**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**










**FORM
      20-F/A**


**Amendment
      No. 1**







[
                ]
            REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934.





[X]
            ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE FISCAL YEAR ENDED DECEMBER 31,
                2004





[
                ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934 FOR THE TRANSACTION PERIOD FROM ______________ TO
                ___________________





Commission
      File Number 0-18939





**BERKLEY
      RESOURCES INC.**


*(Exact
      name of Company as specified in its charter)*





**A
      CORPORATION FORMED UNDER THE LAWS OF BRITISH COLUMBIA,
      CANADA**


*(Jurisdiction
      of Incorporation or Organization)*





455
      Granville Street, Suite 400


Vancouver,
      British Columbia V6C 1T1


Canada


*(Address
      of principal executive offices)*





Securities
      registered or to be registered pursuant to Section 12(b) of the Act:
      NONE





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




**Common
                Shares, without Par Value**
              *(Title of
                Class)*





Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act:
      NONE





The
      number of outstanding Common Shares as of December 31, 2004 was
      9,681,977.





Indicate
      by check mark whether the Company (1) has filed all reports required to be
      filed
      by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
      preceding 12 months (or for such shorter period that the Company was required
      to
      file such reports), and (2) has been subject to such filing requirements for
      the
      past 90 days. [X] Yes [] No





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


Item
      17
      [X]   Item
      18 [
      ]





(Applicable
      only to issuers involved in bankruptcy proceedings during the past five
      years)





Indicate
      by check mark whether the Company has filed all documents and reports required
      to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934
      subsequent to the distribution of securities under a plan confirmed by a court.
      NOT APPLICABLE








**TABLE
      OF CONTENTS**




Introduction
              3Currency
              3Forward-looking
                  Statements
              3Part
                  I
              4Item
                  1.Identity
                  of Directors, Senior Management and Advisors
              4Item
                  2.Offer
                  Statistics and Expected Timetable
              4Item
                  3.Key
                  Information
              4Item
                  4.Information
                  on the Company
              11Item
                  5.Operating
                  and Financial Review and Prospects
              21Item
                  6.Directors,
                  Senior Management and Employees
              27Item
                  7.Major
                  Shareholders and Related Party Transactions
              31Item
                  8.Financial
                  Information
              32Item
                  9.The
                  Offer and Listing
              33Item
                  10.Additional
                  Information
              34Item
                  11.Quantitative
                  and Qualitative Disclosures About Market Risk
              41Item
                  12.Description
                  of Securities Other than Equity Securities
              41Part
                  II
              41Item
                  13.Defaults,
                  Dividend Arrearages and Delinquencies
              41Item
                  14.Material
                  Modifications to the Rights of Security Holders and Use of
                  Proceeds
              41Item
                  15.Controls
                  and Procedures
              41Item
                  16.[Reserved]
              42Item
                  16A.Audit
                  Committee Financial Expert
              42Item
                  16B.Code
                  of Ethics
              42Item
                  16C.Principal
                  Accountant Fees and Services
              42Item
                  16D.Exemptions
                  from the Listing Standards for Audit Committees
              43Item
                  16E.Purchases
                  of Equity Securities by the Issuer and Affiliated
                  Purchasers
              43Part
                  III
              43Item
                  17.Financial
                  Statements
              43Item
                  18.Financial
                  Statements
              43Item
                  19.Exhibits
              43


2


**Introduction**





Berkley
      Resources Inc., which we refer to as the "Company", was organized under the
      Company Act of the Province of British Columbia, Canada on July 18, 1986 under
      the name of Berkley Resources Inc. by virtue of a statutory amalgamation among
      Fortune Island Mines Ltd., Kerry Mining Ltd. and Berkley Resources Inc. The
      principal executive office of the Company is located at 455 Granville Street,
      Suite 400, Vancouver, British Columbia V6C 1T1, and its telephone number is
      604-682-3701. The principal business of the Company is that of a drilling
      participant in various oil and gas properties principally located in Alberta
      and
      Saskatchewan, Canada. In August 2001, the Company purchased the remaining
      interest in the office building that it occupies and became its sole owner.
      As a
      result, the Company now leases the other offices that it does not occupy to
      other businesses.





