U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB


(Mark One)
[ X ]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

        For the fiscal year ended December 31, 2002

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

         For the transition period from _____ to _______

                         Commission file number 0-25579

                                  PETROGEN CORP.
                      formerly known as Hadro Resources, Inc.
                      ---------------------------------------
        (Exact name of small business issuer as specified in its charter)

         NEVADA                                                 87-0571853
         ------                                                 ----------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation of organization)                              Identification No.)

                       3200 Southwest Freeway, Suite 3300
                              Houston, Texas 77027
                    -----------------------------------------
                    (Address of Principal Executive Offices)

                                  360.332.3823
                                 --------------
                           (Issuer's telephone number)

                              Hadro Resources, Inc.
                          435 Martin Street, Suite 2000
                            Blaine, Washington 98230
                   ------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


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

                             Yes    X      No
                                 -------      -------

     Check here if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this Form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]


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     State the issuer's revenues for its more recent fiscal year (ending
December 31, 2002): $-0-.

     State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of January 31, 2003: $2,207,974.40.

     State the number of shares outstanding of each of the issuer's classes of
common equity, as of the most practicable date:

Class                                    Outstanding as of March 22, 2003

Common Stock, $.001 par value            10,378,292*

*After taking into effect the reverse stock split of one-for-twenty shares of
common stock effective February 12, 2003.

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INDEX

ITEM 1. DESCRIPTION OF BUSINESS

ITEM 2. DESCRIPTION OF PROPERTY

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS

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

ITEM 7. FINANCIAL STATEMENTS

        AUDITOR'S REPORT

        CONSOLIDATED BALANCE SHEETS

        CONSOLIDATED STATEMENTS OF OPERATIONS

        CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

        CONSOLIDATED STATEMENTS OF CASH FLOWS

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

ITEM 10.EXECUTIVE COMPENSATION

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

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K

ITEM 14. CONTROLS AND PROCEDURES

SIGNATURES


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PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

     Petrogen Corp., formerly known as Hadro Resources, Inc., is a corporation
organized under the laws of the State of Nevada (the "Company"). The Company
currently trades on the OTC Bulletin Board under the symbol "PTGC" and on the
Frankfurt Stock Exchange (FWB) in Germany under the symbol "HD1A".

     The Company was incorporated under the laws of the State of Nevada on
December 3, 1997 under the name "Hadrosaurus Resources, Inc.". On January 20,
1998, the Company filed an amendment to its articles of incorporation changing
its name to "Hadro Resources, Inc." On February 12, 2003, subsequent to the
acquisition of Petrogen, Inc., the Company filed an amendment to its articles of
incorporation changing its name to "Petrogen Corp."

     As of the date of this Annual Report, the Company is an independent oil and
gas development and production company specializing in the development of
domestic energy including, but not limited to, the acquisition, exploration and
development of oil and natural gas properties.

CURRENT BUSINESS OPERATIONS

     Petrogen Corp.

     The Agreement. As of the date of this Annual Report, the Company has
consummated and finalized the acquisition of Petrogen Inc., a Colorado
corporation ("Petrogen"). On October 11, 2002 and effective February 12, 2003,
Hadro Resources, Inc. (now known as Petrogen Corp.), Petrogen, and the
shareholders of Petrogen (the "Petrogen Shareholders") entered into a share
exchange agreement (the "Agreement").

     Pursuant to the terms of the Agreement, the Company has acquired from the
Petrogen Shareholders one hundred percent (100%) of the issued and outstanding
shares of common stock of Petrogen. The terms of the Agreement require the
Company to: (i) issue 7,000,000 post-Reverse Stock Split shares of its
restricted Common Stock to the Petrogen Shareholders in proportion to their
respective holdings in Petrogen; (ii) grant up to 2,000,000 post-Reverse Stock
Split stock options to replace all stock options then outstanding in Petrogen;
(iii) grant up to 167,189 post-Reverse Stock Split common stock purchase
warrants to replace all common stock purchase warrants then outstanding in
Petrogen; (iv) issue 300,000 post-Reverse Stock Split shares of its restricted
Common Stock as a finder's fee; and (v) dispose of the Company's wholly-owned
subsidiary, Oakhills Energy Inc.

     As of the date of this Annual Report, the Company has issued an aggregate
of 7,300,000 shares of its restricted Common Stock. Certain common stock
purchase warrants (the "Warrant(s)") aggregating 167,189 have been granted in
accordance with the terms and provisions of warrant agreements pursuant to which
the holder thereof has the right to convert such Warrant into shares of
restricted common stock on a one-to-one basis as follows: (i) 23,715 Warrants
exercisable at the rate of $1.20 per share expiring December 18, 2003; (ii)
23,715 Warrants excercisable at the rate of $1.20 per share expiring December
20, 2003; (iii) 14,822 Warrants exercisable at the rate of $0.40 per share
expiring October 29, 2004; (iv) 11,857 Warrants exercisable at the rate of $0.50
per share until June 22, 2003 and thereafter at the rate of $0.80 per share
expiring on June 22, 2004; (v) 18,972 Warrants exercisable at the rate of $0.50
per share until August 9, 2003 and thereafter at the rate of $0.80 per share
expiring August 9, 2004; (vi) 59,286 Warrants exercisable at the rate of $0.40

<PAGE>

per share expiring November 13, 2004; and (vii) 14,822 Warrants exercisable at
the rate of $0.40 per share expiring November 14, 2004. As of the date of this
Annual Report, 167,189 Warrants have been granted and are outstanding. As
granted, the 167,189 Warrants may be converted into 167,189 shares of common
stock. See "Part III. Item 11. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters."

     In accordance with the terms of the Agreement: (i) Petrogen is a
wholly-owned subsidiary of the Company and the Company's business operations
will be as an energy company specializing in the development of domestic energy
including, but not limited to, oil and gas exploration and development; (ii) the
Company has changed its name to "Petrogen Corp." and its trading symbol; (iii)
the Company has sold substantially all of its remaining assets consequent upon
the consummation of the Agreement and disposed of its wholly-owned subsidiary,
Oakhills Energy, Inc.; and (iv) the Company adopted and implemented a stock
option plan for key personnel of the Company, which was approved by the
shareholders of the Company. See "Part I. Item 4. Submission of Matters to a
Vote of Security Holders."

     Pooling Agreement. The Company and Petrogen desired to provide for and
maintain an orderly trading market and stable price for the Company's shares of
Common Stock. Therefore, the Company and the Petrogen Shareholders, representing
up to an aggregate of 7,000,000 shares of Common Stock (collectively, the
"Pooled Shares"), entered into a voluntary pooling agreement dated February 12,
2003 (the "Pooling Agreement"). Pursuant to the terms and provisions of the
Pooling Agreement, the Pooled Shares may not be traded and will become available
for trading and released and sold in the following manner: (i) an initial ten
percent (10%) of the Pooled Shares will be released to the pooled shareholders
on the date which is one calendar year from the closing date of the Agreement
(the "First Release Date"); and (ii) a further ten percent (10%) will be
released to the pooled shareholders on each of the dates which are every three
(3) calendar months from the First Release Date in accordance with each pooled
shareholder's respective shareholdings.

     Secured and Convertible Loan Agreement. As a condition to entering into and
in accordance with the Agreement, the Company agreed to advance to Petrogen the
aggregate principal sum of not less than $250,000 within five (5) business days
of raising a minimum of $250,000. As of the date of this Annual Report, the
Company has advanced an aggregate sum of $200,000 to Petrogen.

     In accordance with the loan made to Petrogen, the principal sum loan amount
bears interest accruing at the rate of ten percent (10%) per annum, and is
secured pursuant to a senior fixed and floating charge on all of the assets of
Petrogen (the "Loan Agreement").

     Pursuant to the terms and provisions of the Loan Agreement, the aggregate
principal loan sum amount will be repaid to the Company on or before the day
which is ninety (90) calendar days from the earlier of one (1) year from the
execution date of the Loan Agreement or the date upon which the Company's
purchase of all of the issued and outstanding shares of Petrogen under the terms
of the Agreement terminates for any reason whatsoever (the "Final Payment
Date"). It is further agreed that Petrogen will have the right to prepay and
redeem any portion of the aggregate principal loan sum amount and accrued
interest due and owing the Company in whole or in part prior to the Final
Payment Date by providing the Company with no less than thirty (30) calendar
day's prior written notice (the "Right of Redemption"). As a result of
consummation of the Agreement, the loan will become an intercompany account
between parent and subsidiary.

<PAGE>

     Purchase and Sale Agreement. Pursuant to the terms of the Agreement, the
Company agreed to authorize the sale of substantially all of the assets of the
Company. On February 12, 2003, the Company, Oakhills Energy Inc., the Company's
wholly-owned subsidiary ("Oakhills"), and Newport Capital Corporation, a Belize
corporation carrying on business in London, England ("Newport") entered into a
purchase and sale agreement (the "Purchase and Sale Agreement"). Pursuant to the
terms and provisions of the Purchase and Sale Agreement: (i) the Company agreed
to sell and transfer to Newport all of the capital stock of Oakhills held by the
Company; (ii) the Company agreed to convey to Newport the Company's current
interest in four wells owned by Oakhills, subject to certain assignments
currently in place with the Bank N.A. of Oklahoma; and (iii) Newport
acknowledges the existence of certain liabilities of Oakhills in the approximate
amount of $437,752.00.

     The Board of Directors of the Company agreed to enter into the Purchase and
Sale Agreement principally because of its analysis of the existing corporate
structure of the Company and its subsidiary. The Board of Directors reviewed the
terms of the Purchase and Sale Agreement, as well as the future direction of the
Company, including the acquisition of Petrogen. Management of the Company
determined that the Company's financial condition was declining as a result of
the operational activities of its wholly-owned subsidiary, Oakhills, and the
resulting inability of the Company to achieve net positive cash flow from
Oakhill's operations or borrow or raise funds for subsidiary operations that
would be required for its working capital and capital expenditures for the
remainder of 2003. Management further determined that the sale of Oakhills would
allow the Company to streamline existing operations and better provide for the
acquisition and operation of Petrogen.

     During fiscal year 2001, Oakhills arranged for a term loan in the amount of
$450,000 and an operating line of credit to a maximum amount of $50,000 with The
Bank N.A. in Oklahoma. The proceeds of the term loan were used to repay certain
outstanding debts to creditor, including $219,838 owed to a private company
controlled by a previous director and officer of Oakhills for production
services and equipment rentals, and to retire all previous outstanding bank
loans. As of December 31, 2002, the term loan was in default as Oakhills was in
two months arrears in principal payments of $25,000 and interest of $6,265. Upon
the sale of Oakhills, the loan was brought up to date by Newport and the Company
is currently negotiating a release from its guarantee. Pursuant to the terms of
the Purchase and Sale Agreement, however, Newport has agreed to indemnify the
Company against any losses arising from the Company's loan guarantee.

     Consulting Services Agreement. Pursuant to the terms and provisions of the
Agreement, the Company and Investor Communications International, Inc., a
Washington corporation ("ICI") entered into a consulting services agreement
dated February 12, 2003 (the "Consulting Services Agreement"). Pursuant to the
provisions of the Consulting Services Agreement: (i) ICI will provide to the
Company such finance and general managerial services as may be determined by the
Board of Directors, from time to time, and in its sole and absolute discretion,
in order to develop the various business interests of the Company in the energy
industry, including the oil and gas interest; and (ii) the Company will pay to
ICI a fee commensurate with the services provided by ICI on a monthly basis, but
not to exceed $10,000.00 monthly. Mr. Grant Atkins, a director of the Company,
is employed by ICI and part of the management team provided by ICI to the
Company, and may derive remuneration from ICI for such services rendered to the
Company. See "Part II. Item 6. Management's Discussion and Analysis or Plan of
Operation," "Part III. Item 10. Executive Compensation" and "Item 12. Certain
Relationships and Related Transactions."

     Petrogen, Inc.

     Petrogen, Inc. ("Petrogen") is an energy company specializing in the
development of domestic energy. Petrogen has operations based in Houston, Texas,
and has been committed to developing into a leading independent oil and gas
competitor through systematically expanding operations, increasing yearly
revenues and booking new reserves without risking the stability of operations or
shareholder value.

     Pursuant to the terms and provisions of the Agreement, the Company's
resulting business will be comprised of a one hundred percent (100%) registered
and beneficial working interest in and to all of Petrogen's business assets.
Petrogen's affiliate, Petrogen International Ltd. ("Petrogen Ltd.") shall retain
at all times, as the exclusive operator in and to all of the Petrogen's and the
Company's assets, a ten percent (10%) carried interest in and to such business

<PAGE>

assets together with the right, as operator in respect of such business assets,
to charge an administrative fee of ten percent (10%) of project costs for all
development expenditures incurred in connection therewith. Development
expenditures are defined as those costs which are incurred in the normal course
of business in the oil and gas industry, which would include, but are not
limited to, the costs incurred in the processes of exploring upon and/or
developing oil and gas leases, operations and administrative expenses, work over
expenses, recompletion and completion expenses, specialists and consultants
fees, environmental protection costs, clean-up costs, etc.

     During the past year, management of the Company believes that Petrogen has
assembled a group of highly qualified professionals from the oil and gas
industry who possess major international energy company and independent operator
expertise. This team of professionals has an acute understanding in assessing
highly viable prospect opportunities and the ability to negotiate favorable
project agreements that present high possible upside potential to the Company.
Management of the Company believes that Petrogen has acquired, to date, net
reserves of 23.5 billion cubic feet gas (BCFG) and 935,000 barrels of oil (BO)
of proven developed non-producing (PDNP) and proven undeveloped (PUD) reserves.
Additional probable reserves are estimated to be 28.9 BCFG and 985,000 BO.

     It is anticipated that the Company's and Petrogen's immediate efforts will
be focused on placing the numerous shut-in gas wells located on its properties
in the states of Texas, Mississippi and Wyoming back into production, and to
immediately implement additional development operations on these same properties
with the commencement of drilling new wells into proven undeveloped reserves.

     The Company and Petrogen are also currently working in collaboration with
Petrogen Ltd. to complete the acquisition of several additional oil and gas
prospects that fall within the same criteria of providing immediate proven
developed revenue stream potential and undeveloped reserve upside. The Company
and Petrogen plan to commence a major development initiative upon its Texas Gulf
Coast property, Hawes Field, in the spring of 2003, under which planned drilling
of several new wells to place back into production a gross natural gas reserve
of 12.2 BCFG.

     The Company and Petrogen plan to continue building and increasing a
strategic base of proven reserves and production opportunities that represent
outstanding growth opportunity for the Company and its shareholders over the
immediate, near and long term. See "Part I. Item 2. Description of Property."

