Company is required to report any
changes in their internal controls in their quarterly reported filed with the
SEC.
 
 
 **NOTE
4 - PROPERTY AND EQUIPMENT**
 
 Oil and
gas properties, and equipment and fixtures consist of the
following:
 
 December
      31,2003
    
    2002Oil
      and gas - CaliforniaProved
      properties, gross
    $
      752,705
    
    $
      752,705-
      accumulated depletion
    (604,223)
    
    (587,030)148,482
    
    165,675Unproved
      properties
    1,251,953
    
    1,654,117Total
      oil and gas properties
    1,400,435
    
    1,819,792Other
      property and equipmentLand
    12,281
    
    12,281Building
    50,395
    
    50,395Transmission
      tower
    45,000
    
    45,000Office
      equipment, vehicle, and leasehold improvements
    218,514
    
    218,515
 *(table
continued in following page)*
  49
  **NOTE
4 - PROPERTY AND EQUIPMENT (Continued)**
 
 December
      31,*(table
      continued from previous page)*
    2003
    
    2002Total
      other property and equipment
    $
      326,190
    
    $
      326,191-
      Accumulated depreciation
    (183,504)
    
    (171,482)Other
      property and equipment, net
    142,686
    
    154,709**Property
      and equipment, net**
    **$
      1,543,121**
    
    **$
      1,974,501**
 
 
 **NOTE
5 - NOTES PAYABLE**
 December
      31,2003
    
    2002Note
      payable to Union Bank dated July 29,2002;secured
      by a vehicle; interest at 8.3%; payablein
      60 monthly installments of $602.
    $
      22,437
    
    $
      27,638Note
      payable to Imperial Premium Finance, Inc.,dated
      June 9, 1997; secured by contractual policy;interest
      at 12.00%; payable in monthly installmentsof
      $680 including interest.
    -
    
    4,574Note
      payable to Union Bank, dated January15,
      2000; secured by a vehicle; interest at 8.5%;payable
      in 60 monthly installments of $380.
    4,353
    
    8,37126,790
    
    40,583Less
      current portion
    9,985
    
    13,792Long-term
      portion of notes payable
    $
      16,805
    
    $
      26,791
 
 Maturities
of long-term debt for the years subsequent to December 31, 2003 are as
follows:
 
 2004
    
    $
      9,9852005
    
    6,1002006
    
    6,6062007
    
    4,099$
      26,790
  49
  **NOTE
6 - RELATED PARTY TRANSACTIONS**
 
 Employee
Stock Options
 The
Company has a qualified and a nonqualified stock option plan, which provides for
the granting of options to key employees, consultants, and nonemployee directors
of the Company.
 
 The
option price, number of shares and grant date are determined at the discretion
of the Company’s board of directors. Options granted under the plans are
exercisable immediately; however, the plan expires in August 2008.
 
 The
purpose of the Company's stock option plans is to further the interest of the
Company by enabling officers, directors, employees, consultants and advisors of
the Company to acquire an interest in the Company by ownership of its stock
through the exercise of stock options and stock appreciation rights granted
under its various stock option plans.
 
 The fair
value of each option grant is estimated on the date of grant the Black-Scholes
American option-pricing model with the following weighted-average assumptions
used for grant in 2003, 2002 and 2001, respectively.
 
 Year
    
    Expected
      Life
    
    Expected
      Dividends
    
    Expected
      Volatility
    
    Risk-Free
      Interest Rates2003
    
    4
    
    None
    
    88%
    
    3.002002
    
    5
    
    None
    
    98.04%
    
    3.862001
    
    6
    
    None
    
    122%
    
    4.85
 
 
 Expected
life of 4, 5, and 6 years for 2003, 2002 and 2001, respectively, no expected
dividends, expected volatility of 88 percent for 2003, 98.04 percent for 2002,
and 122 percent for 2001 and risk-free interest rates of 3.00, 3.86, and 4.85
percent, respectively.
  49
  **NOTE
6 - RELATED PARTY TRANSACTIONS**
 
 Employee
Stock Options (Continued)
 A summary
of the status of the Company's fixed stock option plan as of December 31, 2003
and 2002, and changes during the years ending on those dates is presented
below:
 
 2003
    
    2002
    
    2001Weighted-
    
    
    
    Weighted-
    
    
    
    Weighted-Average
    
    
    
    Average
    
    
    
    AverageExercise
    
    
    
    Exercise
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceFixed
      OptionsOutstanding
      at beginning of year
    2,960,500
    
    $
      1.25
    
    3,229,000
    
    $
      1.26
    
    2,644,000
    
    $
      1.20Granted
    100,000
    
    $
      1.33
    
    -
    
    $
      -
    
    700,000
    
    $
      1.35Exercised
    (41,900)
    
    $
      0.50
    
    (20,500)
    
    $
      0.50
    
    (115,000)
    
    $
      1.50Cancelled
    -
    
    $
      -
    
    (248,000)
    
    $
      1.36
    
    -Outstanding
      at end of year
    3,018,600
    
    $
      1.27
    
    2,960,500
    
    $
      1.25
    
    3,229,000
    
    $
      1.26Options
      exercisable at year-end
    3,018,600
    
    
    
    2,960,500
    
    
    
    3,229,000Available
      for issuance
    610,400Weighted-average
      fair value of optionsgranted
      during the year
    $
      0.96
    
    
    
    $
      -
    
    
    
    $
      1.22
 
 The
following table summarizes information about fixed stock options outstanding at
December 31, 2003:
 
 Options
      Outstanding and ExercisableWeighted-AverageNumber
      Outstanding
    
    Remaining
    
    Weighted-AverageRange
      of Exercise Prices
    
    at
      December 31, 2003
    
    Contractual
      Life
    
    Exercise
      Price$.50
      - $2.43
    
    3,018,600
    
    4.72
    
    $1.27
 
  49
  **NOTE
6 - RELATED PARTY TRANSACTIONS**
 
 Partnerships
 Tri-Valley
is a general partner and operator of the Tri-Valley Oil & Gas Exploration
Programs 1971-1, Martins-Severin, and Opus I Partnerships. The Company accounts
for these partnerships on the equity method. Oil and gas income
follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001**Partnership
      income, net of expenses**
    **$
      30,000**
    
    **$
      18,299**
    
    **$
      51,542**
 
 
 **NOTE
7 - EARNINGS PER SHARE**
 
 Year
    
    Full
      Year Basic Earnings (Loss) Per Share
    
    Weighted-Average
      Shares Outstanding
    
    Diluted
      Earnings (Loss) Per Share
    
    Diluted
      Earnings Weighted-Average Share Outstanding Plus Common Stock
      Equivalents
    
    Common
      Stock Equivalents Excluded from Diluted Earnings Per
  Share2003
    
    $
      0.02
    
    19,801,785
    
    $
      0.05
    
    $
      3,018,600
    
    $
      -2002
    
    0.04
    
    19,702,054
    
    0.03
    
    2,698,500
    
    960,0002001
    
    (0.01)
    
    19,495,693
    
    (0.01)
    
    -
    
    3,279,000
 
 The
diluted earning per share amounts are based on weighted-average shares
outstanding plus common stock equivalents. Common stock equivalents include
stock options and awards, and common stock warrants. Common stock equivalents
excluded from the calculation of diluted earnings per share due to the effect
was antidilutive.
 
 
 **NOTE
8 - INCOME TAXES**
 
 At
December 31, 2003, the Company had available net operating loss carry forwards
for financial statements and federal income tax purposes of approximately
$760,000 (restated). These loss carryforwards expire between 2004 and
2014.
  49
  **NOTE
8 - INCOME TAXES (Continued)**
 
 The
components of the net deferred tax assets were as follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Deferred
      tax assets:Net
      operating loss carryforwards
    $
      345,727
    
    $
      45,667
    
    $
      606,550Statutory
      depletion carryforwards
    339,007
    
    297,217
    
    291,276Total
      deferred tax assets
    684,734
    
    342,884
    
    897,826Valuation
      allowance
    (684,734)
    
    (342,884)
    
    (897,826)**Net
      deferred tax assets**
    **$
      -**
    
    **$
      -**
    
    **$
      -**
 
 A full
valuation allowance has been established for the deferred tax assets generated
by net operating loss and statutory depletion carryforwards due to the
uncertainty of future utilization.
 