In
      this
      annual report on Form 20-F, which we refer to as the "Annual Report", except
      as
      otherwise indicated or as the context otherwise requires, the "Company", "we"
      or
      "us" refers to Berkley Resources Inc.





This
      Form
      20-F/A is being filed by Berkley Resources Inc. as Amendment No. 1 to its annual
      report on Form 20-F filed on July 1, 2005. The purpose of this Amendment No.
      1
      is to amend and revise certain disclosure contained in the annual report on
      Form
      20-F under the captions "Liquidity and Capital Resources", "Controls and
      Procedures" and "Supplemental Disclosure of Non-Cash Financing and Investing
      Activities" in the financial statements and to include the audit reports of
      the
      independent registered public accounting firms for the fiscal years of 2003
      and
      2002. Except to reflect the changes described above, this Amendment No. 1 does
      not, and does not purport to, modify or update the disclosure contained in
      the
      annual report on Form 20-F.





You
      should rely only on the information contained in this Annual Report. We have
      not
      authorized anyone to provide you with information that is different. The
      information in this Annual Report may only be accurate on the date of this
      Annual Report or on or as at any other date provided with respect to specific
      information.





**Currency**





Unless
      we
      otherwise indicate in this Annual Report, all references to "Canadian Dollars",
      "CDN$" or "$" are to the lawful currency of Canada and all references to "U.S.
      Dollars" or "U.S. $" are to the lawful currency of the United
      States





**Forward-looking
      Statements**





The
      following discussion contains forward-looking statements within the meaning
      of
      the United States Private Securities Legislation Reform Act of 1995 concerning
      the Company's plans which may affect the future operating results and financial
      position. Such statements are subject to risks and uncertainties that could
      cause our actual results and financial position to differ materially from those
      anticipated in the forward-looking statements. These factors include, but are
      not limited to, the factors set forth in the sections entitled "Risk Factors"
      in
      Item 3.D., and "Operating and Financial Review and Prospects" in Item 5.
      Statements concerning reserves and resources may also be deemed to constitute
      forward-looking statements to the extent that such statements reflect the
      conclusion that such reserves and resources may be economically exploitable.
      Any
      statements that express or involve discussions with respect to predictions,
      expectations, plans, projections, objectives, assumptions or future events
      or
      performance (often, but not always, using words or phrases such as "expects"
      or
      "does not expect", "is expected", "anticipates", "does not anticipate", "plans",
      "estimates", or "intends", or stating that certain actions, events or results
      "may", "could", "would", or "will" be taken, occur or be achieved) are not
      statements of historical fact and may be "forward-looking
      statements."


3


**Part
      I**





**Item
      1.Identity of Directors,
      Senior Management and Advisors**





Not
      applicable.





**Item
      2. Offer Statistics and Expected Timetable**





Not
      applicable.





**Item
      3. Key Information**





**A.** **Selected
      Financial Data**





The
      selected historical financial information presented in the table below for
      each
      of the years ended December 31, 2004, 2003, 2002, 2001 and 2000 is derived
      from
      the audited financial statements of the Company. The audited financial
      statements and notes for the balance sheets as at December 31, 2004 and December
      31, 2003, and the statements of operations for each of the years in the three
      year period ended December 31, 2004, are included in this Annual Report. The
      selected historical financial information for the years ended December 31,
      2001
      and 2000, presented in the table below are derived from financial statements
      of
      the Company that are not included in this Annual Report. The selected financial
      information presented below should be read in conjunction with the Company's
      financial statements and the notes thereto (Item 17) and the Operating and
      Financial Review and Prospects (Item 5) included elsewhere in this Annual
      Report.