PRIOR BUSINESS OPERATIONS

     U. S. Oil & Gas Resources, Inc.

     Purchase Agreement. On May 31, 2001, the Company, U.S. Oil & Gas Resources,
Inc., a corporation organized under the laws of British Columbia, Canada (U.S.
Oil & Gas"), and Oakhills Energy, Inc., Thor Energy, Inc. and O.J. Oil & Gas,
Inc., corporations organized under the laws of the State of Oklahoma and the
wholly-owned subsidiaries of U.S. Oil & Gas (the "Subsidiaries"), entered into a
share purchase and sale agreement (the "Purchase Agreement"). On August 29,
2001, the Purchase Agreement was consummated resulting in the acquisition of the
Subsidiaries by the Company from U.S. Oil & Gas. In accordance with the terms of
the Purchase Agreement, the Company (i) issued to U.S. Oil & Gas 10,000,000
shares of its restricted common stock as consideration for the acquisition of
the Subsidiaries; (ii) assumed a loan on behalf of U.S. Oil & Gas of
approximately $78,203; and (iii) issued an additional 500,000 shares of its
restricted common stock as a finder's fee.

     Subsequently, management of the Company engaged in an analysis of the
existing corporate structure of the Subsidiaries and operations planning.
Management believed that the corporate consolidation of the Subsidiaries into

<PAGE>

one operating entity would streamline existing operations, provide for the
restructure of existing debt of U.S. Oil & Gas, and establish operating lines of
credit. Effective December 31, 2001, a Certificate of Merger was issued by the
Nevada Secretary of State pursuant to which two of the subsidiaries, Thor Energy
Inc. and O.J. Oil & Gas Inc. were merged into the third and surviving
subsidiary, Oakhills Energy Inc. As a result, the Subsidiaries operated as one
entity, and the Company had one wholly-owned subsidiary, Oakhills Energy Inc.
("Oakhills").

     Share Redemption Agreement. After detailed review of all leases, wells and
assets, the Company engaged in negotiations with U.S. Oil & Gas regarding the
sale by the Company to U.S. Oil & Gas of twenty-eight oil and gas properties in
combination with the redemption of 8,000,000 shares of the 10,000,000 shares of
restricted common stock previously issued by the Company to U.S. Oil & Gas
pursuant to the terms of the Purchase Agreement.

     On January 1, 2002, effective March 22, 2002, the Company and U.S. Oil &
Gas entered into a share redemption and asset sale agreement (the "Share
Redemption Agreement"). The Share Redemption Agreement was consummated in
conjunction with the Company's initiative to divest itself of properties deemed
by the Company's management to represent higher risk to obtain desired
production for the anticipated well capital costs required. In accordance with
the terms of the Share Redemption Agreement, (i) the Company sold to U.S. Oil &
Gas certain oil and gas properties previously acquired pursuant to the terms of
the Purchase Agreement that did not form part of the Company's overall
development strategy; (ii) the Company continued to own 100% of Oakhills that
provided necessary oil and gas management and operating infrastructure for
further acquisitions and projects; (iii) the Company owned a 100% interest in
the Comanche, Nelda Cassel, Lone Wolf, Jolly and Ingle oil and gas properties
held by Oakhills Energy, Inc. that provided the majority of existing revenues to
Oakhills Energy, Inc.; (iv) U.S. Oil & Gas returned to the Company 8,000,000
shares of the 10,000,000 shares of restricted common stock previously issued to
U.S. Oil & Gas pursuant to the terms of the Purchase Agreement; (v) the 400,000
shares of restricted common stock issued as a finders' fee pursuant to the
Purchase Agreement were returned to the Company; (vi) U.S. Oil & Gas granted to
the Company an option to acquire from U.S. Oil & Gas 1,500,000 of the remaining
2,000,000 shares of restricted common stock (1,000,000 shares at a price of
$0.75 per share exercisable in whole or in part until December 31, 2002 and
500,000 shares at a price of $1.25 per share exercisable in whole or in part
until June 30, 2004 (the "Option Term(s)"); (vii) U. S. Oil & Gas agreed that
upon expiration of either Option Term any unexercised shares would be subject to
a monthly trading maximum equal to the lesser of 50,000 shares or $200,000 of
proceeds; and (viii) U.S. Oil & Gas agreed that the balance of 500,000 shares of
the remaining 2,000,000 shares would be used by U.S. Oil & Gas to acquire
interests in future oil and gas properties acquired by the Company.

     By agreement dated March 22, 2002, the Company reacquired 8,000,000 of its
shares of Common Stock from U.S. Oil & Gas in exchange for transfer back to U.S.
Oil & Gas of certain of its non-producing oil and gas properties owned by
Oakhills. The Company also reacquired 400,000 shares of Common Stock previously
issued as a finder's fee in connection with the original acquisition. The
8,400,000 shares were returned to treasury and cancelled on March 25, 2002.

     Subsequent negotiations have resulted in the termination of the above-noted
option purchase arrangements. The 2,000,000 pre-Reverse Stock Split shares of
Common Stock owned by U.S. Oil & Gas are subject to a lock-up and leakage
agreement dated October 16, 2002 whereunder the 2,000,000 pre-Reverse Stock
Split shares may not be sold at more than 166,667 pre-Reverse Stock Split shares
in any month, non-cumulative, beginning January 1, 2003. Subsequent agreement
between the Company and U. S. Oil & Gas have resulted in the minor modification
to the terms above that not more than 10,000 post-Reverse Stock Split shares may
be sold in any month, non-cumulative.

     As of the date of this Annual Report, the Company's wholly-owned
subsidiary, Oakhills, has been sold.

<PAGE>

     Rubicon Oil & Gas, Inc.

     On March 15, 2002, the Company and Rubicon Oil & Gas, Inc. ("Rubicon")
entered into a letter of intent (the "Letter of Intent"), pursuant to which the
Company would purchase certain interests in certain oil and gas leases held by
Rubicon, which are located in six separate prospects in the Uinta Basin of Utah
and the Douglas Creek Arch area in Colorado (the "Prospects"). In accordance
with the terms of the Letter of Intent, the Company would (i) acquire
approximately 75% of Rubicon's working interests in certain oil and gas leases
(which range from 21% to 100% in gross acreage in excess of 16,000 acres and net
acreage in excess of 7,000 acres); (ii) issue 500,000 shares of its restricted
common stock to Rubicon, plus $500,000 in cash; and (iii) invest $2,000,000 in
property development expenditures before December 31, 2002, carrying Rubicon for
its minority interest until the completion of the first $2,000,000 in property
development expenditures.

     As of the date of this Annual Report, the Company has completed its due
diligence. Management of the Company determined that such due diligence
conducted indicated higher than anticipated project costs, which caused
disagreement among the parties regarding the original terms for the sale. As a
result, the Company terminated its negotiations with Rubicon.

     Leasehold Interests

     During June 1999, the Company entered into an assignment agreement with
Ibis Petroleum, Inc. ("Ibis") whereby Ibis sold, assigned, transferred and
conveyed all of its right, title and interest in and to a total of thirty-five
(35) oil and gas leases located in the Hadrosaurus Area of Union County, New
Mexico to the Company (the "Leasehold Interests").

     As of the date of this Annual Report, management of the Company has not
renewed the Leasehold Interests nor has it carried out any exploration
activities on the Leasehold Interests. The Company has conducted ongoing due
diligence regarding the Leasehold Interests, and has determined that exploration
initiatives represent higher degrees of risk than the Company's management
currently wishes to participate. As a result, management is concentrating on
obtaining producing assets and exploration initiatives that are deemed by
management as lower in risk. As of December 31, 2001, the Company decided not to
renew any of the leases, and all remaining leases terminated during 2002.

ITEM 2. DESCRIPTION OF PROPERTIES

OIL AND GAS PROPERTIES

     The Company is an independent oil and gas development and production
company specializing in the development of domestic energy including, but not
limited to, the acquisition, exploration and development of oil and natural gas
properties. As of the date of this Annual Report, the Company has not reported
reserves to any agencies nor engaged in any drilling activities, and has just
recently commenced limited production from one of its properties. The Company
does not maintain any undeveloped acreage. The following is a description of the
Company's and Petrogen's oil and gas operations.

     Emily Hawes Field Project

     Productive Wells and Acreage. The Company holds a 95% working interest and
a 77.5% net revenue interest in approximately 1,571 acres of oil and gas leases
located in Matagorda Island, Calhoun County, Texas (the "Emily Hawes Field").
The Emily Hawes Field is located on a simple anticlinal closure on a
down-to-the-coast normal fault within the oil and gas producing Miocene-Frio

<PAGE>

Trend. The Miocene-Frio Trend consists of hundreds of individual oil and gas
fields that produce from multiple sands of Miocene and/or Frio age located in a
fairway that parallels the present day Texas Gulf Coast. At the Miocene level,
approximately 800 feet of structural closure is encompassed within the leased
area. At Emily Hawes Field, gas production has been established in multiple
Miocene sands between 6,190 feet and 6,450 feet. Additional Miocene sands remain
to be definitely tested, but log and sidewall core analyses strongly suggest
that these sands will also be productive.

     As of the date of this Annual Report, the Emily Hawes Field has been
developed by the drilling of three gas wells. Although exhibiting excellent
reservoir and production characteristics, a gravel pack completion was not
employed and, therefore, sand production forced the premature abandonment of
these wells. The same anticlinal structure responsible for the Miocene gas
production at the Emily Hawes Field is also recognized at the Frio level.

     Management of the Company believes that of the 14 BCFG reserves proven by
these three wells, only 1.8 BCFG has been produced, leaving a balance of
approximately 12.2 billion cubic feet of proven gas reserves to be produced. See
"J.W. Rhea Interests, Inc. 'Estimation of Reserves' dated November 15, 2002",
attached hereto as Exhibit 99.2. To realize these existing proven reserves, the
Company plans to drill offset wells, utilizing proper completion techniques to
control sand production. Management intends to utilize data derived from the new
wells to subsequently drill step-out locations to efficiently and economically
drain the reservoir. Management believes that nine wells will be needed to
completely develop the Miocene reservoir. Future drilling will also include a
well to test the oil and gas potential of multiple sands in the Frio. Management
anticipates that a test well in the Frio will potentially prove 60 BCFG of
recoverable reserves. See "J.W. Rhea Interests, Inc. 'Estimation of Reserves'
dated November 15, 2002" attached as Exhibit 99.2.

     Present Activities. As of the date of this Annual Report, the Company is
not engaged in any drilling activity on the Emily Hawes Field. The Company has
recently applied to the Texas State Railroad Commission to receive permitting to
commence drilling operations during the late spring/early summer months of
fiscal year 2003. Management of the Company believes that such drilling
operations will result in the spudding of at least one gas wellbore test.

     Baxterville Field

     Productive Wells and Acreage. Pursuant to an agreement between Petrogen and
US Gas Systems Corp. (the "Baxterville Agreement"), the Company holds a 75%
working interest and a 75% net revenue interest in all oil production and a 50%
working interest and a 75% net revenue interest on all gas development in
approximately 640 acres of oil and gas leases located in LaMar County and Marion
County, Mississippi (the "Baxterville Field"). The Baxterville Field is located
within the Interior Salt Basin of Mississippi. Within this basin, deformation of
deeply buried salt has created numerous faulted anticlines. When overlain by
porous and permeable sands, these structures create excellent traps for oil and
natural gas. The Baxterville Field consists of a faulted anticline overlying a
deep-seated salt structure. This well defined geologic structure has a proven
aerial extent in excess of 13,000 acres. More than 300 wells in this area have
produced approximately 262 MMBO and 450 BCFG. Management of the Company believes
that the Baxterville Field is an excellent example of this type of oil and gas
productive structure.

     As of the date of this Annual Report, there are four existing shut-in
well-bores located on the Baxterville Field. To date, management believes that
these four well-bores have produced a total of 489,000 BO and 11 BCFG.
Management believes that combined, the four well-bores represent a total of
eight re-completion opportunities with an estimated 403,000 BO and 11.25 BCFG of
proven developed non-producing reserves and 1.5 MMBO of proven undeveloped
reserves.

<PAGE>

     Additionally, the Company recently acquired a 100% working interest and a
77% net revenue interest in the S.J. Hooper #1 well-bore, which lies adjacent to
the Baxterville Field (the "Hooper Lease"). Management of the Company believes
that the Hooper Lease is a valuable addition to the Company's ongoing
Baxterville Field acquisition strategy. The Hooper Lease has one shut-in
well-bore and although falls below the Company's criteria for acquisition,
geophysical log analysis of the well-bore indicates that there is a high
probability of significant productive gas zones. Coupled with the Baxterville
Field, the Hooper Lease meets Mississippi's minimum acreage spacing requirements
for a gas wellbore completion and is, therefore, a key component in the
Company's development of potential gas reserves in its Baxterville Field
interests. Management anticipates that the estimated reserves of 54,750 BO will
be exploited through the initial recompletion and secondary work and will,
thereafter, perforate the gas zones to attempt a gas completion. The Company is
also considering the potential to "twin" the well bore (hydrocarbons produced
from two zones at the same time) once clarification pursuant to spacing
requirements is received from the Mississippi State Oil and Gas Board.

     Present Activities. Management of the Company believes that the Baxterville
Field represents an outstanding opportunity to develop low-risk low-cost oil and
gas reserves and, as of the date of this Annual Report, plans a twofold
development strategy to realize these reserves. Pursuant to the terms and
provisions of the Baxterville Agreement, the Company will re-enter and
re-complete the four existing shut-in well-bores (which combined have produced a
total of 489,000 BO with a remaining 10 BCFG proven reserves in the existing
recompletion well) and produce the remaining reserves from the existing
well-bores. The Baxterville Agreement provides that the Company will further
develop the property after commencing recompletion operations by meeting certain
operational milestones within a set period of time. Management of the Company
believes that this will enable the Company to engage upon full development of
the entire acreage block through seven oil and two gas infill drilling locations
to exploit the estimated 1.5 MMBO of proven undeveloped reserves. Management
believes that some of these locations will be opened up as bookable proven
undeveloped reserves upon the successful recompletion of each of the existing
shut-in well-bores, as well as additional gas proven undeveloped reserve
locations being opened up upon completion of successful infill drilling
operations. See "J.W. Rhea Interests, Inc. 'Estimation of Reserves' for Brown
Government leases dated January 15, 2003" attached hereto as Exhibit 99.3.

     Recompletion operations on the Hooper Lease were commenced on January 12,
2003 and successfully completed on January 17, 2003. Management of the Company
anticipates that an additional work-over will soon be undertaken on the Hooper
Lease to increase well-bore productivity, after which time sufficient production
data will have been gathered for interpretation by the Company providing insight
as to which specific work-over treatments will result in the most increase in
daily production from the well-bore. As of the date of this Annual Report, the
Company has shipped its first load of crude oil for sale to a distribution
outlet in Mississippi, however, it has not yet received payment for that oil
shipment or confirmation as to the price per barrel to be paid.