 The
reconciliation of federal taxable income follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Income
      (loss) before tax
    $
      495,109
    
    $
      845,130
    
    $
      (117,975)Computed
      "expected" tax (benefit)
    $
      168,000
    
    $
      304,344
    
    $
      (40,112)State
      tax liability
    39,000
    
    76,000
    
    -Utilization
      (non-utilization) of operating loss carryover
    (168,000)
    
    (304,344)
    
    40,112**Total
      income tax provision**
    **$
      39,000**
    
    **$
      76,000**
    
    **$
      -**
 
 
  49
  **NOTE
9 - MAJOR CUSTOMERS**
 
 Oil
and Gas
 Substantially
all oil and gas sales have occurred in the northern California gas market.
 
 The
Company received substantially all of its oil and gas revenue from one customer.
The oil and gas sales to this one customer amounted to $901,739, $752,971 and
$1,597,771 for the year ended December 31, 2003, 2002, and 2001,
respectively.
 
 
 **NOTE
10 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS**
 
 The
Company adopted SFAS No. 131, “Disclosure About Segments of an Enterprise and
Related Information” in 1998, which changes the way the Company reports
information about its operating segments.
 
 The
Company identifies reportable segments by product. The Company includes revenues
from both external customers and revenues from transactions with other operating
segments in its measure of segment profit or loss.
 
 The
Company also includes interest revenue and expense, DD&A, and other
operating expenses in its measure of segment profit or loss.
 
 The
accounting policies of the reportable segments are the same as those described
in the Summary of Significant Accounting Principles (see Note 1).
 
 The
Company's operations are classified into three principal industry segments.
Following is a summary of segmented information for 2003, 2002, and
2001:
 
 Oil
      and Gas
    
    Precious
    
    Drilling
      andProduction
    
    Metals
    
    Development
    
    TotalYear
      ended December 31, 2003
    
    
    
    
    (restated)
    
    (restated)Revenues
      from external customers
    $
      932,268
    
    $
      -
    
    $
      5440,780
    
    $
      6,373,048Interest
      revenue
    $
      34,479
    
    $
      -
    
    $
      -
    
    $
      34,479Interest
      expense
    $
      2,572
    
    $
      -
    
    $
      -
    
    $
      2,572Expenditures
      for segment assets
    $
      -
    
    $
      -
    
    $
      -
    
    $
      -
  49
  **NOTE
10 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
(Continued)**
 
 Oil
      and Gas
    
    Precious
    
    Drilling
      andProduction
    
    Metals
    
    Development
    
    TotalYear
      ended December 31, 2003
    
    
    
    
    (restated)
    
    (restated)(Continued)Depreciation,
      depletion, and amortization
    $
      29,216
    
    $
      -
    
    $
      -
    
    $
      29,216Total
      assets
    $
      8,341,782
    
    $
      -
    
    $
      -
    
    $
      8,341,782Net
      income (loss)
    $
      (624,280)
    
    $
      (366,039)
    
    $
      1,446,428
    
    $
      456,109Year
      ended December 31, 2002Revenues
      from external customers
    $
      771,621
    
    $
      -
    
    $
      5,421,782
    
    $
      6,193,403Interest
      revenue
    $
      19,534
    
    $
      -
    
    $
      -
    
    $
      19,534Interest
      expense
    $
      1,838
    
    $
      -
    
    $
      -
    
    $
      1,838Expenditures
      for segment assets
    $
      155,132
    
    $
      -
    
    $
      -
    
    $
      155,132Depreciation,
      depletion, and amortization
    $
      34,384
    
    $
      -
    
    $
      -
    
    $
      34,384Total
      assets
    $
      4,634,874
    
    $
      -
    
    $
      -
    
    $
      4,634,874Net
      income (loss)
    $
      (835,452)
    
    $
      (169,111)
    
    $
      1,773,693
    
    $
      769,130Year
      ended December 31, 2001Revenues
      from external customers
    $
      1,656,265
    
    $
      -
    
    $
      -
    
    $
      1,656,265Interest
      revenue
    $
      23,597
    
    $
      -
    
    $
      -
    
    $
      23,597Interest
      expense
    $
      4,761
    
    $
      -
    
    $
      -
    
    $
      4,761Expenditures
      for segment assets
    $
      702,613
    
    $
      -
    
    $
      -
    
    $
      702,613Depreciation,
      depletion, and amortization
    $
      60,962
    
    $
      -
    
    $
      -
    
    $
      60,962Total
      assets
    $
      3,381,757
    
    $
      -
    
    $
      -
    
    $
      3,381,757Net
      income (loss)
    $
      396,063
    
    $
      (223,643)
    
    $
      (290,395)
    
    $
      (117,975)
  49
  **NOTE
11 - COMMON STOCK**
 
 During
2003 we issued the following shares of common stock. All of these securities
were issued pursuant to privately negotiated transactions in reliance on the
exemption contained in Section 4(2) of the Securities Act.
 
 -
    One
      officer, one former employee, and one private individual exercised options
      to purchase 41,900 common shares at $.50 each. 
 -
    One
      private individual purchased 3,000 common stock shares at $1.35
      each. 
 -
    We
      issued 15,000 shares to the Company’s officers. The closing market price
      of our common stock on the date we awarded these shares was
      $1.36. 
 -
    We
      issued 50,000 shares to the Company’s outside directors. The closing
      market price of our common stock on the date we awarded these shares was
      $1.33 
 -
    We
      issued 6,000 shares to a consultant for service. The closing market price
      of our common stock on the date we awarded these shares was
      $3.20. 
 -
    We
      issued 255,387 common shares to Swartz Private Equity, LLC (see Note
      10). 
 
 **NOTE
12 - COMMITMENTS AND CONTINGENCIES**
 
 Litigation
 The
Company is a defendant in an action filed by Armstrong Petroleum alleging the
Company failed to make correct royalty payments to Armstrong for several years.
In 2002, Armstrong was awarded a judgment against the Company for $141,500. The
Company believes the judgment was based on incorrect facts and has filed an
appeal. The Company was required to post a cash bond of $267,400 with the
appeal. The bond amount is included in Deposits at December 31, 2003. On March
24, 2004, the appellate court affirmed the decision of the trial court. We are
considering whether to appeal the appellate court judgment to the California
Supreme Court. Tri-Valley Corporation created a cash reserve for this judgment
in 2002 when this verdict was awarded. Included in accounts payable at December
31, 2003 certain estimated expenses have been accrued in connection with the
appeal.
 
 Contingencies
 The
Company is subject to possible loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include existing and potential
obligations to investigate the effects of the release of certain hydro-carbons
or other substances at various sites; to remediate or restore these sites; and
to compensate others for damages and to make other payments as required by law
or regulation. These obligations relate to sites owned by the Company or others,
and are associated with past and present oil and gas
operations.
  49
  **NOTE
12 - COMMITMENTS AND CONTINGENCIES (Continued)**
 
 Contingencies (Continued)
 The
amount of such obligations is indeterminate and will depend on such factors as
the unknown nature and extent of contamination, the unknown timing, extent and
method of remedial actions which may be required, the determination of the
Company's liability in proportion to other responsible parties, and the state of
the law.
 
 Natural
Gas Contracts
 The
Company sells its gas under three separate gas contracts. Each of the contracts
is effective for a twelve-month period and is renegotiated annually. During
2003, 2002, and 2001, the Company sold all of its produced gas under these
agreements. The terms of the agreements are identical among the contracts.
During 2003, 2002, and 2001, the terms of the agreements were as follows: 100%
of the produced gas was sold at the monthly spot price.
 
 Joint
Venture Advances
 As
discussed in Note 1, the Company receives advances from joint venture
participants, which represent funds raised to drill exploratory wells. The
Company receives a carried working interest if the well is successfully drilled
and completed. The Company acts as both the fiduciary agent and Operator during
the period required to drill and equip the well, and as Operator while the well
is produced. The Company is obligated to use these funds for expenditures of the
joint venture prospect. The joint venture agreements specify that the Company
must drill the subject well or substitute another prospect. Some agreements
require that the interest earned on joint venture advances be credited to the
project account. Expenditures of the projects are charged directly against the
obligation.
 
 The
balance of the joint venture advance represents the sum of amounts contributed
for drilling prospects, net of expenditures for the projects. Residual project
balances are held until the Company makes a final determination concerning any
remedial obligations of the joint venturers. The balance at December 31, 2003
consists primarily of the following projects:
 
 Opus
 In May of
2001 the Company began raising funds for a one hundred million dollars
exploration drilling program named OPUS-I. The program calls for the drilling of
26 prospects, 23 in California and 3 in Nevada. As of December 31, 2003 the
program has drilled seven wells in which two were dry holes, the remaining wells
are currently being tested or evaluated for further work. The drilling portion
of these prospects is turn keyed, meaning the drilling portion is done for a
fixed cost and the completion portion is done at the actual
cost.
  49
  **NOTE
10 - COMMITMENTS AND CONTINGENCIES (Continued)**
 
 Opus (Continued)
 The Opus
Drilling Program joint venture status at December 31, 2003 is as
follows:
 
 Total
      Opus Contributions
    $
      19,767,438Total
      Opus Expenditures
    $
      15,911,488Advances
    $
      3,855,950
 
 Ekho
 The Ekho
project was originally a three-well project, which commenced February 7, 2000
with the first well. The first well has been drilled to its target depth of just
over 19,000 feet. The original majority joint interest partners were unable to
fulfill their obligations to continue to fund well completion activities. The
Company is currently seeking substitute partners to raise funds to fracture and
complete the well. Ekho joint venture project status at December 31, 2003, which
is included in the joint venture advance, is as follows (the vast majority of
expenditures were made in 2000):
 
 Total
      Ekho joint venture contributions
    $
      10,604,300Total
      Ekho joint venture expenditures
    $
      10,878,236Interest
      credited to the joint account
    $
      246,749
 
 Leases
 The
Company leases its office space on a month to month basis.
 
 Stock
Sale Agreement
 Effective
February 6, 2002, the Company completed a Securities Act registration of
8,500,000 shares of its common stock to be sold to Swartz Private Equity, LLC
(“Swartz”) under an Investment Agreement dated September 13, 2001 for a total
value of up to $15,000,000, subject to a formula based on the Company's stock
price and trading volume, over a three year period beginning from the effective
date of the registration.
 
 Under the
Investment Agreement with Swartz, when the common shares are sold to Swartz the
Company will receive the lesser of (1) 93% of the market price for the Company’s
stock or (2) the market price minus $0.12 per share. The number of shares sold
to Swartz may not exceed 15% of the aggregate trading volume during the twenty
trading days following the date the Company invokes a put right, and is subject
to other volume limitations.
  49
  **NOTE
10 - COMMITMENTS AND CONTINGENCIES (Continued)**
 
 Common
Stock Warrants
 On April
20, 2001, the Company issued 500,000 common stock warrants to Swartz Private
Equity, LLC. The warrants are exercisable at $2.42 per warrant and expire on
April 20, 2006. During September and October of 2003 Swartz Private Equity, LLC
chose to exercise these Warrants through a cashless transaction. The company
issued 255,387 shares under the Warrant agreement.
 
 The
resulting costs in the amount of $1,311,710 were recognized as stock issuance
costs, and offset against additional paid in capital, in accordance with
Financial Accounting Standards Board Statement on Financial Accounting Standard
No. 123 (as amended).
 
 
   1
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 **SUPPLEMENTAL
INFORMATION**
 
 
 
 
   
   
 
 **SUPPLEMENTAL
INFORMATION**
 
 
 
 The
following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests owned by the Company located solely in the
United States.
 
 Disclosures
of oil and gas reserves, which follow, are based on estimates prepared by
independent engineering consultants for the years ended December 31, 2003, 2002,
and 2001. Such analyses are subject to numerous uncertainties inherent in the
estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. These estimates
do not include probable or possible reserves.
 
 These
estimates are furnished and calculated in accordance with requirements of the
Financial Accounting Standards Board and the Securities and Exchange Commission
(“SEC”). Because of unpredictable variances in expenses and capital forecasts,
crude oil and natural gas price changes, largely influenced and controlled by
U.S. and foreign government actions, and the fact that the basis for such
estimates vary significantly, management believes the usefulness of these
projections is limited. Estimates of future net cash flows presented do not
represent management’s assessment of future profitability or future cash flows
to the Company. Management’s investment and operating decisions are based upon
reserve estimates that include proved reserves as well as probable reserves, and
upon different price and cost assumptions from those used here.
 
 It should
be recognized that applying current costs and prices and a 10 percent standard
discount rate does not convey fair market value. The discounted amounts arrived
at are only one measure of the value of proved reserves.
 
 Capitalized
costs relating to oil and gas producing activities and related accumulated
depletion, depreciation and amortization were as follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Aggregate
      capitalized costs:Proved
      properties
    $
      752,705
    
    $
      752,705
    
    $
      752,705Unproved
      properties
    1,251,953
    
    1,654,117
    
    1,692,703Accumulated
      depletion, depreciation and amortization
    (604,223)
    
    (587,030)
    
    (562,310)Net
      capitalized assets
    $
      1,400,435
    
    $
      1,819,792
    
    $
      1,833,098
 
   
   Supplemental
Information
 Page
Two
 
 
 The
following sets forth costs incurred for oil and gas property acquisition,
exploration and development activities, whether capitalized or expensed,
during:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Acquisition
      of producing properties and productive and non-productive
      acreage
    $
      -
    
    $ -
    
    $ -Exploration
      costs and development activities
    $
      -
    
    $
      45,143
    
    $ -
 
 Results
Of Operations From Oil And Gas Producing Activities
 The
results of operations from oil and gas producing activities are as
follows:
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Sales
      to unaffiliated parties
    $
      932,268
    
    $
      771,621
    
    $
      1,656,265Production
      costs
    (183,362)
    
    (224,320)
    
    (332,160)Depletion,
      depreciation and amortization
    (26,551)
    
    (24,719)
    
    (38,388)722,355
    
    522,582
    
    1,285,717Income
      tax expense
    (264,968)
    
    (187,057)
    
    (461,867)Results
      of operations from activities beforeextraordinary
      items (excluding corporateoverhead
      and interest costs)
    $
      457,387
    
    $
      335,525
    
    $
      823,850
 
  
  Supplemental
Information
 Page
Three
 
 
 Changes
In Estimated Reserve Quantities
 The net
interest in estimated quantities of proved developed and undeveloped reserves of
crude oil and natural gas at December 31, 2003, 2002, and 2001, and changes in
such quantities during each of the years then ended, were as
follows:
 
 December
      31, 2003
    
    December
      31, 2002
    
    December
      31, 2001(restated)Oil
    
    Gas
    
    Oil
    
    Gas
    
    Oil
    
    Gas(BBL)
    
    (MCF)
    
    (BBL)
    
    (MCF)
    
    (BBL)
    
    (MCF)Proved
      developed and undeveloped reserves:Beginning
      of year
    150
    
    1,492,245
    
    164
    
    1,684,757
    
    299
    
    1,842,672Revisions
      of previous estimates extensions, discoveries and other
      additions
    37
    
    (115,365)
    
    15
    
    40,066
    
    (121)
    
    72,477Net
      reserve additions
    -
    
    36,982
    
    -
    
    -
    
    -
    
    -Production
    (25)
    
    (162,314)
    
    (29)
    
    (232,578)
    
    (14)
    
    (230,392)End
      of year
    162
    
    1,251,548
    
    150
    
    1,492,245
    
    164
    
    1,684,757Proved
      developed reserves:Beginning
      of year
    150
    
    1,492,245
    
    164
    
    1,684,757
    
    299
    
    1,842,672End
      of year
    162
    
    1,251,548
    
    150
    
    1,492,245
    
    164
    
    1,684,757
 
 Standardized
Measure Of Discounted Future Net Cash Flows Relating To Proved Oil And Gas
Reserves
 A
standardized measure of discounted future net cash flows is presented below for
the year ended December 31, 2003, 2002, and 2001.
 