     Brown Government Lease

     Productive Wells and Acreage. As of the date of this Annual Report, the
Company holds a 100% working interest of a 77% net revenue interest, which will
subsequently convert to a 50% working interest of an 82.5% net revenue interest,
in all existing and future wells located in the Enos Creek field in Hot Springs
County, Wyoming (known as the "Brown Government Lease"). The Brown Government
Lease consists of 440 acres of oil and gas leases within the Enos Creek field.
The Company also currently is under the terms of an agreement with the vendor of
the Brown Government Lease, Coronado Oil Company, that delineates an additional
440 acres within an area of mutual interest (the "AMI"). The AMI also comprises
part of the Brown Government Lease, in which the Company shall hold, upon
completion of acquisition, a 100% working interest of an 80% net revenue

<PAGE>

interest, which will subsequently convert to a 75% working interest of an 82.5%
net revenue interest, in existing and future wells located in the Brown
Government Lease. The Brown Government Lease is located on the western flank of
the Bighorn Basin and exhibits 1,000 feet of closure and encompasses
approximately 800 proven acres. This asymmetric basin has produced in excess of
2,000,000 barrels of oil and more than 1 trillion cubic feet of natural gas.
Compressional forces related to the building of the Rocky Mountains created
numerous structural folds (anticlines), which subsequently filled with oil
and/or gas. Within a 15-mile radius of the Brown Government Lease, twenty such
anticlines are located which are oil and gas productive.

     As of the date of this Annual Report, the Brown Government Lease consists
of twelve wells drilled and completed, of which six have been oil productive,
three gas productive, one dually completed as both oil and gas productive, and
two as dry holes.

     Present Activities. Management of the Company anticipates that the first
phase of re-developing the Brown Government Lease will be focused exclusively
upon remaining recoverable reserves within multiple gas charged sands. Gas
production will be re-established by re-working and returning to production the
three existing shut-in gas wells. These wells will be evaluated relative to
completion zones, completion method and production parameters. If current
completed intervals are deemed depleted, management intends to then perforate
and complete new zones. Management anticipates that the second phase will
include the acquisition of additional leases within the AMI and the drilling of
two additional wells. These wells will also target remaining recoverable
reserves. Management anticipates that the third phase will include evaluation of
potential reserves by utilizing existing well-bores to test the productive
potential of these zones with the drilling of additional well-bores if needed.
Management of the Company believes that the three existing shut-in well-bores
provides for an additional 2.6 BCFG of proven undeveloped reserves, totaling
estimated gross reserves in the Brown Government Lease, including the AMI of
approximately 11.8 BCFG.

OFFICE LOCATION

     Except as described above, the Company does not own any other real estate
or other properties. The Company leases office space and its offices are located
at 3200 Southeast Freeway, Suite 3300, Houston, Texas 77027.

ITEM 3. LEGAL PROCEEDINGS

     Management is not aware of any legal proceedings contemplated by any
governmental authority or any other party involving the Company or its
properties. No director, officer or affiliate of the Company is (i) a party
adverse to the Company in any legal proceedings, or (ii) has an adverse interest
to the Company in any legal proceedings. Management is not aware of any other
legal proceedings pending or that have been threatened against the Company or
its properties.

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

     Based upon review of a wide variety of factors considered in connection
with its evaluation of the Agreement and the sale of substantially all of the
Company's assets, which included the sale of its wholly-owned subsidiary,
Oakhills Energy, Inc., the Board of Directors of the Company believed that
consummation of the Agreement and the sale of substantially all of the Company's
assets would be fair to and in the best interests of the Company and its
shareholders. The Board of Directors, therefore, authorized and directed the
submission of an Information Statement pursuant to Section 14(c) of the
Securities Exchange Act of 1934, as amended (the "Information Statement").

<PAGE>

     The Information Statement was filed with the Securities and Exchange
Commission on October 17, 2002 and amended December 16, 2002. The Information
Statement was circulated to the shareholders of the Company in connection with
the taking of corporate action without a meeting upon the written consent of ten
(10) or less shareholders holding of record a majority of the outstanding shares
of the Company's Common Stock (the "Written Consent"). As of November 30, 2002
(the "Record Date"), there were 22,431,693 shares of the Company's Common Stock
issued and outstanding. The names of the shareholders who signed the Written
Consent and their respective equity ownership of the Company are as follows: (i)
TriStar Financial Services, Inc. ("TriStar") holding of record 6,015,211 shares
of Common Stock (26.82%); (ii) Investor Communications International, Inc.
("ICI") holding of record 5,787,517 shares of Common Stock (25.80%); and (iii)
Alexander W. Cox holding of record 2,177,300 shares of Common Stock (971%).

     The matters upon which action was taken effective February 12, 2003
pursuant to the Written Consent include the: (i) approval of the Agreement, the
related conversion of any proposed loans to equity interest by the Company in
Petrogen, and the resulting change in control of the Company upon the completion
and consummation of the Agreement; (ii) approval of an amendment to the Articles
of Incorporation to effectuate a name change of the Company to "Petrogen Corp."
upon the completion and consummation of the Agreement; (iii) approval of the
sale of substantially all of the remaining assets of the Company consequent upon
the completion and consummation of the Agreement (the proposed "Sale and
Purchase"); (iv) authorization for the Board of Directors to effect a reverse
stock split of one-for-twenty (the "Reverse Stock Split") of the Company's
outstanding common stock, depending upon a determination by the Board of
Directors that a Reverse Stock Split is in the best interests of the Company and
its shareholders; (v) approval of a stock option plan for key personnel of the
Company (the "Stock Option Plan"); and (vi) ratification of the selection of
LaBonte & Co. as the Company's independent public accountants for the fiscal
year ending December 31, 2002.


PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     Petrogen Corp.'s Common Stock is traded on the OTC Bulletin Board under the
symbol "PTGC" and on the Frankfurt Stock Exchange (FWB) in Germany under the
symbol "HD1A". The market for the Company's Common Stock is limited, volatile
and sporadic. The following table sets forth the high and low sales prices
relating to the Company's Common Stock for the last two fiscal years. These
quotations reflect inter-dealer prices without retail mark-up, mark-down, or
commissions, and may not reflect actual transactions.

                                         FISCAL YEARS ENDED
                          --------------------------------------------------
                            DECEMBER 31, 2002          DECEMBER 31, 2001
                          --------------------------------------------------
                           HIGH BID    LOW BID        HIGH BID    LOW BID
                          --------------------------------------------------

First Quarter              $2.09       $1.08           $2.50      $0.156
Second Quarter             $2.00       $0.13           $0.90      $0.13
Third Quarter              $0.35       $0.12           $0.71      $0.25
Fourth Quarter             $0.42       $0.06           $1.85      $0.35

<PAGE>

HOLDERS

     As of January 31, 2003, the Company had approximately 113 shareholders of
record.

DIVIDENDS

     No dividends have ever been declared by the Board of Directors of the
Company on its Common Stock. The Company's previous losses do not currently
indicate the ability to pay any cash dividends, and the Company does not
indicate the intention of paying cash dividends on its Common Stock in the
foreseeable future.

REVERSE STOCK SPLIT

     In conjunction with consummation of the Agreement, the Board of Directors
of the Company and the shareholders pursuant to the Written Consent, authorized
and approved a reverse stock split of one-for-twenty of the Company's issued and
outstanding shares of Common Stock (the "Reverse Stock Split"). The Reverse
Stock Split was effectuated by the Board based on market conditions. The intent
of the Reverse Stock Split is to increase the marketability and liquidity of the
Company's Common Stock.

     The Reverse Stock Split was effected upon a determination by the Board of
Directors that the Reverse Stock Split is in the best interests of the Company
and the shareholders. In the Board's judgment the Reverse Stock Split would
result in the greatest marketability and liquidity of the Common Stock, based
upon prevailing market conditions, the likely effect on the market price of the
Common Stock and other relevant factors.

     The Reverse Stock Split was effectuated on February 12, 2003 (the
"Effective Date") upon filing the appropriate documentation with NASDAQ. The
Reverse Stock Split reduced the Company's issued and outstanding shares of
Common Stock from 22,431,693 to 1,121,625 shares of Common Stock. The Common
Stock will continue to be $0.001 par value.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     Pursuant to the terms of the Agreement, the Company has granted 167,189
common stock purchase warrants (the "Warrant(s)"). In accordance with the terms
and provisions of certain warrant agreements, the holder thereof has the right
to convert such Warrant into shares of restricted Common Stock on a one-to-one
basis as follows: (i) 23,715 Warrants exercisable at the rate of $1.20 per share
expiring December 18, 2003; (ii) 23,715 Warrants exercisable at the rate of
$1.20 per share expiring December 20, 2003; (iii) 14,822 Warrants exercisable at
the rate of $0.40 per share expiring October 29, 2004; (iv) 11,857 Warrants
exercisable at the rate of $0.50 per share until June 22, 2003 and thereafter at
the rate of $0.80 per share expiring on June 22, 2004; (v) 18,972 Warrants
exercisable at the rate of $0.50 per share until August 9, 2003 and thereafter
at the rate of $0.80 per share expiring August 9, 2004; (vi) 59,286 Warrants
exercisable at the rate of $0.40 per share expiring November 13, 2004; and (vii)
14,822 Warrants exercisable at the rate of $0.40 per share expiring November 14,
2004. As of the date of this Annual Report, 167,189 Warrants have been granted
and are outstanding. As granted, the 167,189 Warrants may be converted into
167,189 shares of restricted Common Stock.

<PAGE>
<TABLE>
<CAPTION>

                                  Equity Compensation Plan Information
------------------------------------------------------------------------------------------------------
                        Number of Securities      Weighted-Average Exercise    Number of Securities
                          To be Issued Upon          Price of Outstanding     Remaining Available for
Plan Category          Exercise of Outstanding        Options, Warrants        Future Issuance Under
                          Options, Warrants               and Rights         Equity Compensation Plans
                             and Rights                                       (excluding column (a))
                                (a)                          (b)                        (c)
------------------------------------------------------------------------------------------------------
<S>                             <C>                          <C>                        <C>
Equity Compensation             n/a                          n/a                        n/a
Plans Approved by
Security Holders

Equity Compensation        23,714 shares                    $1.20                       -0-
Plans Not Approved by      23,714 shares                    $1.20                       -0-
Security Holders -         14,822 shares                    $0.40                       -0-
Warrants                   11,857 shares                    $0.50                       -0-
                           18,972 shares                    $0.50                       -0-
                           59,286 shares                    $0.40                       -0-
                           14,822 shares                    $0.40                       -0-

Total                     167,189 shares
------------------------------------------------------------------------------------------------------
</TABLE>

RECENT SALES OF UNREGISTERED SECURITIES AND CHANGES IN CONTROL OF THE COMPANY

     To provide capital, the Company has sold stock in private placement
offerings, issued stock in exchange for debts of the Company or pursuant to
contractual agreements as set forth below. Pursuant to the terms of the
Agreement, the Company issued 7,300,000 shares of Common Stock. The Company also
redeemed 8,400,000 shares from U.S. Oil & Gas. Therefore, there was a change in
control of the Company. See "Part III. Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters."

     (a) On September 23, 2002, the Board of Directors of the Company authorized
the execution of settlement agreements between the Company and certain creditors
of the Company, and the subsequent issuance of 6,077,720 shares of its
restricted Common Stock:

          (i) The Company has incurred a debt inclusive of accrued interest in
     the amount of $523,103 to Investor Communications International, Inc.
     ("ICI") for prior services rendered by ICI on behalf of the Company
     including, but not limited to, financial, administrative, investor
     relations and oil and gas management. Therefore, the Company and ICI
     entered into a settlement agreement dated September 23, 2002 (the "ICI
     Settlement Agreement"). Pursuant to the terms of the ICI Settlement
     Agreement, (i) the Company agreed to settle the $523,103 debt due and owing
     ICI by the issuance of 4,787,517 shares of its restricted Common Stock at
     the rate of $0.109 per share (which is the average of the open and close
     price of the Company's Common Stock trading on the OTC Bulletin Board on
     September 23, 2002); and (ii) ICI agreed to accept the issuance of the
     4,787,517 shares of restricted Common Stock as settlement and full
     satisfaction of the debt due and owing it as of the date of the ICI
     Settlement Agreement.

<PAGE>

          (ii) The Company has incurred a debt inclusive of accrued interest in
     the amount of $83,610 to Tri Star Financial Services, Inc. ("Tri Star")
     pursuant to prior advances made by Tri Star to the Company. Therefore, the
     Company and Tri Star entered into a settlement agreement dated September
     23, 2002 (the "Tri Star Settlement Agreement"). Pursuant to the terms of
     the Tri Star Settlement Agreement, (i) the Company agreed to settle the
     $83,610 debt due and owing Tri Star by the issuance of 765,211 shares of
     its restricted Common Stock at the rate of $0.109 per share (which is the
     average of the open and close price of the Company's Common Stock trading
     on the OTC Bulletin Board on September 23, 2002); and (ii) Tri Star agreed
     to accept the issuance of the 765,211 shares of restricted Common Stock as
     settlement and full satisfaction of the debt due and owing it as of the
     date of the Tri Star Settlement Agreement.

          (iii) The Company has incurred a debt inclusive of accrued interest in
     the amount of $57,363 to Brent Pierce, an individual ("Pierce") pursuant to
     prior advances made by Pierce to the Company. Therefore, the Company and
     Pierce entered into a settlement agreement dated September 23, 2002 (the
     "Pierce Settlement Agreement"). Pursuant to the terms of the Pierce
     Settlement Agreement, (i) the Company agreed to settle the $57,363 debt due
     and owing Pierce by the issuance of 524,992 shares of its restricted Common
     Stock at the rate of $0.109 per share (which is the average of the open and
     close price of the Company's Common Stock trading on the OTC Bulletin Board
     on September 23, 2002); and (ii) Pierce agreed to accept the issuance of
     the 524,992 shares of restricted Common Stock as settlement and full
     satisfaction of the debt due and owing him as of the date of the Pierce
     Settlement Agreement.

     (b) The Company had incurred debt in the principal amount of $10,000.00 to
Spartan Asset Group, Inc. ("Spartan") pursuant to prior advances made by Spartan
to the Company. Therefore, the Company issued a convertible promissory note to
Spartan in the aggregate principal amount of $10,000.00 dated September 23, 2002
(the "Spartan Convertible Note"). The terms of the Spartan Convertible Note
included an anti-dilution provision which provided Spartan with the right to
convert the outstanding debt into a total of 444,444 (post-Reverse Stock Split)
shares of restricted Common Stock. As of the date of this Annual Report, Spartan
has exercised its conversion right, and the Company has issued 444,444 shares of
its restricted Common Stock to Spartan.

     (c) The Company had incurred debt in the principal amount of $11,525.00 to
Newport Capital Corp. ("Newport") pursuant to prior advances made by Newport to
the Company. Therefore, the Company issued a convertible promissory note to
Newport in the aggregate principal amount of $11,525.00 dated September 23, 2002
(the "Newport Convertible Note"). The terms of the Newport Convertible Note
included an anti-dilution provision which provided Newport with the right to
convert the outstanding debt into a total of 512,222 (post-Reverse Stock Split)
shares of restricted Common Stock. As of the date of this Annual Report, Newport
has exercised its conversion right, and the Company has issued 512,222 shares of
its restricted Common Stock to Newport.

     (d) As of the date of this Annual Report, the Company is engaged in a
private placement offering under Rule 506 of Regulation D of the 1933 Securities
Act. Pursuant to the terms of the private placement, the Company is offering
shares of its restricted Common Stock at $1.00 per share (post-Reverse Stock
Split) or $0.05 per share (pre-Reverse Stock Split) to raise a minimum of
$250,000. The securities are being offered to U.S. residents who are either
accredited investors as that term is defined under Regulation D or sophisticated
investors and to non-U.S. residents. The per share price of the offering was
arbitrarily determined by the board of directors based upon analysis of certain
factors relating to the acquisition of Petrogen, Inc. including, but not limited
to, potential future earnings, assets and net worth of the Company. As of the
date of this Annual Report, the Company has not issued any shares of restricted
Common Stock pursuant to this offering.

<PAGE>

     (e) Pursuant to the terms of the Agreement, the Company has issued
7,300,000 shares of its restricted Common Stock. Certain common stock purchase
warrants (the "Warrant(s)") aggregating 167,189 have been granted in accordance
with the terms and provisions of warrant agreements pursuant to which the holder
thereof has the right to convert such Warrant into shares of restricted common
stock on a one-to-one basis as follows: (i) 23,715 Warrants exercisable at the
rate of $1.20 per share expiring December 18, 2003; (ii) 23,715 Warrants
exercisable at the rate of $1.20 per share expiring December 20, 2003; (iii)
14,822 Warrants exercisable at the rate of $0.40 per share expiring October 29,
2004; (iv) 11,857 Warrants exercisable at the rate of $0.50 per share until June
22, 2003 and thereafter at the rate of $0.80 per share expiring on June 22,
2004; (v) 18,972 Warrants exercisable at the rate of $0.50 per share until
August 9, 2003 and thereafter at the rate of $0.80 per share expiring August 9,
2004; (vi) 59,286 Warrants exercisable at the rate of $0.40 per share expiring
November 13, 2004; and (vii) 14,822 Warrants exercisable at the rate of $0.40
per share expiring November 14, 2004. As of the date of this Annual Report,
167,189 Warrants have been granted and are outstanding. As granted, the 167,189
Warrants may be converted into 167,189 shares of common stock.

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

     The following discussions of the results of operations and financial
position of the Company should be read in conjunction with the financial
statements and notes pertaining to them that appear elsewhere in this Form
10-KSB.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

     For Fiscal Year Ended December 31, 2002 compared with Fiscal Year Ended
     December 31, 2001

     The Company's net losses during fiscal year ended December 31, 2002 were
approximately ($177,042) compared to a net loss of approximately ($2,707,578)
for fiscal year ended December 31, 2001 (a decrease of $2,530,536). During
fiscal years ended December 31, 2002 and 2001, the Company recorded $-0- in
revenue.

     During fiscal year ended December 31, 2002, the Company recorded general
and administrative expenses of approximately $567,125 compared to $537,368 of
general and administrative expenses recorded in the same period for 2001 (an
increase of $29,757). The increase in general and administrative expenses was
due primarily to an increase in overhead and administrative expenses resulting
from the increased scale and scope of overall corporate activity pertaining to
the acquisition of Petrogen and subsequent consummation of the Agreement, review
and due diligence of other prospective acquisitions, the acquisition and
reorganization and amalgamation of the Subsidiaries, and the exploration,
reorganization, and development of oil and natural gas properties. General and
administrative expenses generally include corporate overhead, administrative
management, consulting costs and professional fees. During fiscal year ended
December 31, 2002, the Company also recorded $935,141 as a finance fee compared
to $-0- recorded during fiscal year ended December 31, 2001.

<PAGE>

     Of the $567,125 incurred as general and administrative expenses during
fiscal year ended December 31, 2002, an aggregate of $408,440 was incurred by
the Company due and owing to Investor Communications International, Inc. ("ICI")
for services rendered by ICI to the Company including, but not limited to,
financial, administrative, investor relations and oil and gas management. In
addition, during fiscal year ended December 31, 2002, $37,623 accrued as
interest. Therefore, the Company and ICI entered into a settlement agreement
dated September 23, 2002 (the "Settlement Agreement"). Pursuant to the terms of
the Settlement Agreement, (i) the Company agreed to settle an aggregate debt of
$523,103 due and owing ICI as of September 23, 2002, including accrued interest,
by the issuance of 4,787,517 shares of its restricted common stock at the rate
of $0.109 per share (which is the average of the open and close price of the
Company's Common Stock trading on the OTC Bulletin Board on September 23, 2002);
and (ii) ICI agreed to accept the issuance of the 4,787,517 shares of restricted
common stock as settlement and full satisfaction of the aggregate debt due and
owing it. As of December 31, 2002, an aggregate principal amount of $269,500
remains due and owing to ICI, which accrues interest at 10% per annum, and
aggregate interest is due and owing in the amount of $5,738. See "Part I. Item
5. Market for Common Equity and Related Stockholder Matters."

     One of the directors of the Company is contracted by ICI and is part of the
management team provided by ICI to the Company. During fiscal year ended
December 31, 2002, Grant Atkins received an aggregate of $17,325 from ICI for
services provided to the Company. The Company also owes Grant Atkins an
aggregate of $14,279 plus $477 in accrued interest for payments personally made
by Mr. Atkins on behalf of the Company.

     Although the Company incurred $567,125 of operating expenses and a finance
fee of $935,141 during fiscal year ended December 31, 2002, such expenses were
offset by the realization of $2,028,162 as a gain on disposal of oil and gas
properties pursuant to the Share Redemption Agreement. This resulted in income
from continuing operations of $525,896 during fiscal year ended December 31,
2002 compared to a loss from continuing operations of ($537,368) during fiscal
year ended December 31, 2002.

     During fiscal year ended December 31, 2002, the Company realized a loss of
$702,938 from discontinued operations as a result of the sale of its wholly
-owned subsidiary, Oakhills, compared to a loss of $2,170,210 from discontinued
operations during fiscal year ended December 31, 2001. This resulted in a net
loss of ($177,042) incurred during fiscal year ended December 31, 2002 as
compared to a net loss of ($2,707,578) incurred during fiscal year ended
December 31, 2001.

     As discussed above, the decrease in net loss during fiscal year ended
December 31, 2002 as compared to fiscal year ended December 31, 2001 is
attributable primarily to the (i) realization of a gain of $2,028,162 on the
disposal of oil and gas properties pursuant to the Share Redemption Agreement
during fiscal year ended December 31, 2002 compared to $-0- during fiscal year
ended December 31, 2001; and (ii) realization of a loss from discontinued
operations of $2,170,210 during fiscal year ended December 31, 2001 compared to
the realization of a loss of $702,938 during fiscal year ended December 31,
2002. The Company's net loss during fiscal year ended December 31, 2002 was
($177,042) or ($0.07) per share from discontinued operations and $0.05 per share
from continuing operations compared to a net loss of approximately ($2,707,578)
or ($0.16) per share during fiscal year ended December 31, 2001. The weighted
average number of pre-Reverse Split shares outstanding was 10,736,339 for fiscal
year ended December 31, 2002 as compared to 16,915,463 for fiscal year ended
December 31, 2001.

<PAGE>

     Liquidity and Capital Resources

     The Company's financial statements have been prepared assuming that it will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classification of
liabilities that might be necessary should the Company be unable to continue in
operation.

     As of December 31, 2002, the Company's current assets were $305 and its
current liabilities were $931,927, resulting in a working deficit of $931,622.
As of December 31, 2002, current assets were comprised of $305 in cash. As of
December 31, 2002, current liabilities were comprised of (i) $372,856 in
accounts payable and accrued liabilities; (ii) $197,005 in current portion of
bank term loan due and owing The Bank N.A. in Oklahoma; (iii) $340,541 due and
owing to related parties; and (iv) $21,525 due in convertible notes.

     As of fiscal year ended December 31, 2001, the Company's current assets
were $95,565 and its current liabilities were $708,060, resulting in a working
deficit of $612,495. As of December 31, 2001, current assets were comprised of
$28,397 in cash and $67,168 in accounts receivable. As of December 31, 2001,
current liabilities were comprised of (i) $295,796 in accounts payable and
accrued liabilities; (ii) $161,350 in current portion of bank loan due and
owing; and (iii) $250,914 due and owing to related parties.

     As of December 31, 2002, the Company's total assets were $739,100 comprised
of $305 in current assets, $638,795 in valuation of oil and gas properties (net
of depletion) acquired pursuant to acquisition of the Subsidiaries, and $100,000
in advances to Petrogen. As of December 31, 2001, the Company's total assets
were $2,016,667 comprised of $95,565 in current assets and $1,921,102 in
valuation of oil and gas properties (net of depletion). The decrease in total
assets during fiscal year ended December 31, 2002 from fiscal year ended
December 31, 2001 was primarily due to the decreased valuation of the
Subsidiaries' oil and gas properties.

     As of December 31, 2002, the Company's total liabilities were $1,069,538
comprised of $931,927 in current liabilities and $137,611 due and owing on the
term loan to The Bank N.A. of Oklahoma. As of December 31, 2001, the Company's
total liabilities were $997,281 comprised of $708,060 in current liabilities and
$289,221 due and owing on the term loan. The increase in total liabilities
during fiscal year ended December 31, 2002 from fiscal year ended December 31,
2001 was due primarily to the increase in accounts payable and accrued
liabilities and amounts due to related parties.

     Stockholders' deficit decreased from $1,019,386 for fiscal year ended
December 31, 2001 to ($330,438) for fiscal year ended December 31, 2002.

     For fiscal year ended December 31, 2002, net cash used in operating
activities was ($235,073) compared to net cash used in operating activities of
($258,654) for fiscal year ended December 31, 2001. As noted above, the decrease
in net cash used in operating activities was primarily comprised of (i) net
income from continuing operations of $525,896 for fiscal year ended December 31,
2002 compared to a net loss of ($537,368) for fiscal year ended December 31,
2001; and (ii) adjustment of ($2,028,162) realized from gain on disposal of
Subsidiaries during fiscal year ended December 31, 2002 compared to $-0-
adjustment during fiscal year ended December 31, 2001.

     The Company's cash flow used in investing activities during fiscal year
ended December 31, 2002 was ($100,000) compared to $-0- used in or from
investing activities during fiscal year ended December 31, 2001.

<PAGE>

     Cash flows from financing activities was $306,981 for fiscal year ended
December 31, 2002 compared to cash flows from investing activities of $260,981
for fiscal year ended December 31, 2001. Net cash flows from financing
activities during fiscal year ended December 31, 2002 resulted primarily from
net advances from related parties of $285,456 during fiscal year ended December
31, 2002 and of net advances from related parties of $211,038 during fiscal year
ended December 31, 2001.

PLAN OF OPERATION

     Funding

     As of the date of this Annual Report, the Company has generated limited
revenues from operations. During the prior fiscal years, the Company focused
primarily on the exploration of potential oil and gas projects and generated no
revenues. During those prior fiscal years, the Company relied upon internally
generated funds and advances, funds from the sale of shares of stock and loans
from its shareholders and private investors to finance its operations and
growth. Management of the Company anticipates a possible increase in operating
expenses and capital expenditures relating to oil and gas operating properties
and acquisitions.

     As of the date of this Annual Report, the Company is engaged in an offering
of shares of its restricted Common Stock at $1.00 per share (post Reverse Stock
Split) or $0.05 per share (pre-Reverse Stock Split) to raise a minimum of
$250,000. The Company may finance further expenditures with future issuances of
common stock of the Company. The Company believes that any private placements of
equity capital and debt financing, if successful, may be adequate to fund the
Company's operations over the next year. The Company may encounter business
endeavors that require significant cash commitments or unanticipated problems or
expenses that could result in a requirement for additional cash before that
time. If the Company raises additional funds through the issuance of equity or
convertible debt securities other than to current shareholders, the percentage
ownership of its current shareholders would be reduced, and such securities
might have rights, preferences or privileges senior to its Common Stock.
Additional financing may not be available upon acceptable terms, or at all. If
adequate funds are not available or are not available on acceptable terms, the
Company may not be able to take advantage of prospective new oil and gas
acquisitions or opportunities, which could significantly and materially restrict
the Company's business operations.

     As of the date of this Annual Report, management of the Company believes
that an estimated $1,000,000 is required over the next two years for payment of
expenses associated with the ongoing oil and gas exploration, development and
production operations of the Company. Management believes that the Company can
satisfy its cash requirements for approximately the next six months based on its
ability to successfully generate revenues from oil and gas production and to
obtain advances from certain investors and related parties, as necessary.

     As of the date of this Annual Report, there is substantial doubt regarding
the Company's ability to continue as a going concern as the Company has not
generated sufficient cash flow to funds its business operations and material
commitments. The Company must raise additional capital. The Company has not
generated sufficient cash flow in the past to fund its operations and
activities. Historically, the Company has relied upon internally generated
funds, funds from the sale of shares of stock and loans from its shareholders
and private investors to finance its operations and growth.

     The Company's future success and viability are entirely dependent upon the
Company's current management to generate revenues from business operations,
develop its new business prospect under the Agreement, and raise additional
capital through further private offerings of its stock or loans from private

<PAGE>

investors. Management is optimistic that the Company will be successful in its
capital raising efforts. There can be no assurance, however, that the Company
will be able to generate sufficient revenues or raise additional capital. The
Company's failure to successfully generate sufficient revenues and/or raise
additional capital will have a material and adverse affect upon the Company and
its shareholders.

     Material Commitments

     In connection with the oil and gas exploration, development and production
expenses and other overhead costs incurred, the Company and/or its subsidiary
incurred liability or borrowed funds pursuant to various contractual
arrangements representing the following material commitments.

     Consulting Service Agreement. Pursuant to the terms and provisions of the
Agreement, the Company and ICI entered into a consulting services agreement
dated February 12, 2003 (the "Consulting Services Agreement"). Pursuant to the
provisions of the Consulting Services Agreement: (i) ICI will provide to the
Company such finance and general managerial services as may be determined by the
Board of Directors, from time to time, and in its sole and absolute discretion,
in order to develop the various business interests of the Company in the energy
industry, including the oil and gas interest; and (ii) the Company will pay to
ICI a fee commensurate with the services provided by ICI on a monthly basis, but
not to exceed $10,000.00 monthly.