 The
future net cash inflows are developed as follows:
 
 (1)
    Estimates
      are made of quantities of proved reserves and the future periods during
      which they are expected to be produced based on year-end economic
      conditions.
 (2)
    The
      estimated future production of proved reserves is priced on the basis of
      year-end prices.
 (3)
    The
      resulting future gross revenue streams are reduced by estimated future
      costs to develop and to produce proved reserves, based on year end cost
      estimates.
 (4)  The
resulting future net revenue streams are reduced to present value amounts by
applying a ten percent discount.
  
  Supplemental
Information
 Page
Four
 
 
 Standardized
Measure Of Discounted Future Net Cash Flows Relating To Proved Oil And Gas
Reserves (Continued)
 
 Disclosure
of principal components of the standardized measure of discounted future net
cash flows provides information concerning the factors involved in making the
calculation. In addition, the disclosure of both undiscounted and discounted net
cash flows provides a measure of comparing proved oil and gas reserves both with
and without an estimate of production timing. The standardized measure of
discounted future net cash flows relating to proved reserves reflects income
taxes.
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Future
      cash in flows
    $
      5,973,197
    
    $
      5,791,416
    
    $
      4,231,473Future
      production and development costs
    (1,376,902)
    
    (1,297,906)
    
    (1,293,017)Future
      income tax expenses
    (1,134,811)
    
    (1,202,626)
    
    (430,547)Future
      net cash flows
    3,461,484
    
    3,290,884
    
    2,507,90910%
      annual discount for estimated timing of cash flows
    1,190,852
    
    1,066,614
    
    1,502,899Standardized
      measure of discounted future net cash flow
    $
      2,270,632
    
    $
      2,224,270
    
    $
      1,005,010
 
 * Refer
to the following table for analysis in changes in standardized
measure.
 
 Changes
In Standardized Measure Of Discounted Future Net Cash Flow From Proved Reserve
Quantities
 This
statement discloses the sources of changes in the standardized measure from year
to year. The amount reported as "Net changes in prices and production costs"
represents the present value of changes in prices and production costs
multiplied by estimates of proved reserves as of the beginning of the year. The
"accretion of discount" was computed by multiplying the ten percent discount
factor by the standardized measure as of the beginning of the year. The "Sales
of oil and gas produced, net of production costs" is expressed in actual dollar
amounts. "Revisions of previous quantity estimates" is expressed at year-end
prices.
  
  Supplemental
Information
 Page
Five
 
 
 Changes
In Standardized Measure Of Discounted Future Net Cash Flow From Proved Reserve
Quantities (Continued)
 The "Net
change in income taxes" is computed as the change in present value of future
income taxes.
 
 December
      31,
    
    December
      31,
    
    December
      31,2003
    
    2002
    
    2001(restated)Standardized
      measure - beginning of period
    $
      2,224,270
    
    $
      1,005,010
    
    $
      8,483,726Sales
      of oil and gas produced, net of production costs
    (748,906)
    
    (547,301)
    
    (60,294)Revisions
      of estimates of reserves provided in prior years:Net
      changes in prices
    969,281
    
    2,432,433
    
    (1,336,765)Revisions
      of previous quantity estimates
    (171,355)
    
    166,536
    
    (295,610)Extensions
      and discoveries
    102,382
    
    -
    
    495,354Purchases
      of minerals in place
    -
    
    -
    
    -Accretion
      of discount
    263,451
    
    274,545
    
    117,937Changes
      in production rates (timing) and other
    (436,306)
    
    (334,874)
    
    1,122,078Net
      change in income taxes
    67,815
    
    (772,079)
    
    (7,521,416)Net
      increase (decrease)
    46,362
    
    1,219,260
    
    (7,478,716)**Standardized
      measure - end of period**
    **$
      2,270,632**
    
    **$
      2,224,270**
    
    **$
      1,005,010**
 
  
  Supplemental
Information
 Page
Five
 
 
 Quarterly
Financial Data (unaudited)
 
 2003First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    Quarter(restated)
    
    (restated)Operating
      Revenues
    $
      276,780
    
    $
      1,190,371
    
    $
      3,137,062
    
    $
      1,860,032Net
      Income (Loss)
    $
      (421,407)
    
    $
      (152,183)
    
    $
      172,570
    
    $
      896,129Net
      Income (Loss) per Common Share
    $
      (0.02)
    
    $
      (0.00)
    
    $
      0.00
    
    $
      0.042002First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterOperating
      Revenues
    $
      182,734
    
    $
      857,241
    
    $
      3,923,875
    
    $
      1,321,058Net
      Income (Loss)
    $
      (264,117)
    
    $
      (360,283)
    
    $
      1,071,553
    
    $
      321,977Net
      Income (Loss) per Common Share
    $
      (0.01)
    
    $
      (0.02)
    
    $
      0.05
    
    $
      0.022001First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterOperating
      Revenues
    $
      749,810
    
    $
      14,146
    
    $
      298,560
    
    $
      467,671Net
      Income (Loss)
    $
      252,254
    
    $
      64,206
    
    $
      (172,172)
    
    $
      (262,263)Net
      Income (Loss) per Common Share
    $
      0.01
    
    $
      -
    
    $
      (0.01)
    
    $ -
 
 
 
  
  
 **ITEM
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure**
 
 None .
 
 **ITEM
9A. Controls and Procedures**
 
 Evaluation
of Disclosure Controls
 We
evaluated the effectiveness of our disclosure controls and procedures
("Disclosure Controls") as of the end of the 2003 fiscal year. This evaluation
("Controls Evaluation") was done with the participation of our president and
chief executive officer("CEO") and chief financial officer ("CFO").
 
 Disclosure
Controls are controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Securities Exchange Act of 1934 ("Exchange Act") is recorded
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure Controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our CEO and CFO, as
appropriate to allow timely decisions regarding required
disclosure.
 
 Limitations
on the Effectiveness of Controls
 Our
management, including our CEO and CFO, does not expect that our Disclosure
Controls or our internal controls over financial reporting ("Internal Controls")
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, but not absolute, assurance
that the objectives of a control system are met. Further, any control system
reflects limitations on resources, and the benefits of a control system must be
considered relative to its costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within Tri-Valley Corporation
have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of a control. A design of a control system is also based
upon certain assumptions about potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and may not be detected.
 
 Conclusions
 Based
upon the Controls Evaluation, our CEO and CFO have concluded that, subject to
the limitations noted above, the Disclosure Controls are effective in providing
reasonable assurance that material information relating to Tri-Valley
Corporation is made known to management on a timely basis during the period when
our periodic reports are being prepared.
 There
were no changes in our Internal Controls that occurred during the quarter
covered by this report that have materially affected, or are reasonably likely
to materially affect our Internal Controls.
 