     As of fiscal year ended December 31, 2002, $269,500 plus interest of $5,378
remains due and owing to ICI. Mr. Grant Atkins, a director of the Company, is
employed by ICI and part of the management team provided by ICI to the Company,
and may derive remuneration from ICI for such services rendered to the Company.
See "Part III. Item 10. Executive Compensation."

     The Bank N.A. in Oklahoma. A contingent commitment for the Company for
fiscal year 2003 is the amounts due and owing by Oakhills under a term loan in
the original amount of $450,000 and an operating line of credit in the original
amount not to exceed a maximum amount of $50,000 with The Bank N.A. in Oklahoma.
During November 2001, the Company's subsidiary, Oakhills, arranged for such term
loan and operating line of credit. Pursuant to the terms of the arrangement, the
proceeds of the term loan were used to repay certain outstanding debts to
creditors (including amounts owed to a private company controlled by a prior
director and officer of Oakhills for production services and equipment rentals)
and to retire all previous outstanding bank loans. The term loan was repayable
over three years with monthly principal payments of $12,500 plus interest at
9.5% per annum. The operating line of credit was repayable on demand with
interest at 9.5% per annum. The term loan and operating line of credit were
secured by a fixed charge over the assets of Oakhills including assignment of
oil and gas leases, and are guaranteed by the Company and a director of the
Company. As of December 31, 2002, $318,876 including accrued interest was due
and owing on the term loan and $15,740 was due and owing on the operating line
of credit.

     As of December 31, 2002, the term loan was in default as Oakhills was two
months in arrears in principal payments of $25,000 and interest of $6,265. Upon
the sale of Oakhills, the loan was brought up to date by Newport and the Company
is currently negotiating a release from its guarantee. Pursuant to the terms of
the Purchase and Sale Agrement, however, Newport has agreed to indemnify the
Company against any losses arising from the Company's loan guarantee.

     Amounts Due to Related Parties. A significant and estimated commitment for
the Company for fiscal year 2003 is the amounts due and owing to related parties
as follows: (i) $123,500 and $118,750 in aggregate principal due and owing to
Messrs. Spindler and Kerrigan, respectively, resulting from consulting services
provided to Petrogen during fiscal year 2002; (ii) $60,000 in aggregate
principal remains due and owing to two private companies associated with a
shareholder of the Company (of which an aggregate $21,525 was evidenced by two
convertible promissory notes, respectively, and such conversions were exercised
into an aggregate of 956,666 shares of post-Reverse Stock Split Common Stock),
which bear interest at 9% per annum and are without specific repayment terms;
and (iii) $200,393 remains due and owing to the private company and prior
director of Oakhills for unpaid remuneration and production services, which
accrues interest at 10% per annum and is without specific repayment terms.

<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

     As of the date of this Annual Report, the Company does not have any
off-balance sheet arrangements that have or are reasonably like to have a
current or future effect on the Company's financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. The
term "off-balance sheet arrangement" generally means any transaction, agreement
or other contractual arrangement to which an entity unconsolidated with the
Company is a party, under which the Company has (i) any obligation arising under
a guarantee contract, derivative instrument or variable interest; or (ii) a
retained or contingent interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support for such
assets.

AUDIT COMMITTEE

     As of the date of this Annual Report, the Company has not appointed members
to an audit committee. As of the date of this Annual Report, no audit committee
exists. Therefore, the role of an audit committee has been conducted by the
Board of Directors of the Company.

     The Company intends to establish an audit committee. When established, the
audit committee will be comprised of at least two disinterested members. When
established, the audit committee's primary function will be to provide advice
with respect to the Company's financial matters and to assist the Board of
Directors in fulfilling its oversight responsibilities regarding finance,
accounting, tax and legal compliance. The audit committee's primary duties and
responsibilities will be: (i) to serve as an independent and objective party to
monitor the Company's financial reporting process and internal control system;
(ii) to review and appraise the audit efforts of the Company's independent
accountants; (iii) to evaluate the Company's quarterly financial performance as
well as its compliance with laws and regulations; (iv) to oversee management's
establishment and enforcement of financial policies and business practices; and
(v) to provide an open avenue of communication among the independent
accountants, management and the Board of Directors.

     The Board of Directors has considered whether the provision of such
non-audit services would be compatible with maintaining the principal
independent accountant's independence. The Board of Directors considered whether
the Company's principal independent accountant was independent, and concluded
that the auditor for the fiscal year ended December 31, 2002 was independent.

     Audit Fees

     During fiscal year ended December 31, 2002, the Company incurred
approximately $17,159 in fees to its principal independent accountant for
professional services rendered in connection with audit of the Company's
financial statements for fiscal year ended December 31, 2002 and for the review
of the Company's financial statements for the fiscal quarters ended March 31,
2002, June 30, 2002 and September 30, 2002.

     Financial Information Systems Design and Implementation Fees

     During fiscal year ended December 31, 2002, the Company did not incur any
fees for professional services rendered by its principal independent accountant
for certain information technology services which may include, but is not
limited to, operating or supervising or managing the Company's information or
local area network or designing or implementing a hardware or software system
that aggregate source data underlying the financial statements.

<PAGE>

     All Other Fees

     During fiscal year ended December 31, 2002, the Company did not incur any
other fees for professional services rendered by its principal independent
accountant for all other non-audit services which may include, but is not
limited to, tax-related services, actuarial services or valuation services.

ITEM 7. FINANCIAL STATEMENTS

     The information required under Item 310(a) of Regulation S-B is included in
this report as set forth in the "Index to Financial Statement".

     Index to Financial Statements

         Report of Independent Public Accountants dated March 15, 2003
         Consolidated Balance Sheets
         Consolidated Statements of Operations
         Consolidated Statements of Stockholders' Equity
         Consolidated Statements of Cash Flows
         Notes to Consolidated Financial Statements

<PAGE>




                                 PETROGEN CORP.

                        (Formerly Hadro Resources, Inc.)

                        CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2002 AND 2001






AUDITORS' REPORT

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




                                       F-1
<PAGE>

             LABONTE & CO.                      #610 - 938 Howe Street
-----------------------------------------       Vancouver, BC  Canada
C H A R T E R E D  A C C O U N T A N T S        V6Z 1N9
-----------------------------------------       Telephone      (604) 682-2778
                                                Facsimile      (604) 689-2778
                                                Email        info@labonteco.com



                                AUDITORS' REPORT
--------------------------------------------------------------------------------

To the Stockholders and Board of Directors of Petrogen Corp.
(formerly Hadro Resources, Inc.)

We have audited the consolidated balance sheets of Petrogen Corp. (formerly
Hadro Resources, Inc.) as at December 31, 2002 and 2001 and the consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the results of its operations and its cash flows and the changes in
stockholders' equity for the years then ended in accordance with United States
generally accepted accounting principles.



                                                 CHARTERED ACCOUNTANTS

Vancouver, B.C.
March 15, 2003



COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING
-----------------------------------------------------------------------
DIFFERENCES
-----------

In the United States, reporting standards for auditors would require the
addition of an explanatory paragraph following the opinion paragraph when the
financial statements are affected by conditions and events that cast substantial
doubt on the Company's ability to continue as a going concern, such as those
described in Note 1. Our report to the stockholders and Board of Directors dated
March 15, 2003 is expressed in accordance with Canadian reporting standards
which do not permit a reference to such conditions and events in the auditors'
report when these are adequately disclosed in the financial statements.



                                                 CHARTERED ACCOUNTANTS

Vancouver, B.C.
March 15, 2003

                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                                               PETROGEN CORP.
                                      (Formerly Hadro Resources, Inc.)

                                         CONSOLIDATED BALANCE SHEETS



                                                                                December 31,   December 31,
                                                                                   2002           2001
==========================================================================================================

                                                   ASSETS

CURRENT ASSETS
  <S>                                                                           <C>            <C>
   Cash                                                                         $       305    $    28,397
   Accounts receivable                                                                 --           67,168
                                                                                -----------    -----------

                                                                                        305         95,565

ADVANCES TO PETROGEN, INC. (Note 3(b))                                              100,000           --
OIL AND GAS PROPERTIES (Note 3 (a))                                                 638,795      1,921,102
                                                                                -----------    -----------

                                                                                $   739,100    $ 2,016,667
                                                                                ===========    ===========



                                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued liabilities                                     $   372,856    $   295,796
   Convertible notes (Note 5)                                                        21,525           --
   Current portion of bank loans (Note 4)                                           197,005        161,350
   Due to related parties (Note 7)                                                  340,541        250,914
                                                                                -----------    -----------

                                                                                    931,927        708,060

BANK LOANS (Note 4)                                                                 137,611        289,221
                                                                                -----------    -----------

                                                                                  1,069,538        997,281
                                                                                -----------    -----------

STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (Note 6)
   Common stock, $.001 par value, 100,000,000 shares authorized
      1,114,885 post-reverse split shares issued and outstanding
         (2001 - 1,237,699 post-reverse split shares issued and outstanding)         22,432         24,754
   Additional paid-in capital                                                     2,779,578      3,950,038
   Deficit                                                                       (3,132,448)    (2,955,406)
                                                                                -----------    -----------
                                                                                   (330,438)     1,019,386
                                                                                -----------    -----------

                                                                                $   100,252    $ 2,016,667
                                                                                ===========    ===========

CONTINGENCIES (Note 1)

SUBSEQUENT EVENTS (Notes 3 and 5)


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

                                                      F-3
<PAGE>

                                    PETROGEN CORP.
                           (Formerly Hadro Resources, Inc.)

                         CONSOLIDATED STATEMENTS OF OPERATIONS



                                                          Year ended      Year ended
                                                          December 31,    December 31,
                                                              2002             2001
======================================================================================
                                                                          (restated -
                                                                           Note 3(a))


GENERAL AND ADMINISTRATIVE EXPENSES                      $   (567,125)   $   (537,368)

FINANCE FEE (Note 5)                                         (935,141)           --

GAIN ON DISPOSAL OF OIL AND GAS PROPERTIES (Note 3(b))      2,028,162            --
                                                         ------------    ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                      525,896        (537,368)
                                                         ------------    ------------

DISCONTINUED OPERATIONS (Note 3(a))
   Loss from discontinued operations                         (661,747)     (2,170,210)
   Loss on disposal of Oak Hills                              (41,191)           --
                                                         ------------    ------------

LOSS FROM DISCONTINUED OPERATIONS                            (702,938)     (2,170,210)
                                                         ------------    ------------

NET LOSS FOR THE YEAR                                    $   (177,042)   $ (2,707,578)
                                                         ============    ============


INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS       $       0.05    $      (0.16)
LOSS PER SHARE FROM DISCONTINUED OPERATIONS                     (0.07)           --
                                                         ------------    ------------

BASIC NET LOSS PER SHARE                                 $      (0.02)   $      (0.16)
                                                         ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                 10,736,339      16,915,463
                                                         ============    ============


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

                                         F-4
<PAGE>

                                                          PETROGEN CORP.
                                                 (Formerly Hadro Resources, Inc.)

                                          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                          FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


                                                                                          Additional
                                                            Number of                      Paid In
                                                              shares         Amount        Capital        Deficit        Total
===================================================================================================================================

Balance, December 31, 2000                                  13,054,200    $    13,054    $   126,795    $  (247,828)   $  (107,979)

Issuance of common stock for cash at $.25 per share            199,773            200         49,743           --           49,943

Issuance of common stock for acquisition of subsidiaries
at $.30 per share                                           10,500,000         10,500      3,454,500           --        3,465,000

Issuance of common stock for debt at $.32 per share          1,000 000          1,000        319,000           --          320,000

Net loss for the year ended December 31, 2001                     --             --             --       (2,707,578)    (2,707,578)
                                                           -----------    -----------    -----------    -----------    -----------

Balance December 31, 2001                                   24,753,973         24,754      3,950,038     (2,955,406)     1,019,386

Shares reacquired in connection with disposition of Oil
 and Gas Properties (Note 3(a))                             (8,400,000)        (8,400)    (2,763,600)          --       (2,772,000)

Shares issued in settlement of debt at $.109 per share       6,077,720          6,078        657,999           --          664,077

Convertible note beneficial conversion feature (Note 5)           --             --          935,141           --          935,141

Net loss for the year ended December 31, 2002                     --             --             --         (177,042)      (177,042)
                                                           -----------    -----------    -----------    -----------    -----------

Balance December 31, 2002                                   22,431,693    $    22,432    $ 2,779,578    $(3,132,448)   $  (330,438)
                                                           ===========    ===========    ===========    ===========    ===========


Note: Subsequent to December 31, 2002 the Company's Board of Directors approved
a 1 for 20 reverse stock split subject to shareholder approval which was
completed effective February 12, 2003.


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

                                                               F-5
<PAGE>

                                             PETROGEN CORP.
                                    (Formerly Hadro Resources, Inc.)

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                 Year ended    Year ended
                                                                                December 31,  December 31,
                                                                                    2002          2001
============================================================================================================
                                                                                            (restated - Note
                                                                                                       3(a))

CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss) for the year from continuing operations                     $   525,896    $  (537,368)
  Adjustments to reconcile net loss to net cash from operating activities:
  - gain on disposal of oil and gas properties                                   (2,028,162)          --
  - accrued management fees and interest                                            438,289        408,418
  - non-cash finance fee                                                            935,141           --
                                                                                -----------    -----------

                                                                                   (128,836)      (128,950)
  - net changes in working capital items                                              2,695        (97,702)
                                                                                -----------    -----------
Cash flows used in continuing operations                                           (126,141)      (226,652)

Cash flows used in discontinued operations                                         (108,932)       (32,002)
                                                                                -----------    -----------

CASH FROM (USED IN) OPERATING ACTIVITIES                                           (235,073)      (258,654)
                                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Advances to Petrogen, Inc.                                                       (100,000)          --
                                                                                -----------    -----------

CASH FLOWS USED IN INVESTING ACTIVITIES                                            (100,000)          --
                                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
  Convertible notes payable                                                          21,525           --
  Net advances from related parties                                                 285,456        211,038
  Net proceeds on sale of common stock                                                 --           49,943
                                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES                                                306,981        260,981
                                                                                -----------    -----------

INCREASE (DECREASE) IN CASH                                                         (28,092)         2,327

CASH, BEGINNING OF YEAR                                                              28,397         26,070
                                                                                -----------    -----------

CASH, END OF YEAR                                                               $       305    $    28,397
                                                                                ===========    ===========


OTHER SIGNIFICANT NON-CASH TRANSACTIONS:

During 2002 the Company reacquired 8,400,000 common shares previously issued to
acquire the U.S. Oil & Gas operating subsidiaries in exchange for the transfer
of certain oil and gas properties resulting in a gain of $2,028,162. Refer to
Note 3.

During 2002 the Company agreed to settle $664,076 of debt by the issuance of
6,077,720 common shares. Refer Note 6.



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

                                                    F-6
</TABLE>
<PAGE>

                                 PETROGEN CORP.
                        (Formerly Hadro Resources, Inc.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
--------------------------------------------------------------------------------

The Company was incorporated as Hadrosaurus Resources, Inc. under the Laws of
the State of Nevada on December 2, 1997. The Company underwent name changes to
Hadro Resources, Inc. on January 12, 1998 and subsequently to Petrogen Corp. on
February 12, 2003. During 2001 the Company acquired three oil and gas companies
with operations in the State of Oklahoma. In December 2001, the Company merged
these subsidiaries, Thor Energy Inc., O.J. Oil and Gas Company, Inc. and Oak
Hills Energy Inc. into one entity, Oak Hills Energy, Inc. ("Oak Hills").

As at December 31, 2002, the Company had a working capital deficiency of
$430,438 and has realized significant losses from its existing oil and gas
operations. The Company's continuance of operations are contingent on raising
additional capital, settling its outstanding debts and on the future acquisition
and development of oil and gas properties. Accordingly, these factors raise
substantial doubt about the Company's ability to continue as a going concern.
Advances from certain significant shareholders and funding from private
placements will form the primary source of short-term funding for the Company
during the next twelve months.

On October 11, 2002 the Company executed a letter of intent to acquire 100% of
the issued and outstanding common shares of Petrogen, Inc. ("Petrogen"), a
Colorado company specializing in the development of domestic energy. Effective
February 12, 2003 the Company completed the acquisition by way of a share
exchange agreement with the Petrogen shareholders resulting in a change in
control of the Company. Refer to Note 3(b).

Subsequent to the year ended December 31, 2002 the Company sold 100% of it
interest in Oak Hills, including all assets and liabilities and as a result the
operations of Oak Hills have been disclosed as discontinued operations. Refer to
Note 3(a)

These financial statements should be read in conjunction with the Company's
14(C) Definitive Information Statement dated December 16, 2002 filed with the
Securities and Exchange Commission and the Company's pro-forma consolidated
balance sheet and Petrogen's audited financial statements contained therein.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Oak Hills Energy, Inc. which is the continuing
company resulting from the merger of Thor Energy, Inc., O.J. Oil and Gas, Inc.,
and Oak Hills Energy, Inc. which were acquired by purchase on August 29, 2001.
The acquisition has been accounted for by the purchase method of accounting. All
significant intercompany transactions and account balances have been eliminated.

Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.

Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and gas
operations whereby all cost related to the acquisition of petroleum and natural
gas interests are capitalized. Such costs include land and lease acquisition
costs, annual carrying charges of non-producing properties, geological and
geophysical costs, costs of drilling and equipping productive and non-productive
wells, and direct exploration salaries and related benefits. Proceeds from the
disposal of Oil and Gas properties are recorded as a reduction of the related
capitalized costs without recognition of a gain or loss unless the disposal
would result in a change of 20 percent or more in the depletion rate. The
Company operates in one cost center, being the U.S.A.

Depletion and depreciation of the capitalized costs are computed using the
unit-of-production method based on the estimated proven reserves of oil and gas
determined by independent consultants.

The Company applies a ceiling test to capitalized costs to ensure that such
costs do not exceed estimated future net revenues from production of proven
reserves at year end market prices less future production, administrative,
financing, site restoration, and income tax costs plus the lower of cost or
estimated market value of unproved properties. If capitalized costs are
determined to exceed estimated future net revenues, a write-down of the carrying
value is charged to depletion in the period.

                                       F-7
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.

Net Earnings (Loss) per Common Share
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflects
the potential dilution of securities that could share in the earnings of the
Company. Because the Company does not have any potentially dilutive securities,
the accompanying presentation is only of basic earnings (loss) per share.

Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board issued Financial
Accounting Standard No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company for the year ended December 31, 2002.

The Company has elected to continue to account for stock options granted to
employees and officers using the intrinsic value based method in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", ("APB No. 25") and comply with the disclosure
provisions of SFAS No. 123 as amended by SFAS No. 148 as described above. Under
APB No. 25, compensation expense is recognized based on the difference, if any,
on the date of grant between the estimated fair value of the Company's stock and
the amount an employee must pay to acquire the stock. Compensation expense is
recognized immediately for past services and pro-rata for future services over
the option-vesting period. In addition, with respect to stock options granted to
employees, the Company provides pro-forma information as required by SFAS No.
123 showing the results of applying the fair value method using the
Black-Scholes option pricing model.

In accordance with SFAS No. 123, the Company applies the fair value method using
the Black-Scholes option-pricing model in accounting for options granted to
consultants.

The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.

The Company has also adopted the provisions of the Financial Accounting
Standards Board Interpretation No.44, Accounting for Certain Transactions
Involving Stock Compensation - An Interpretation of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB 25. FIN 44 is
generally effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.

                                       F-8
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------

Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
which eliminates the pooling method of accounting for business combinations
initiated after June 30, 2001. In addition, SFAS 141 addresses the accounting
for intangible assets and goodwill acquired in a business combination. This
portion of SFAS 141 is effective for business combinations completed after June
30, 2001. The Company has adopted the provisions of SFAS 141 which did not have
a material impact on the Company's financial position or results of operations.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for purchased goodwill and intangible assets. Under SFAS 142, goodwill and
intangible assets with indefinite lives will no longer be amortized and will be
tested for impairment annually or whenever events or circumstances indicate that
the estimated fair value is less than the related carrying value as determined
on a reporting unit basis. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. The adoption of SFAS 142 has not had a material impact
on the Company's financial position or results of operations.


NOTE 3 - OIL AND GAS PROPERTIES
--------------------------------------------------------------------------------

(a)    Oak Hills

By agreement dated May 31, 2001 and effective August 29, 2001 between the
Company and U.S. Oil and Gas Resources Inc. ("US Oil and Gas"), a British
Columbia public company, the Company acquired three State of Oklahoma registered
operating subsidiaries as follows: a 100% interest in Oakhills Energy Inc., a
100% interest in Thor Energy Inc. and a 100% interest in O.J. Oil & Gas Inc.
("Oak Hills"). In consideration for these acquisitions, the Company issued
10,000,000 restricted shares of common stock to US Oil and Gas, assumed a loan
on behalf of US Oil and Gas of $78,203 and issued 500,000 restricted shares of
common stock as a finder's fee. Oak Hills owns approximately 3,000 acres of oil
and gas leases located in the State of Oklahoma and approximately 14 gas and 35
producing and non-producing oil wells in addition to untapped areas for future
development.

This business combination was accounted for using the purchase method of
accounting. The purchase price was allocated as follows:

     Assets acquired at fair value
          Current assets                                          $   102,553
          Oil and gas properties                                    3,941,222
                                                                  -----------
                                                                    4,043,775
     Less:  liabilities acquired at fair value
          Current liabilities                                        (458,476)
          Loans payable                                               (42,096)
                                                                  -----------

     Purchase price                                               $ 3,543,203
                                                                  ===========

The purchase price was made up as follows

     10,000,000 shares paid to US Oil and Gas at $.33 per share   $ 3,300,000
     500,000 shares paid as a finder's fee at $.33 per share          165,000
     Loan assumed on behalf of US Oil and Gas                          78,203
                                                                  -----------

                                                                  $ 3,543,203
                                                                  ===========

                                       F-9
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 3 - OIL AND GAS PROPERTIES (cont'd)
--------------------------------------------------------------------------------

The Company's independent petroleum engineer revised the economic evaluation of
the Company's proven recoverable oil and gas reserves based on current market
prices and as a result at December 31, 2001 the Company wrote down the carrying
value of oil and gas properties to the revised evaluation resulting in a
depletion provision of $2,078,063.

By agreement dated March 22, 2002 the Company reacquired 8,000,000 of its shares
of common stock from US Oil & Gas in exchange for the transfer back to US Oil
and Gas of certain of its non-producing oil and gas properties owned by Oak
Hills. The Company also reacquired 400,000 shares of common stock previously
issued as a finder's fee in connection with the original acquisition. The
8,400,000 were returned to treasury and cancelled on March 25, 2002. US Oil &
Gas has agreed to grant the Company an option to repurchase a total of 1,500,000
of the remaining 2,000,000 common shares held as follows: 1,000,000 shares at a
price of $.75 per share exercisable in whole or in part until December 31, 2002
and 500,000 shares at a price of $1.25 per share exercisable whole or in part
until June 30, 2004. Upon expiry of either option term any unexercised shares
will be subject to a monthly trading maximum equal to the lesser of 50,000
shares or $200,000 of proceeds. The parties have agreed that US Oil & Gas will
use the balance of 500,000 common shares to acquire interests in future oil and
gas properties purchased by the Company. Further negotiations resulted in the
termination of above noted option purchase arrangements. The 2,000,000 shares
owned by US Oil & Gas are subject to a Lock-up and Leakage Agreement dated
October 16, 2002 whereunder the 2,000,000 shares may not be sold at more than
166,667 shares in any month, non cumulative beginning January 1, 2003.

The properties returned in connection with this agreement had a carrying value
of $743,838 at December 31, 2001. The exchange of these properties in return for
a total of 8,400,000 shares valued at $2,772,000 resulted in a gain on disposal
of these properties of $2,028,162.

As a condition of the acquisition of Petrogen as described in Note 3(b), the
Company agreed to sell all of its remaining assets, being its interest in Oak
Hills concurrent with completing the acquisition. As a result, the operations of
Oak Hills for the period from January 1, 2002 to October 11, 2002 (the
measurement date) have been recorded as discontinued operations of $661,747 and
the results of Oak Hills for the period from October 12, 2002 to December 31,
2002 have been recorded as a loss on disposal of Oak Hills of $41,191. In
addition, an adjustment of $47,131 has been recorded to loss on disposal of Oak
Hills and to the carrying value of the oil and gas properties to adjust the
carrying value of the net assets of Oak Hills to their estimated net recoverable
amount. The comparative results of operations and cash flows of the Company have
also bee restated to reflect the results of Oak Hills as discontinued
operations.

In November of 2002 the Company sold one of the properties owned by Oak Hills
for $85,000 which was credited to Oil and Gas propertiess.

Effective February 12, 2003 the Company sold 100% of the outstanding shares of
common stock of Oak (refer to Note 4) for consideration of $10 to Newport
Capital Corp., a private Belize company of which a director is also a member of
the management team provided by Investor Communications, Inc. to the Company.
Refer to Note 7.

As at December 31, 2002 the carrying value of the net assets of Oak Hills as
adjusted to their estimated net recoverable amount being the total purchase
price of $10 is as follows:

             Cash                                          $     63
             Oil and gas properties                         638,795
             Accounts payable                              (304,232)
             Bank loans                                    (334,616)
                                                           --------

             Net assets of discontinued operations         $     10
                                                           ========
(b)  Petrogen

Effective October 11, 2002 the Board of Directors approved the execution of an
agreement in principle (the "Agreement") among the Company, Petrogen, Inc., a
Colorado corporation ("Petrogen"), and the shareholders of Petrogen
(collectively, the "Petrogen Shareholders") whereby the Company agreed to
acquire 100% of the issued and outstanding common shares of Petrogen. Effective
February 12, 2003 the Company completed the acquisition by way of a Share
Exchange Agreement ("Share Exchange") with the Petrogen shareholders.

                                      F-10
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 3 - OIL AND GAS PROPERTIES (cont'd)
--------------------------------------------------------------------------------

Petrogen is an energy company specializing in the development of domestic
energy. In accordance with the terms of the Agreement, it was agreed, subject to
normal due diligence, formal agreement and board of director and shareholder
ratification conditions precedent, that: (i) Petrogen will become a wholly-owned
subsidiary of the Company and its business operations will be in oil and gas
exploration and development; (ii) the Company will change its name to "Petrogen
Corp."; (iii) the Company will sell substantially all of its remaining assets
consequent upon the consummation of the Agreement; and (iv) the Company will
adopt and implement a stock option plan for key personnel of the Company subject
to approval by the shareholders of the Company.

Pursuant to the terms of the Agreement as finalized in the Share Exchange, the
Company agreed to acquire from the Petrogen Shareholders one hundred percent
(100%) of the issued and outstanding shares of common stock of Petrogen in
exchange for issuance to the Petrogen Shareholders of approximately 7,000,000
post-reverse stock split shares of the Company's restricted common stock
(assuming that a prior reverse stock split of one-for-twenty will have been
effectuated) and an additional 300,000 post-reverse stock split shares of the
Company's restricted common stock as a finder's fee. Upon completion of the
acquisition, there will be a change in control of the Company with the previous
shareholders of Petrogen owning approximately 83% of the issued and outstanding
common shares of the Company. Also in connection with the acquisition, the
Company will grant options to acquire 2,000,000 post-reverse stock split shares
of the Company's restricted common stock and grant share purchase warrants to
acquire 167,189 post-reverse stock split shares of the Company's restricted
common stock to previous option and warrant holders in Petrogen. This
acquisition, when completed, will be accounted for as a reverse-merger with
Petrogen being treated as the accounting parent and the Company being treated as
the accounting subsidiary.

As a condition to entering into the Agreement, the Company agreed to advance to
Petrogen not less than $250,000 within five (5) business days of raising a
minimum of $250,000. In accordance with any loan made to Petrogen, any principal
amount will bear interest at the rate of ten percent (10%) per annum, and will
be secured pursuant to a senior fixed and floating charge on all of the assets
of Petrogen (the "Loan Agreement"). As at December 31, 2002 the Company had
advanced $100,000 to Petrogen under the terms of the Loan Agreement.

Pursuant to the terms of the Loan Agreement, the principal amount is due on or
before the day which is ninety (90) calendar days from the earlier of one (1)
year from the execution date of the Loan Agreement or the date upon which the
Company acquires all of the issued and outstanding shares of Petrogen under the
terms of the Agreement. It is also anticipated that Petrogen will have the right
to prepay any portion of the aggregate principal and accrued interest due to the
Company in whole or in part prior to the due date. Should the Agreement
terminate for any reason prior to closing, the terms and provisions of the Loan
Agreement are expected to provide the Company with the right, in its sole and
absolute discretion, to elect to convert the principal and accrued interest due
to the Company into shares of common stock representing up to five percent (5%)
participating and voting interest in Petrogen.

Effective February 12, 2003 the Company completed a consolidation of its issued
and outstanding common stock (reverse stock split) on a basis of one new share
for twenty old shares.

(c)  Other

The Company entered into a letter of intent dated March 15, 2002 with Rubicon
Oil & Gas Inc. of Denver, Colorado ("Rubicon") to purchase 75% of Rubicon's
interests in oil and gas leases located in six separate prospects in the Uinta
Basin of Utah and the Douglas Creek Arch area in Colorado. Rubicon's working
interests range from 21% to 100% in gross acreage in excess of 16,000 acres, and
net acreage in excess of 7,000 acres. Subject to verification and due diligence,
the consideration to be paid to Rubicon was 500,000 restricted common shares
plus $500,000 cash, with a Company obligation to invest $2,000,000 in property
development expenditures before December 31, 2002. The Company's due diligence
indicated higher than anticipated project costs that caused disagreement with
the original terms for the sale. As a result the Company terminated negotiations
with Rubicon.