  
  
 **PART
III**
 
 **ITEM
10. Directors and Executive Officers of the Registrant**
 
 All
directors of the Company serve one year terms from the time of their election to
the time their successor is elected and qualified. The following information is
furnished with respect to each director and executive officer:
 
 Year
      FirstBecame
      Director or
    
    Position
      WithName
      of Director
    
    Age
    
    Executive
      Officer
    
    CompanyF.
      Lynn Blystone
    
    68
    
    1974
    
    President,
      CEO, Director, TVCCEO
      and Director, TVOGPresident,
      CEO, Director, TVPCDennis
      P. Lockhart(1)
    
    57
    
    1982
    
    DirectorMilton
      J. Carlson(1)
    
    73
    
    1985
    
    DirectorHarold
      J. Noyes
    
    55
    
    2002
    
    DirectorLoren
      J. Miller(1)
    
    59
    
    1992
    
    DirectorC.
      Chase Hoffman
    
    81
    
    2000
    
    DirectorThomas
      J. Cunningham
    
    61
    
    1997
    
    Treasurer,
      Chief Financial Officer andSecretary,
      TVC, TVOG, and TVPCJoseph
      R. Kandle
    
    61
    
    1999
    
    President,
      TVOG
 
 (1)-
Member of Audit Committee
 
 **F.
      Lynn Blystone -****68**
    President
      and Chief Executive Officer of Tri-Valley Corporation and Tri-Valley Power
      Corporation, and CEO of Tri-Valley Oil & Gas Company, which are two
      wholly owned subsidiaries of Tri-Valley Corporation, Bakersfield,
      California
    1974Mr.
      Blystone became president of Tri-Valley Corporation in October, 1981, and
      was nominally vice president from July to October, 1981. His background
      includes institution management, venture capital and various management
      functions for a mainline pipeline contractor including the Trans Alaska
      Pipeline Project. He has founded, run and sold companies in several fields
      including Learjet charter, commercial construction, municipal finance and
      land development. He is also president of a family corporation, Bandera
      Land Company, Inc., with real estate interests in Kern, Riverside and
      Orange Counties California. A graduate of Whittler College, California, he
      did graduate work at George Williams College, Illinois in organization
      management. He gives full time to
Tri-Valley.
 
  
  
 **Dennis
      P. Lockhart - 57**
    Director
    1982Mr.
      Lockhart is a professor at Georgetown University. He was previously
      Managing Partner of Zephyr Management L.P., an international private
      equity investment fund sponsor/manager headquartered in New York. He
      remains a partner in this firm. He is also (non-executive) Chairman of the
      Small Enterprise Assistance Funds (SEAF),a not-for-profit operator of
      emerging markets venture capital funds focused on the small and mid-sized
      company sector. He is a director of CapitalSource Inc. (NYSE) and SMELoan
      Asia/Maveo Systems (private, Hong Kong based). In 2002 and 2003 he was an
      Adjunct Professor at the Johns Hopkins University School of Advanced
      International Studies. From 1988 to 2001, he was President of Heller
      International Group Inc., a non-bank corporate and commercial finance
      company operating in 20 countries, and a director of the group’s parent,
      Heller Financial Inc. From 1971 to 1988 he held a variety of international
      and domestic positions at Citibank/Citicorp (now Citigroup) including
      assignments in Lebanon, Saudi Arabia, Greece, Iran and the bank’s Latin
      American group in New York. In 1999, he was Chairman of the Advisory
      Committee of the U.S. Export Import Bank. He is a graduate of Stanford
      University and The John Hopkins University School of Advanced
      International Studies. He also attended the Senior Executive Program at
      the Sloan School of Management, Massachusetts Institute of
      Technology.
 
 **Milton
      J. Carlson - 73**
    Director
    1985Since
      1989, Mr. Carlson has been a principal in Earthsong Corporation, which, in
      part, consults on environmental matters and performs environmental audits
      for government agencies and public and private concerns. Mr. Carlson
      attended the University of Colorado at Boulder and the University of
      Denver.**Loren
      J. Miller, CPA - 59**
    Director
    1992Mr.
      Miller has served in a treasury and other senior financial capacities at
      the Jankovich Company since 1994. Prior to that he served successively as
      vice president and chief financial officer of Hershey Oil Corporation from
      1987 to 1990 and Mock Resources from 1991 to 1992. Prior to that he was
      vice president and general manager of Tosco Production Finance Corporation
      from 1975 to 1986 and was a senior auditor the accounting firm of Touche
      Ross & Company from 1968 to 1973. He is experienced in exploration,
      production, product trading, refining and distribution as well as
      corporate finance. He holds a B.S. in accounting and a M.B.A. in finance
      from the University of Southern California.**Harold
      J. Noyes - 55**
    Director
    2002Since
      August 2000, he has been president of H.J. Noyes and Associates, Inc., a
      firm that provides consulting and business development services to the
      minerals industry. Dr. Noyes is currently a senior program manager with
      Pacific Northwest National Laboratory. He served October 2001 through
      October 2002 as vice president, marketing and business development for
      Blake Street Investments, Inc., a money management and investment advisory
      firm. From 1997 to 2000 he was president of North Star Exploration, Inc.
      He was manager, resource development for Doyon Limited from 1983 to 1997.
      Dr. Noyes graduated from the University of Minnesota Magna Cum Laude in
      geology and took his Ph.D. in geology and geochemistry at the
      Massachusetts Institute of Technology. Later he earned a Masters in
      Business Administration at the University of Chicago**C.
      Chase Hoffman - 81**
    Director
    2000Since
      1965 Mr. Hoffman has owned and operated a milk cow dairy and farmed 4,000
      acres of land. Additionally, he has been a commercial and residential land
      developer in California and Hawaii since 1978. From 1973 to 1978 he was a
      senior vice president and general manager for Knudsen for the State of
      California. Mr. Hoffman also sits as a director for two companies whose
      shares are listed on the Canadian Venture Exchange: Seine River Resources,
      Inc., Vancouver, British Columbia, with California gold operations and
      Guatemala oil properties, and International Powerhouse Energy Corporation,
      a British Columbia, Canada, hydroelectric project. He is a graduate of
      Stanford University with a degree in Economics and Business Administration
      from Graduate School of Business.
 
  
  
 **Thomas
      J. Cunningham - 61**
    Secretary,
      Treasurer and Chief Financial Officer of Tri-Valley Corporation, and its
      wholly owned subsidiaries, Tri-Valley Oil & Gas Company and Tri-Valley
      Power Corporation, Bakersfield, California
    1997Named
      as Tri-Valley Corporation’s treasurer and chief financial officer in
      February 1997, and as corporate secretary on December 1998. From 1987 to
      1997 he was a self employed management consultant in finance, marketing
      and human resources. Prior to that he was executive vice president, chief
      financial officer and director for Star Resources from 1977 to 1987. He
      was the controller for Tucker Drilling Company from 1974 to 1977. He has
      over 25 years experience in corporate finance, Securities Exchange
      Commission public company reporting, shareholder relations and employee
      benefits. He received his education from Angelo State University,
      Texas.**Joseph
      R. Kandle - 61**
    President
      and Chief Operating Officer Tri-Valley Oil & Gas Company, wholly owned
      subsidiary of Tri-Valley Corporation Bakersfield,
    California
    1998Mr.
      Kandle was named as president of Tri-Valley Oil & Gas Co. February
      1999 after joining the Company June 1998 as vice president - engineering.
      From 1995 to 1998 he was employed as a petroleum engineer for R & R
      Resources, self-employed as a consulting petroleum engineer from 1994 to
      1995. He was vice president - engineering for Atlantic Oil Company from
      1983 to 1994. From 1981 to 1983 he was vice president for Star Resources.
      He was vice president and chief engineer for Great Basins Petroleum from
      1973 to 1981. He began his career with Mobil Oil (from 1965 to 1973) after
      graduating from the Montana School of Mines in 1965.
      
      **Audit
      Committee**
      
      The
      outside independent directors that serve on the audit committee are Loren
      J. Miller, Dennis P. Lockhart and Milton J. Carlson. The board of
      directors has determined that Loren J. Miller is considered to be the
      audit committee financial expert. Please see his biography
      above.
 
 **Compliance
with Section 16(a) of the Exchange Act**
 
 Section
16(a) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission regulations require that the Company's directors, certain officers,
and greater than 10 percent shareholders file reports of ownership and changes
in ownership with the SEC and must furnish the Company with copies of all such
reports they file. Based solely on the information furnished to the Company, we
believe that no person failed to file required Section 16(a) reports on a timely
basis during or in respect of 2001.
 
 
 **ITEM
11. Executive Compensation**
 
 The
following table summarizes the compensation of the chairman of the board and the
president of the Company and its subsidiaries, F. Lynn Blystone (the "Named
Officer"), for the fiscal year ended December 31, 2003, 2002, and
2001.
 
 The Board
of Directors (excluding Mr. Blystone) served as the compensation committee for
fiscal year 2003.
 