During June 1999, the Company entered into an assignment agreement with Ibis
Petroleum, Inc. ("Ibis") whereby Ibis sold, assigned, transferred and conveyed
all of its right, title and interest in and to a total of thirty-five (35) oil
and gas leases located in the Hadrosaurus Area of Union County, New Mexico to
the Company. The Company has conducted ongoing due diligence regarding the

                                      F-11
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

Leasehold Interests, and has deemed that exploration initiatives represent
higher degrees of risk than the Company's management currently wishes to
participate. Accordingly, the Company has decided not to renew any of the
leases, and all leases were dropped in 2002.

NOTE 4 - BANK LOANS
--------------------------------------------------------------------------------

During November 2001 Oakhills arranged for a term loan in the amount of $450,000
and an operating line of credit to a maximum amount of $50,000 with The Bank
N.A. in Oklahoma. The proceeds of the term loan were used to repay certain
outstanding debts to creditors, including $219,838 owed to a private company
controlled by a director and officer of Oakhills for production services and
equipment rentals, and retire all previous outstanding bank loans. The term loan
is repayable over three years with monthly principal payments of $12,500 plus
interest at 9.5% per annum. The line of credit is repayable on demand with
interest at 9.5% per annum. These loans are secured by a fixed charge over the
assets of Oakhills including assignment of oil and gas leases and are guaranteed
by the Company and a director of the Company. As at December 31, 2002, $318,876
including accrued interest (2001 - $105,854) is owing on the term loan and
$15,740 (2001 - $10,025) is owing on the line of credit. These loans have been
included in net assets of discontinued operations. Refer to Note 3(a).

At December 31, 2002 the term loan was in default as Oak Hills was two months in
arrears in principal payments of $25,000 and interest of $6,265. Upon the
subsequent sale of Oak Hills the loan was brought up to date by the purchaser
and the Company is currently negotiating a release from its guarantee. Pursuant
to the terms of the disposal of Oak Hills as described in Note 3 (b), the
purchaser has agreed to indemnify the Company against any losses arising from
the Company's loan guarantee.


NOTE 5 - CONVERTIBLE NOTES
--------------------------------------------------------------------------------

The Company has two outstanding convertible notes totalling $21,525 which are
dated September 23, 2002, which were issued to two shareholders for funds
advanced. These loans are due on demand, bear interest at 9% per annum and are
convertible (principal and interest) into shares of common stock at a rate of
$0.15 per share. The terms of the convertible notes include an anti-dilution
provision which provides the note holders with the right to convert the
outstanding debt into a total of 956,666 post reverse split shares of common
stock in the event that the Company completed its 1:20 reverse split. In
accordance with EITF 98-5 and 00-27 the Company has determined the beneficial
conversion feature embedded in the promissory notes using the most favourable
beneficial conversion feature. This has been valued using the intrinsic value
method and resulted in the recording of a finance fee of $935,141 and an
increase in additional paid up capital of $935,141.

Subsequent to December 31, 2002 the notes were converted into 956,666
post-reverse stock split shares of the Company's common stock.


NOTE 6 - CAPITAL STOCK
--------------------------------------------------------------------------------

The Company's capitalization is 100,000,000 common shares with a par value of
$0.001 per share.

By agreement dated March 22, 2002 the Company reacquired 8,000,000 of its shares
of common stock from US Oil & Gas in exchange for the transfer back to US Oil
and Gas of certain of its non-producing oil and gas properties acquired on
August 29, 2001. The Company also reacquired 400,000 shares of common stock
previously issued as a finder's fee in connection with the original transaction.
The 8,400,000 were returned to treasury and cancelled on March 25, 2002.

On September 23, 2002 the Company entered into debt settlement agreements
whereby $664,077 of debt owing to related parties was to be settled by the
issuance of 6,077,720 common shares at a price of $0.11 per share.

Concurrent with the Company entering into an agreement in principle to acquire
Petrogen, Inc. the Board of Directors approved a 1 for 20 reverse stock split
subject to shareholder approval which was completed effective February 12, 2003.
Also,on October 15, 2002 the Board of Directors approved and adopted a new Stock
Option Plan providing the Board authorization to grant stock options to purchase
a total of 2,000,000 post reverse-split shares of common stock at priced to be
determined by the Board. The Company filed with the SEC a Registration Statement
on Form S-8 to register stock options under the Stock Option Plan in the amount
of 2,000,000 shares at a price of $0.50 per share. Subsequent to December 31,
2002, 2,000,000 options were granted under the Plan in connection with the
acquisition of Petrogen (refer to Note 3(b)), and 952,000 options were
exercised.

                                      F-12
<PAGE>

PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
================================================================================

NOTE 7 - RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------

One of the directors of the Company has been contracted by Investor
Communications, Inc. ("ICI") and is part of the management team provided to
Hadro Resources, Inc. by ICI, a shareholder. During the year ended December 31,
2002 a total of $408,440 was incurred to ICI for managerial, administrative and
investor relations services provided to the Company and cash of $50,000 was
advanced by ICI. In addition, interest of $37,623 was accrued. The Company
issued 4,787,517 shares in settlement of $523,103 in debt owing to ICI. At
December 31, 2002 $269,500 plus interest of $5,378 is owing to this company
which bears interest at 10% per annum and is without specific repayment terms.

Effective February 12, 2003 the Company and ICI entered into a consulting
services agreement whereby ICI will provide finance and general managerial
services to the Company for an amount not to exceed $10,000 per month for a
period of one year and on a month-to-month basis thereafter.

A director of the Company received $17,325 (2001 - $12,500) from ICI for fees
relating to work on the Company. This director is owed $14,279 plus $837 accrued
interest for payments made on behalf of the Company. These amounts accrue
interest at 10% per annum and are without specific repayment terms.

On September 23, 2002 the Company agreed to issued 1,290,203 common shares to an
individual and private company which are significant shareholders of the company
in settlement of debt owned to them in the amount of $140,973.

A company associated with a shareholder advanced $20,000 in the year. Of this
amount, $10,000 was converted to a convertible promissory note dated September
23, 2002, bearing interest at 9% per annum and convertible (principal and
interest) into common shares at a rate of $0.15 per share.

A company associated with a shareholder advanced $61,525 in the year. Of this
amount, $11,525 was converted to a convertible promissory note dated September
23, 2002, bearing interest at 9% per annum and convertible (principal and
interest) into common shares at a rate of $0.15 per share. The remaining $50,000
accrues interest at 10% per annum and is without specific repayment terms.

During the year, Oak Hills Energy, Inc. incurred $60,000 for remuneration to a
director of Oak Hills Energy, Inc. At December 31, 2002 $200,393 is owing to
this director and his private company for unpaid remuneration and production
services.

Refer to Note 3, 4 and 5.


NOTE 8 - INCOME TAXES
--------------------------------------------------------------------------------

The Company and its subsidiary have tax losses at December 31, 2002 which may be
available to reduce future year's taxable income. These carryforwards will
expire, if not utilized, beginning in 2014. The potential tax benefit of these
losses has not been recorded as a full-deferred tax asset valuation allowance
has been provided due to the uncertainty regarding the realization of these
losses.


                                      F-13
<PAGE>

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

     The Company's principal independent accountant from March 2001 to the
current date is Labonte & Co., #610 - 938 Howe Street, Vancouver, British
Columbia V6Z 1N9.


PART III

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

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

     Pursuant to the terms of the Agreement, the Board of Directors of the
Company has subsequently nominated and appointed additional persons effective
February 6, 2003 to serve as directors of the Company until the next annual
meeting of the Company's shareholders or until their successor has been elected
and qualified. Pursuant to the terms of the Agreement, the Board of Directors of
the Company also nominated and appointed certain individuals as officers of the
Company effective February 12, 2003. As of the date of this Annual Report, the
directors and officers of the Company are as follows:

      Name                 Age                   Position
      ----                 ---                   --------

Sacha H. Spindler          40                    President/Chief Executive
                                                 Officer, Chairman of the
                                                 Board and Director

L. William Kerrigan        47                    Executive Vice President/
                                                 Chief Financial Officer/
                                                 Secretary and Director

Grant Atkins               42                    Director


<PAGE>

     Biographies of the Executive Officers/Directors

     SACHA H. SPINDLER is the President/Chief Executive Officer, Chairman of the
Board and a Director of the Company. Mr. Spindler was previously the president,
chief executive officer and a director of Petrogen. Mr. Spindler, as a
co-founder of Petrogen, has developed an entrepreneurial expertise that has
spanned over 21 years through his having started and operated several successful
business ventures, as well as providing supervisory, management and corporate
development expertise as a consultant to numerous companies and non-profit
organizations over the past 15 years. Mr. Spindler possesses in-depth knowledge
of the equity markets and investment industry, as well as a strong fundamental
background in the daily responsibilities of corporate operations. During the
past six years, Mr. Spindler has developed an in-depth knowledge and
understanding of the oil and gas business in the areas of finance, structure,
negotiations and prospect leveragability coupled with a fundamentally
streamlined approach in the day to day operations of the business. Through his
operational acumen and international finance affiliations, Mr. Spindler brings a
wealth of knowledge and influence to the Company as its President and CEO,
ensuring a long-term vision of creating value through focused commitment and
responsible company building methodologies.

     L. WILLIAM KERRIGAN is the Executive Vice President/Chief Financial
Officer/Secretary and a director of the Company. Mr. Kerrigan was the executive
vice president, chief operating officer and a director of Petrogen. Mr.
Kerrigan, a Petrogen co-founder, received his degree as an Exploration Geologist
from the University in Tennessee. He provides Petrogen with a broad and
practical knowledge of the Oil and Gas business in North America and Central &
South America, and has developed strong affiliations throughout the entire
industry. Through his over 20 years in the industry as a Geologist and Operator,
Mr. Kerrigan has specialized in the day to day hands-on operations in the oil
and gas field. He has been involved in oil and gas drilling and production from
Wyoming to Florida during the span of his career, resulting in numerous
discoveries. Additionally, he has gained an acute ability in the development and
expansion of existing production utilizing extremely cost-effective methods
resulting in highly optimized operations. Mr. Kerrigan completed the detailed
regional study of the Mississippian Age Strata of the Cumberland Plateau of
Northeast Tennessee and has provided Geologic consulting services and expertise
on an international level to oil and gas companies in Ireland, Norway and
throughout the United States. Some of his clients include DuPont, Rice Services,
and Eastern Natural Gas.

     GRANT R. ATKINS is a director of the Company and was the president,
secretary/treasurer and a director of the Company since December 14, 2000. For
the past six years, Mr. Atkins has been self-employed and has acted as a
financial and project coordination consultant to clients in government and
private industry. He has extensive multi-industry experience in the fields of
finance, administration and business development. During 1998 through current
date, Mr. Atkins is a consultant through the private management consulting
companies of TriStar Financial Services, Inc. and Investor Communications
International, Inc. Mr. Atkins is also a member of the board of directors and
the president of Intergold Corporation, a publicly traded corporation formerly
engaged in the exploration of gold and silver, a member of the board of
directors and the president of Vega-Atlantic Corporation, a publicly traded
corporation engaged in the worldwide exploration of oil and gas, gold and other
precious metals, and a member of the board of directors of GeneMax Corp., a
publicly traded corporation in the biotech industry concentrating on cancer
immunotherapies.

     Involvement in Certain Legal Proceedings

     As of the date of this Annual Report, no director or executive officer of
the Company is or has been involved in any legal proceeding concerning (i) any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (ii) any conviction in a criminal


<PAGE>

proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offenses) within the past five years; (iii) being
subject to any order, judgment or decree permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).

AUDIT COMMITTEE FINANCIAL EXPERT

     As of the date of this Annual Report, the Board of Directors of the Company
has determined that the Company does not have an audit committee financial
expert nor does the Company have an audit committee.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and the persons who beneficially own more
than ten percent of the Common Stock of the Company, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Copies of all filed reports are required to be furnished to the Company pursuant
to Rule 16a-3 promulgated under the Exchange Act. Based solely on the reports
received by the Company and on the representations of the reporting persons, the
Company believes that these persons have complied with all applicable filing
requirements during the fiscal year ended December 31, 2002.

ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF OFFICERS AND DIRECTORS

     As of the date of this Annual Report, none of the directors or officers of
the Company are compensated for their roles as directors or executive officers.
However, as of the date of this Annual Report, Messrs. Spindler and Kerrigan
derive remuneration from the Company as compensation for consulting services
rendered. Mr. Spindler, the President and Chief Executive Officer of the
Company, currently invoices the Company $6,500.00 per month (plus expenses). As
of the date of this Annual Report, approximately $123,500 is due and owing by
the Company to Mr. Spindler based upon accrual of such monthly fees from
services rendered to Petrogen, Inc., which commenced September 2001. As of the
date of this Annual Report, Mr. Spindler has received approximately $19,500.00.
Mr. Kerrigan, the Executive Vice President and Chief Financial Officer of the
Company, currently invoices the Company $6,250.00 per month (plus expenses). As
of the date of this Annual Report, approximately $118,750 is due and owing by
the Company to Mr. Kerrigan based upon accrual of such monthly fees from
services rendered to Petrogen, Inc., which commenced September 2001. As of the
date of this Annual Report, Mr. Kerrigan has received $-0-. See "Summary
Compensation Table" below.

     Officers and directors of the Company may be reimbursed for any
out-of-pocket expenses incurred by them on behalf of the Company. As of the date
of this Annual Report, none of the officers or directors are party to employment
agreements with the Company. The Company presently has no pension, health,
annuity, insurance, profit sharing or similar benefit plans.

     Consulting Services Agreement

     On February 12, 2003, the Company and ICI entered into a consulting
services agreement (the "Consulting Services Agreement"). Pursuant to the terms
and provisions of the Consulting Services Agreement, ICI will provide to the
Company such finance and managerial services as may be determined by the Board
of Directors, from time to time, and in its sole and absolute discretion, in


<PAGE>

order to develop the various business interests of the Company in the energy
industry. Mr. Grant Atkins, a director of the Company, is employed by ICI and
part of the management team provided by ICI to the Company, and derives
remuneration from ICI for such services rendered to the Company. During fiscal
year ended December 31, 2002, Mr. Atkins was paid approximately $17,325 by ICI
for services rendered to the Company. See "Summary Compensation Table" below.