  
  
 Long
      TermCompensationAnnual
      Compensation
    
    Awards(a)
    
    (b)
    
    ( c
      )
    
    (d)
    
    (e)Other
    
    SecuritiesName
    
    Period
      Covered
    
    Salary
    
    Compensation
    
    Underlying
      OptionsF.
      Lynn
    
    FYE
      12/31/03
    
    $
      99,000
    
    $50,000Blystone,
      CEO
    
    FYE
      12/31/02
    
    $
      99,000
    
    $50,000FYE
      12/31/01
    
    $
      99,000
    
    $16,250
    
    300,000
  Employment
Agreement with Our President
 
 We have
an employment agreement with F. Lynn Blystone, our President and Chief Executive
Officer, which ended in August 2002, and was automatically renewable for three
one-year periods after 2002, unless we terminated the agreement by giving him 90
days written notice. The base salary amount is $99,000 per year plus 5,000
shares of our common stock at the end of each year of service. Mr. Blystone is
also entitled to a bonus (not to exceed $25,000) equal to 10% of net operating
cash flow before taxes, including interest income and excluding debt service.
Mr. Blystone is also entitled to a bonus of 4% of the company's annual net
after-tax income. The total of the bonuses from cash flow and net income may not
exceed $50,000 per year.
 
 The
employment agreement also provides a severance payment to Mr. Blystone if he is
terminated within 12 months after a sale of control of Tri-Valley. The severance
payment equals $150,000. In addition, Mr. Blystone is entitled to a bonus equal
to to 10% of net operating cash flow before taxes, including interest income and
excluding debt service, plus 4% of the company's annual net after-tax income, up
to a maximum of $50,000 (with the maximum amount pro-rated over the period for
which the payment is made). For purposes of the severance provision, a sale of
control is deemed to be the sale of ownership of 30% of the outstanding stock of
Tri-Valley or the acquisition by one person of enough stock to appoint a
majority of the board of directors of the company.
 
 We carry
key man life insurance of $500,000 on Mr. Blystone's life.
 
 Aggregated
2003 Option Exercises and Year-End Values
 
 The
following table summarizes the number and value of all unexercised stock options
held by the Named Officer and the Directors at the end of 2003.
 
 **(
      a )**
    **(b)**
    **(c)**
    **(d)**
    **(e)**Number
      of Securities
    Value
      of Unexercised In-Underlying
      Unexercised
    The-Money
      Options/SARsOptions/SARs
      at FY-End (#)
    at
      FY-End ($)*Shares
      Acquired
      On
      Exercise (#)Name
    Value
      Realized ($)
    Exercisable/Unexercisable
    Exercisable/UnexercisableF.
      Lynn Blystone
    11,900
    $41,970
    874,600/0
    $2,765,440/0
 
 *Based on
a fair market value of $4.40 per share, which was the closing price of the
Company's Common Stock on the American Stock Exchange on December 31,
2003.
 
 No
additional stock options were granted to Mr. Blystone in 2003.
 
   
   Compensation
of Directors
 
 The
Company compensates non-employee directors for their service on the board of
directors.
 
 The
following table sets forth information regarding the cash compensation paid to
outside directors in 2003.
 
 **(a)**
    **(b)**
    **(c)****Name**
    **Fees**
    **Restricted
      Shares**Harry
      J. Noyes
    $2,400
    10,000Milton
      Carlson
    $2,400
    10,000Dennis
      P. Lockhart
    $2,400
    10,000Loren
      J. Miller
    $2,400
    10,000C.
      Chase Hoffman
    $2,400
    10,000
 
 Performance
Graph
 
 The
following stock price performance graph is included in accordance with the SEC's
executive compensation disclosure rules and is intended to allow stockholders to
review our executive compensation policies in light of corresponding stockholder
returns, expressed in terms of the appreciation of our common stock relative to
two broad-based stock performance indices. The information is included for
historical comparative purposes only and should not be considered indicative of
future stock performance. The graph
compares the yearly percentage change in the cumulative total stockholder return
on our common stock with the cumulative total return of Royale Energy, Inc.,
Parallel Petroleum Corporation and Equity Oil Company from December 31, 1999
through December 31, 2003.
 
 Total
returns assume $100 invested on December 31, 1999 in shares of Tri-Valley
Corporation, Royale
Energy Inc., Parallel Petroleum Corporation, and Equity Oil Company, assuming
reinvestment of dividends for each measurement period.
 
 Total
      Return Analysis12/31/1999
    12/31/2000
    12/31/2001
    12/31/2002
    12/31/2003Tri-Valley
      Corp
    $
      100.00
    $
      108.00
    $
      106.67
    $
      93.33
    $
      293.33Royale
      Energy, Inc.
    $
      100.00
    $
      289.20
    $
      292.61
    $
      267.05
    $
      697.16Parallel
      Petroleum Corp.
    $
      100.00
    $
      255.44
    $
      188.17
    $
      162.13
    $
      257.40Equity
      Oil Co.
    $
      100.00
    $
      312.50
    $
      160.71
    $
      178.57
    $
      350.89
 
  
  
 **ITEM
12. Security Ownership of Certain Beneficial Owners and
Management**
 
 As of
December 31, 2003, there were 20,097,627 shares of the Company's common stock
outstanding. The following persons were known by the Company to be the
beneficial owners of more than 5% of such outstanding common stock:
 
 Number
      of
    
    Percent
      ofName
      and Address
    
    Shares
    
    TotalF.
      Lynn Blystone
      P.O.
      Box 1105
      Bakersfield,
      CA 93302
    
    1,329,864(1)
    
    6.3%
 
 Includes
874,600 shares of stock Mr. Blystone has the right to acquire upon the exercise
of options, and 30,200 shares held in the name of Bandera Land Company, Inc., a
family corporation
of which Mr. Blystone is the president.
 
 The
following table sets forth the beneficial ownership of the Company's common
stock as of December 31, 2003 by each director, by each of the executive
officers named in Item 11, and by the executive officer named in Item 10 and
directors as a group:
 
 Number
      of
    
    Percent
      ofDirectors
    
    Shares(1)
    
    Total(2)F.
      Lynn Blystone
    
    1,329,864(3)
    
    6.3%Dennis
      P. Lockhart
    
    342,091(3)
    
    1.7%Milton
      J. Carlson
    
    349,000(3)
    
    1.7%Loren
      J. Miller
    
    315,300(3)
    
    1.5%Harold
      J. Noyes
    
    110,000(3)
    
    0.5%C.
      Chase Hoffman
    
    257,500(3)
    
    1.2%Total
      group(all directors andExecutive
      officers - 6 persons)
    
    2,703,755(3)
    
    12.2%
 
 (1)
    Includes
      shares which the listed shareholder has the right to acquire from options
      as follows: Dennis P. Lockhart 270,000; Milton J. Carlson 268,000; Loren
      J. Miller 270,000, Harold J. Noyes 100,000, C. Chase Hoffman 200,000; F.
      Lynn Blystone 874,600.
 
 (2)
    Based
      on total outstanding shares of 20,097,627 as of December 31, 2003. The
      persons named herein have sole voting and investment power with respect to
      all shares of common stock shown as beneficially owned by them, subject to
      community property laws where applicable.
 
 (3)
    Includes
      30,200 shares held in the name of Bandera Land Company, Inc., a family
      corporation of which Mr. Blystone is the
president.
 
  
  
 **ITEM
13. Certain Relationships and Related Transactions**
 
 None.
 