     Summary Compensation Table

                            Annual Compensation     Awards      Payouts
                           ---------------------   --------     -------
                              $      $       $     $      #       $         $
Name and Position   Year   Salary  Bonus   Other  RSA  Options   LTIP     Other
-----------------   ----   ------  -----   -----  ---  -------   ----     -----
                                              (1)
Gene D. Wilson      2000     0      0     $1,050   0      0        0        0
Prior Director      2001     0      0       0      0      0        0        0
                    2002     n/a

Jurgen A. Wolf      2001     0      0       0      0      0        0        0
Prior Director      2002     0      0       0      0      0        0        0

                                              (2)
Grant Atkins        2000     0      0       0      0      0        0        0
Director            2001     0      0    $18,500   0      0        0        0
                    2002     0      0    $17,325   0      0        0        0

                                              (3)
Sacha Spindler      2000     0      0       0      0      0        0        0
Pres./CEO           2001     0      0   $26,000    0      0        0        0
Director            2002     0      0   $78,000    0      0        0        0

                                              (4)
L. William Kerrigan 2000     0      0       0      0      0        0        0
Exec. Vice Pres./   2001     0      0   $25,000    0      0        0        0
CFO and Director    2002     0      0   $75,000    0      0        0        0

(1)  Received pursuant to a contractual arrangement between the Company and Gene
     D. Wilson during the time he was a director of the Company regarding the
     New Mexico Prospects.

(2)  Grant Atkins may indirectly receive compensation from the Company through
     the contractual relationship between the Company and ICI.

(3)  Amounts reflected during 2001 and 2002 are the accrual of compensation to
     be received pursuant to monthly amounts invoiced by Mr. Spindler for
     consulting services performed, of which $-0- has been paid to Mr. Spindler.

(4)  Amounts reflected during 2001 and 2002 are the accrual of compensation to
     be received pursuant to monthly amounts invoiced by Mr. Kerrigan for
     consulting services performed, of which $-0- has been paid to Mr. Kerrigan.

STOCK OPTION PLAN

     In conjunction with the Agreement, on October 9, 2002, the Board of
Directors of the Company unanimously approved and adopted a stock option plan
(the "Stock Option Plan"). The purpose of the Stock Option Plan is to advance
the interests of the Company and its shareholders by affording key personnel of
the Company an opportunity for investment in the Company and the incentive
advantages inherent in stock ownership in the Company. Pursuant to the
provisions of the Stock Option Plan, stock options (the "Stock Options") will be
granted only to key personnel of the Company, generally defined as a person
designated by the Board of Directors upon whose judgment, initiative and efforts
the Company may rely including any director, officer, employee or consultant of
the Company.

<PAGE>

     The Stock Option Plan is to be administered by the Board of Directors of
the Company, which shall determine (i) the persons to be granted Stock Options
under the Stock Option Plan; (ii) the number of shares subject to each option,
the exercise price of each Stock Option; and (iii) whether the Stock Option
shall be exercisable at any time during the option period of ten (10) years or
whether the Stock Option shall be exercisable in installments or by vesting
only. The Stock Option Plan provides authorization to the Board of Directors to
grant Stock Options to purchase a total number of shares of common stock of the
Company, not to 2,000,000 as at the date of adoption by the Board of Directors
of the Stock Option Plan. At the time a Stock Option is granted under the Stock
Option Plan the Board of Directors shall fix and determine the exercise price at
which shares of common stock of the Company may be acquired; provided, however,
that any such exercise price shall not be less than that permitted under the
rules and policies of any stock exchange or over-the-counter market which is
applicable to the Company.

     In the event an optionee who is a director or officer of the Company ceases
to serve in that position, any Stock Option held by such optionee generally may
be exercisable within up to ninety (90) calendar days after the effective date
that his position ceases, and after such 90-day period any unexercised Stock
Option shall expire. In the event an optionee who is an employee or consultant
of the Company ceases to be employed by the Company, any Stock Option held by
such optionee generally may be exercisable within up to sixty (60) calendar days
(or up to thirty (30) calendar days where the optionee provided only investor
relations services to the Company) after the effective date that his employment
ceases, and after such 60- or 30-day period any unexercised Stock Option shall
expire.

     No Stock Options granted under the Stock Option Plan will be transferable
by the optionee, and each Stock Option will be exercisable during the lifetime
of the optionee subject to the option period of ten (10) years or limitations
described above. Any Stock Option held by an optionee at the time of his death
may be exercised by his estate within one (1) year of his death or such longer
period as the Board of Directors may determine.

     The exercise price of a Stock Option granted pursuant to the Stock Option
Plan shall be paid in cash or certified funds upon exercise of the option.

     Incentive Stock Options

     The Stock Option Plan further provides that, subject to the provisions of
the Stock Option Plan, the Board of Directors may grant to any key personnel of
the Company who is an employee eligible to receive options one or more incentive
stock options to purchase the number of shares of Common Stock allotted by the
Board of Directors (the "Incentive Stock Options"). The option price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be no less than fair market value of a share of Common Stock on the date of
grant of the Incentive Stock Option. In accordance with the terms of the Stock
Option Plan, "fair market value" of the Incentive Stock Option as of any date
shall not be less than the closing price for the shares of Common Stock on the
last trading day preceding the date of grant. The option term of each Incentive
Stock Option shall be determined by the Board of Directors, which shall not
commence sooner than from the date of grant and shall terminate no later than
ten (10) years from the date of grant of the Incentive Stock Option, subject to
possible early termination as described above.

     Pursuant to the terms and provisions of the Agreement, the Company has
filed with the Securities and Exchange Commission a registration statement on
"Form S-8 - For Registration Under the Securities Act of 1933 of Securities to
Be Offered to Employees Pursuant to Employee Benefit Plans". The S-8
registration statement registers Stock Options under the Stock Option Plan in
the amount of 2,000,000 shares at $0.50 per share. The Board of Directors is
authorized, without further shareholder approval, to grant such options from
time to time to acquire up to an aggregate of 2,000,000 shares of the Company's
restricted Common Stock.

<PAGE>

     As of the date of this Annual Report, the Company has granted 1,000,000
post-Reverse Stock Split stock options to ICI or its designates, and an
additional 1,000,000 post-Reverse Stock Split stock options have been granted to
optionees, which were exchanged for existing stock options in Petrogen. As of
the date of this Annual Report, there are an aggregate of 2,000,000 stock
options granted and outstanding which are exercisable into 2,000,000 shares of
Common Stock. Stock options granted to executive officers and directors of the
Company are as reflected below in the "Options/SAR Grants Table." As of the date
of this Annual Report, certain stock options have been exercised. See "Aggregate
Options/SAR Exercises" below.

     Options/SAR Grants Table

--------------------------------------------------------------------------------
Name                 Number of    Percent of Total   Exercise Price     Date of
                     Securities   Options Granted                     Expiration
                     Underlying
                      Options
--------------------------------------------------------------------------------
                             (1)
Investor              1,000,000         50.0%            $0.50         02/12/06
 Communications
 International,
 Inc.(2)

Unit Holdings           500,000         25.0%            $0.50         02/12/06
 Ltd. (3)

L. William Kerrigan     300,000         15.0%            $0.50         02/12/06

Total                 1,800,000        37.68%
-------------------------------------------------------------------------------

(1)  As of the date of this Annual Report, and pursuant to certain Notices and
     Agreements of Exercise of Options, certain contractors to ICI have
     exercised 1,000,000 Stock Options at the exercise price of $0.50 per option
     to acquire 1,000,000 shares of the Common Stock of the Company. Pursuant to
     the terms and provisions of the Consulting Agreement, the Company
     previously granted to ICI 1,000,000 Stock Options (which were subject to an
     S-8 registration statement filed with the Securities and Exchange
     Commission). In connection with the exercise of the Stock Options, the
     shares of Common Stock of the Company were issued to certain contractors of
     ICI who have provided bona fide services to the Company under the
     Consulting Agreement.

(2)  Grant Atkins, a director of the Company, is employed by and a part of the
     management team of ICI.

(3)  Sacha H. Spindler, the President and Chief Executive Officer of the
     Company, is the sole director/officer and majority shareholder of Unit
     Holdings Ltd.

     Aggregated Options/SAR Exercises

--------------------------------------------------------------------------------
Name               Shares      Value     Number of Securities       Value of
                  Acquired    Realized  Underlying Unexercised   Unexercised in-
                 On Exercise                    Options        the-money Options
--------------------------------------------------------------------------------
Investor         1,000,000*  $3,100,000            0                  n/a
 Communications
 International,
 Inc.
--------------------------------------------------------------------------------

<PAGE>

*Pursuant to certain Notice and Agreements of Option, certain contractors to ICI
have exercised 1,000,000 Stock Options at the exercise price of $0.50 per option
to acquire 1,000,000 shares of the Common Stock of the Company. Pursuant to the
terms and provisions of the Consulting Services Agreement, the Company
previously granted to ICI 1,000,000 Stock Options (which were subject to an S-8
registration statement filed with the Securities and Exchange Commission). In
connection with the exercise of the Stock Options, the shares of Common Stock of
the Company were issued to certain contractors of ICI who have provided bona
fide services to the Company under the Consulting Services Agreement.

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

     The following table sets forth the name and address, as of the date of this
Annual Report, and the approximate number of shares of Common Stock of the
Company owned of record or beneficially by each person who owned of record, or
was known by the Company to own beneficially, more than five percent (5%) of the
Company's Common Stock, and the name and shareholdings of each officer and
director, and all officers and directors as a group as of the date of this
Annual Report.

     As of the date of this Annual Report, there are 10,378,292 shares of Common
Stock issued and outstanding.

--------------------------------------------------------------------------------
Title of Class    Name and Address of           Amount and Nature       Percent
                   Beneficial Owner                 of Class            of Class
--------------------------------------------------------------------------------
                                                          (1)(2)
Common Stock      Unit Holdings Ltd.               2,878,884             26.46%
                  4450 Arapahoe Avenue
                  Boulder, Colorado 80303

                                                          (1)(3)
Common Stock      L. William Kerrigan              2,300,932             21.55%
                  3130 Caldwell Road
                  Ashland City, Tennessee 37015

                                                          (1)
Common Stock      Petrogen International Ltd.      1,750,000             16.86%
                  3200 Southwest Freeway
                  Suite 3300
                  Houston, Texas 77027

                                                          (4)
Common Stock      All current officers and         5,179,817             46.34%
                  directors as a group
                  (3 persons)
--------------------------------------------------------------------------------

(1)  These are restricted shares of common stock.

(2)  Includes the assumption of the exercise of 500,000 incentive stock options
     into 500,000 shares of Common Stock at $0.50 per share expiring February
     12, 2006 pursuant to the terms and provisions of the Stock Option Plan. Mr.
     Sacha H. Spindler is an initial founding shareholder of Petrogen, and is
     the sole director/officer and a majority shareholder of Unit Holdings Ltd.

<PAGE>

(3)  Includes the assumption of the exercise of 300,000 incentive stock options
     into 300,000 shares of Common Stock at $0.50 per share expiring February
     12, 2006 pursuant to the terms and provisions of the Stock Option Plan. Mr.
     L. William Kerrigan is an initial founding shareholder of Petrogen.

(4)  Includes the assumption of the exercise of 800,000 incentive stock options
     into 800,000 shares of Common Stock at $0.50 per share expiring February
     12, 2006 pursuant to the terms and provisions of the Stock Option Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     As of the date of this Annual Report, Messrs. Spindler and Kerrigan derive
remuneration from the Company as compensation for consulting services rendered.
Mr. Spindler, the President and Chief Executive Officer of the Company,
currently invoices the Company $6,500.00 per month (plus expenses). As of the
date of this Annual Report, approximately $123,500 is due and owing by the
Company to Mr. Spindler based upon accrual of such monthly fees from services
rendered to Petrogen, Inc., which commenced September 2001. As of the date of
this Annual Report, Mr. Spindler has received approximately $19,500.00. Mr.
Kerrigan, the Executive Vice President and Chief Financial Officer of the
Company, currently invoices the Company $6,250.00 per month (plus expenses). As
of the date of this Annual Report, approximately $118,750 is due and owing by
the Company to Mr. Kerrigan based upon accrual of such monthly fees from
services rendered to Petrogen, Inc., which commenced September 2001. As of the
date of this Annual Report, Mr. Kerrigan has received $-0-.

     Consulting Services Agreement

     On February 12, 2003, the Company and ICI entered into the Consulting
Services Agreement for a period of one year and automatically renewed on a
month-to-month basis thereafter unless terminated with a 30 - day notice by
either party. Pursuant to the terms and provisions of the Consulting Services
Agreement, ICI shall provide to the Company such finance and managerial services
as may be determined by the Board of Directors, from time to time, and in its
sole and absolute discretion, in order to develop the various business interests
of the Company. Pursuant to further terms and provisions of the Consulting
Services Agreement, ICI shall be paid a monthly fee not to exceed $10,000 for
services rendered.

     The officers and directors of the Company are engaged in other businesses,
either individually or through partnerships and corporations in which they may
have an interest, hold an office or serve on the boards of directors. The
directors of the Company may have other business interests to which they may
devote a major or significant portion of their time. Certain conflicts of
interest, therefore, may arise between the Company and its directors. Such
conflicts can be resolved through the exercise by the directors of judgment
consistent with their fiduciary duties to the Company. The officers and
directors of the Company intend to resolve such conflicts in the best interests
of the Company. The officers and directors will devote their time to the affairs
of the Company as necessary.

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  The following exhibits are filed as part of this Annual Report:

          10.0 Consulting Services Agreement between Petrogen Corp. and Investor
               Communications International, Inc. dated February 12, 2003.

          99.2 J.W. Rhea Interests, Inc. "Estimation of Reserves" for Emily
               Hawes Field dated November 15, 2002.

          99.3 J.W. Rhea Interests, Inc. "Estimation of Reserves" for Brown
               Government Leases dated January 15, 2003.

          99.1 Certification Pursuant to 18 USC 1350.


     (b)  Reports on Form 8-K:

          (i)  8-K Report filed on February 19, 2003 - Item 1. Changes in
               Control of Registrant.

          (ii) 8-K Report filed on December 18, 2002 - Item 5. Other Events.

          (iii) 8-K Report filed on October 28, 2002 - Item 5. Other Events.

          (iv) 8-K Report filed on October 9, 2002 - Item 1. Changes in Control
               of Registrant.

ITEM 14. CONTROLS AND PROCEDURES

     The Company, under the supervision of the President, has conducted an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures within ninety (90) days of the filing date of
this Annual Report. Based upon the results of this evaluation, the Company
believes that they maintain proper procedures for gathering, analyzing and
disclosing all information in a timely fashion that is required to be disclosed
in its reports under the Securities Exchange Act of 1934, as amended. There have
been no significant changes in the Company's controls subsequent to the
evaluation date.

     There were no significant changes in the Company's internal control or in
other factors that could significantly affect the Company's internal controls
subsequent to the evaluation date.

SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                          PETROGEN CORP.

Dated: March 31, 2002                     By: /s/ Sacha H. Spindler
                                          ----------------------------------
                                          Sacha H. Spindler, President and
                                          Chief Executive Officer