 **ITEM
14. Principal Accountant Fees and Services**
 
 
 YEAR
    AUDIT
      SERVICES
    TAX
      SERVICES
    SEC
      SERVICES2003
    $45,509.82
    $16,784.18
    $
      6,286.002002
    $35,276.47
    $15,149.31
    $19,592.88
 
 **ITEM
15. Exhibits, Lists, and Reports on Form 8-K**
 
 (a)
    Exhibits. 
 ExhibitNumber
    
    Description
      of Exhibit3.1
    
    Amended
      and Restated Certificate of Incorporation, incorporated by reference to
      Exhibit 3.2 of the Company's Form 10-KSB for the year ended December 31,
      1999.3.2
    
    Amended
      and Restated Bylaws, incorporated by reference to Exhibit 3.3 of the
      Company's Form 10-KSB for the year ended December 31,
  1999.10.1
    
    Employment
      Agreement with F. Lynn Blystone, incorporated by reference to Exhibit 10.1
      of the Company's form 10-KSB/A, Amendment No. 3 to Form 10-KSB for the
      year ended December 31, 2000, filed December 14, 2001.14.1
    
    Code
      of Business Conduct & Ethics21.1
    
    Subsidiaries
      of the Registrant, incorporated by reference to Exhibit 21.1 of the
      Company's form 10-KSB/A, Amendment No. 3 to Form 10-KSB for the year ended
      December 31, 2000, filed December 14, 2001.31.1
    
    Certifications
      Pursuant to 18 U.S.C. §1350.
  
 (b)
    Reports
      on Form 8-K None
 
   
   **SIGNATURES**
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 March
      28, 2005
    
    By:/s/
      F. Lynn BlystoneF.
      Lynn BlystonePresident,
      Chief Executive Officer andDirectorMarch
      28, 2005
    
    By:/s/
      Thomas J. CunninghamThomas
      J. CunninghamSecretary,
      Treasurer, Chief Financial Officer
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates included:
 
 
 March
      28, 2005
    
    By:/s/
      Milton J. CarlsonMilton
      J. Carlson, DirectorMarch
      28, 2005
    
    By:/s/
      C. Chase HoffmanC.
      Chase Hoffman, DirectorMarch
      28, 2005
    
    By:/s/
      Dennis P. LockhartDennis
      P. Lockhart, DirectorMarch
      28, 2005
    
    By:/s/
      Loren J. MillerLoren
      J. Miller, DirectorMarch
      28, 2005
    
    By:/s/
      Harold J. NoyesHarold
      J. Noyes, Director
 
  
  
 **Certificate
of Chief Executive Officer**
 
 I, F.
Lynn Blystone, certify that:
 
 1.  I have
reviewed this quarterly report on Form 10-K of Tri-Valley Corporation
(“Tri-Valley”)
 
 2.  Based on
my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report.
 
 3.  Based on
my knowledge, the financial statements and other financial information included
in this annual report fairly present, in all material respects, the financial
condition, results of operations and cash flows of Tri-Valley as of, and for,
the periods presented in this annual report.
 
 4.  Tri-Valley’s
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14
and 15d-14) for Tri-Valley and we have:
 
 a.  designed
such disclosure controls and procedures to ensure that material information
relating to Tri-Valley, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which
this annual report is being prepared;
 
 b.  evaluated
the effectiveness of Tri-Valley's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the
“Evaluation Date”); and
 
 c.  presented
in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation
Date.
 
 5.  Tri-Valley's
other certifying officers and I have disclosed, based on our most recent
evaluation, to our auditors and the audit committee of Tri-Valley's board of
directors :
 
 a.  all
significant deficiencies in the design or operation of internal controls which
could adversely affect Tri-Valley's ability to record, process, summarize and
report financial data and have identified for Tri-Valley's auditors any material
weaknesses in internal controls; and
 
 b.  any
fraud, whether or not material, that involves management or other employees who
have a significant role in Tri-Valley's internal controls.
 
 6.  Tri-Valley’s
other certifying officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
 
 Date:
      March 28 2005F.
      Lynn Blystone, President and Chief Executive
Officer
 **Certificate
of Chief Financial Officer**
  
    I, Thomas
J. Cunningham, certify that:
 
 1.  I have
reviewed this annual report on Form 10-K of Tri-Valley Corporation.
(“Tri-Valley”)
 
 2.  Based on
my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report.
 
 3.  Based on
my knowledge, the financial statements and other financial information included
in this annual report fairly present, in all material respects, the financial
condition, results of operations and cash flows of Tri-Valley as of, and for,
the periods presented in this annual report.
 
 4.  Tri-Valley’s
other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14
and 15d-14) for Tri-Valley and we have:
 
 a.  designed
such disclosure controls and procedures to ensure that material information
relating to Tri-Valley, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which
this annual report is being prepared;
 
 b.  evaluated
the effectiveness of Tri-Valley's disclosure controls and procedures as of a
date within 90 days prior to the filing date of this annual report (the
“Evaluation Date”); and
 
 c.  presented
in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation
Date.
 
 5.  Tri-Valley's
other certifying officers and I have disclosed, based on our most recent
evaluation, to our auditors and the audit committee of Tri-Valley's board of
directors :
 
 a.  all
significant deficiencies in the design or operation of internal controls which
could adversely affect Tri-Valley's ability to record, process, summarize and
report financial data and have identified for Tri-Valley's auditors any material
weaknesses in internal controls; and
 
 b.  any
fraud, whether or not material, that involves management or other employees who
have a significant role in Tri-Valley's internal controls.
 
 6.  Tri-Valley’s
other certifying officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
 
 Date:
      March 28, 2005Thomas
      J. Cunningham, Chief Financial Officer
 
  
  
 **Exhibit
99.1**
 
 **Certifications
Pursuant to 18 U.S.C. § 1350**
 
 The
undersigned officer certifies that this Annual Report on Form 10-K complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and the information contained in such report fairly
represents, in all material respects, the financial condition and results of
operations of the Company.
 
 
 Date:
    
    March
      28, 2005**Tri-Valley
      Corporation**By:
    
    *F.
      Lynn Blystone*F.
      Lynn Blystone, Chief Executive Officer
 
 
 The
undersigned officer certifies that this Annual Report on Form 10-K complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, and the information contained in such report fairly
represents, in all material respects, the financial condition and results of
operations of the Company.
 
 
 Date:
    
    March
      28, 2005**Tri-Valley
      Corporation**By:
    
    *Thomas
      J. Cunningham*Thomas
      J. Cunningham, Chief Financial Officer
 
  
  
 **TRI-VALLEY
CORPORATION**
 
 **CODE
OF BUSINESS CONDUCT & ETHICS**
 
 
 **General
Philosophy**
 
 Tri-Valley
Corporation and its subsidiaries (“Tri-Valley”) and each of its directors,
officers and employees must conduct their affairs with uncompromising honesty
and integrity. Business ethics are no different than personal ethics. The same
high standard applies to both. As an employee of Tri-Valley or any of its
subsidiaries, you are required to adhere to the highest standard. The ethical
standards set forth in this code reflect who we are and are the standards by
which we choose to be judged.
 
 Our
employees are expected to be honest and ethical in dealing with each other, with
clients, vendors, and all other third parties. Doing the right thing means doing
it right every time.
 
 You must
also respect the rights of your fellow co-workers and third parties. Your
actions must be free from discrimination, libel, slander or harassment. Each
person must be accorded equal opportunity regardless of age, race, sex, color,
creed, religion, national origin, marital status, veteran’s status, handicap or
disability.
 
 Misconduct
cannot be excused because it was directed or requested by another. In this
regard, you are expected to alert management whenever an illegal, dishonest or
unethical act is discovered or suspected. You will never be penalized for
reporting your discoveries or suspicions. There will be no reprisals for the
good faith reporting of a perceived violation. Reports of a violation will be
investigated promptly and the matter will be treated, to the extent possible, as
confidential. In addition to (or instead of) reporting the matter to
Tri-Valley’s management, employees may report violations by senior management
(and must report violations involving financial accounting and reporting) to the
chairperson of our audit committee, who is an independent director and who does
not report to our president or other senior management of
Tri-Valley.
 
 The
following statements concern frequently raised ethical concerns. Violations of
this code are serious matters that may result in disciplinary actions, up to and
including termination. In addition, violations of the law may result in fines,
penalties or other legal remedies imposed by regulatory and law enforcement
authorities.
 
 Conflicts
of Interest
 
 You must
avoid any personal activity, investment or association which could appear to
interfere with good judgment concerning Tri-Valley’s best interests. You may not
exploit your position or relationship with Tri-Valley for personal gain. You
should avoid even the appearance of such a conflict. For example, there is a
likely conflict of interest if you:
 
 
 cause
      Tri-Valley to engage in business transactions with relatives or
      friends;use
      nonpublic Tri-Valley, client or vendor information for personal gain by
      you, relatives or friends (including securities transactions based on such
      information);have
      more than a modest financial interest in Tri-Valley’s vendors, clients or
      competitors;receive
      a loan or guarantee of obligations from Tri-Valley or a third party as a
      result of your position at Tri-Valley;work
      simultaneously for Tri-Valley and a competitor, customer or supplier;
      orcompete,
      or prepare to compete, with Tri-Valley while still employed by
      Tri-Valley.
 
  
  
 A
conflict of interest exists when a person’s private interest interferes in any
way with the interests of Tri-Valley. If you have concerns about any situation,
management (with the help of our legal counsel) can assist you.
 
 Gifts,
Bribes and Kickbacks
 
 Other
than for modest gifts given or received in the normal course of business
(including travel or entertainment), neither you nor your relatives may give
gifts to, or receive gifts from, Tri-Valley’s clients or vendors. Other gifts
may be given or accepted only with prior approval of your senior management and
in no event should you put Tri-Valley or yourself in a position that would be
embarrassing if the gift was made public.
 
 Dealing
with government employees is often different than dealing with private persons.
Many governmental bodies strictly prohibit the receipt of any gratuities by
their employees, including meals and entertainment. You must be aware of and
strictly follow these prohibitions.
 
 Any
employee who pays or receives bribes or kickbacks will be immediately terminated
and reported, as warranted, to the appropriate authorities. A kickback or bribe
includes any item intended to improperly obtain favorable
treatment.
 
 **Loans**
 
 You may
not request or accept a loan from Tri-Valley.
 
 Improper
Use or Theft of Tri-Valley Property
 
 Every
employee must safeguard Tri-Valley property from loss or theft, and may not take
such property for personal use. Tri-Valley property includes confidential
information, software, computers, office equipment and supplies. You must
appropriately secure all Tri-Valley property within your control to prevent its
unauthorized use.
 
 **Covering
Up Mistakes; Falsifying Records**
 
 Mistakes
should never be covered up, but should be immediately fully disclosed and
corrected. Falsification of any Tri-Valley, client or third party record is
prohibited.
 
 **Abuse
of Tri-Valley, Client or Vendor Information**
 
 You may
not use or reveal Tri-Valley, client or vendor confidential or proprietary
information to others. This includes business methods, pricing and marketing
data, strategy, computer code, screens, forms, experimental research, and
information about our current, former and prospective clients and
associates.
 
 **Fair
Dealing**
 
 No
Tri-Valley employee should take unfair advantage of anyone through manipulation,
concealment, abuse of privileged information, misrepresentation of material
facts, or any other unfair-dealing practice.
 
 **Fair
Competition and Antitrust Laws**
 
 Tri-Valley
must comply with all applicable fair competition and antitrust laws. These laws
attempt to ensure that businesses compete fairly and honestly and prohibit
conduct seeking to reduce or restrain competition. If you are uncertain whether
a contemplated action raises unfair competition or antitrust issues, management
(with the help of our legal counsel) can assist you.
 
  
  
 **Securities
Trading**
 
 It is
usually illegal to buy or sell securities using material information not
available to the public. This “inside” information includes, but is not limited
to, information that Tri-Valley has not released to the general public about
significant contracts, claims, liabilities, major litigation, potential sales,
mergers or acquisitions, and oil, gas and mineral plans, activities,
discoveries, forecasts or budgets.
 
 If you
give such undisclosed inside information to others, you as well as the
recipients may be liable as persons who illegally trade securities while
possessing such information. Securities laws may be violated if you, or any of
your relatives or friends trade in securities of Tri-Valley, or any of its
clients or vendors, while possessing information. If you are uncertain,
management (with the help of our legal counsel) can assist you.
 
 **Provisions
Applicable to the Chief Executive Officer and Chief Financial
Officer**
 
 Our chief
executive officer (“CEO”) and chief financial officer (“CFO”) are responsible
for full, fair, accurate, timely and understandable disclosure in our periodic
reports required to be filed with the Securities and Exchange Commission. As a
result, in addition to the remaining provisions in this code, the CEO and CFO
shall:
 
 promptly
      bring to the attention of the audit committee any information they may
      have concerning (a) significant deficiencies in the design or operation of
      internal controls which could adversely affect our ability to record,
      process, summarize and report financial data or (b) any fraud, whether or
      not material, that involves management or other employees who have a
      significant role in our financial reporting, disclosures or internal
      controls;Promptly
      bring to the attention of our legal counsel and the audit committee any
      information they may have concerning any violation of this code or of the
      securities or other laws, rules and regulations applicable to Tri-Valley
      and the operation of its business;promptly
      bring to the attention of our legal counsel and the audit committee any
      material transaction or relationship that arises and of which they become
      aware that could be expected to give rise to an actual or apparent
      conflict of interest;develop
      and maintain the skills necessary and relevant to Tri-Valley’s needs with
      respect to maintenance of adequate disclosure controls and internal
      controls and procedures; andproactively
      promote ethical and honest behavior within Tri-Valley.
 
 **Waivers**
 
 This code
applies to all Tri-Valley employees and its board of directors. There shall be
no waiver of any part of this code, except by a vote of the board of directors
or a designated committee, which will ascertain whether a waiver is appropriate
and ensure that the waiver is accompanied by appropriate controls designed to
protect Tri-Valley. In the event that any waiver is granted, the waiver must be
disclosed publicly in a filing with the SEC and will be posted on the Tri-Valley
website, thereby allowing the Tri-Valley shareholders to evaluate the merits of
the particular waiver.
 
 **Reporting
Ethical Violations**
 
 Your
conduct can reinforce an ethical atmosphere and positively influence the conduct
of fellow employees. If you are powerless to stop suspected misconduct or
discover it after it has occurred, you should report it to the president or
another senior officer. If the suspected misconduct involves the president or
another senior officer, you may report it to the chairperson of the audit
committee. If the suspected misconduct involves financial accounting or
reporting, it must be
reported to the chairperson of the audit committee.
 
  
  
 Employees
may forward complaints on a confidential or anonymous basis to the president or
to the chairperson of the audit committee.
 
 *Accounting
and Financial Reporting Matters*
 
 Suspected
misconduct concerning accounting and financial reporting must be reported to the
chairperson of the audit committee. Accounting and financial reporting
misconduct includes, without limitation, the following:
 
 fraud
      or deliberate error in the preparation, evaluation, review or audit of any
      or our financial statements;fraud
      or deliberate error in recording and maintaining our financial
      records;deficiencies
      in or noncompliance with our internal accounting controls;misrepresentations
      or false statements to or by a senior officer with respect to a matter
      contained in our financial records, financial reports or audit reports,
      ordeviation
      from full and fair reporting of our financial condition.
 
 Reports
to the secretary of the audit committee may be made to:
 
 Milt
Carlson
 2620
Mission Trail Way
 Kalispell,
MT 59901
 
 **Conclusion**
 
 In the
final analysis, you are the guardian of Tri-Valley’s ethics. While there are no
universal rules, when in doubt ask yourself:
 
 Will
      my actions be ethical in every respect and fully comply with the law and
      with Tri-Valley policies?Will
      my actions have the appearance of impropriety?Will
      my actions be questioned by my supervisors, associates, clients, family
      and the general public?Am
      I trying to fool anyone, including myself, as to the propriety of my
      actions?
 
 If you
are uncomfortable with your answer to any of the above, you should not take the
contemplated actions without first discussing them with management.
 
 Any
employee who ignores or violates any of Tri-Valley’s ethical standards, and any
manager who penalizes a subordinate for trying to follow these ethical
standards, will be subject to corrective action, including immediate dismissal.
However, it is not the threat of discipline that should govern your actions. We
hope you share our belief that a dedicated commitment to ethical behavior is the
right thing to do and is good business.