The
      selected financial information for each of the years ended December 31, 2004,
      2003 and 2002 has been prepared in accordance with Canadian generally accepted
      accounting principles, which is referred to as "Canadian GAAP", and United
      States generally accepted accounting principles, which is referred to as "U.S.
      GAAP", and the selected financial data for each of the years ended December
      31,
      2001 and 2000 has been prepared in accordance with Canadian GAAP.





**Year
                Ended December 31****Canadian
                GAAP**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**
            
            **2000**OperationsOil
                and Gas Revenue
            
            $
            866,811
            
            $
            606,133
            
            $
            406,138
            
            $
            637,497
            
            $
            678,789Oil
                and Gas Production Expense
            
            
            416,254
            
            
            243,717
            
            
            189,681
            
            
            257,862
            
            
            184,168Amortization
                and Depletion
            
            
            260,000
            
            
            79,500
            
            
            39,900
            
            
            482,700
            
            
            97,600Rental
                Revenue
            
            
            232,607
            
            
            238,599
            
            
            235,670
            
            
            208,592
            
            
            174,025Rental
                Operations Expense
            
            
            245,731
            
            
            238,884
            
            
            218,318
            
            
            191,879
            
            
            186,734Net
                Income (loss)
            
            
            (729,034
            )
            
            (255,456
            )
            
            (127,647
            )
            
            (292,576
            )
            
            201,165Net
                Income Per Share (loss)
            
            
            (0.10
            )
            
            (0.04
            )
            
            (.02
            )
            
            (.051
            )
            
            .042**As
                at December 31****2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001**
            
            
            **2000**Balance
                SheetTotal
                Assets
            
            
            6,759,346
            
            
            3,615,691
            
            
            3,829,235
            
            
            3,855,897
            
            
            4,367,927Short
                Term Debt
            
            
            1,968,601
            
            
            711,222
            
            
            758,102
            
            
            909,017
            
            
            894,059Shareholders'
                Equity
            
            
            4,747,715
            
            
            2,767,967
            
            
            3,015,933
            
            
            2,893,580
            
            
            2,986,156Number
                of shares issued and outstanding
            
            
            9,681,977
            
            
            6,810,934
            
            
            6,795,934
            
            
            5,795,934
            
            
            4,795,934**Year
                Ended December 31****U.S.
                GAAP**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001**
            
            
            **2000**OperationsOil
                and Gas Revenue
            
            $
            866,811
            
            $
            606,133
            
            $
            406,138
            
            $
            637,497
            
            $
            678,789Rental
                Revenue
            
            
            232,607
            
            
            238,599
            
            
            235,670
            
            
            208,592
            
            
            174,025Net
                Income (loss)
            
            
            (729,034
            )
            
            (255,456
            )
            
            (191,847
            )
            
            (240,576
            )
            
            183,965Net
                Income Per Share (loss)
            
            
            (0.10
            )
            
            (0.04
            )
            
            (0.03
            )
            
            (0.042
            )
            
            0.038**As
                at December 31****2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001**
            
            
            **2000**Balance
                SheetTotal
                Assets
            
            
            6,857,146
            
            
            3,713,491
            
            
            3,927,035
            
            
            4,039,497
            
            
            4,499,527Total
                Liabilities
            
            
            2,011,631
            
            
            847,724
            
            
            813,302
            
            
            962,317
            
            
            1,381,771Shareholders'
                Equity
            
            
            4,845,515
            
            
            2,865,767
            
            
            3,113,733
            
            
            3,077,180
            
            
            3,117,756





4





**Exchange
      Rates**





The
      following table sets forth information as to the period end, average, high
      and
      low exchange rate data for Canadian Dollars and U.S. Dollars for the periods
      indicated based on the noon buying rate in New York City for cable transfers
      in
      Canadian Dollars as certified for customs purposes by the Federal Reserve Bank
      of New York (Canadian dollar = U.S. $1).





**Year
                Ended:**
              **December
                31**
            **Average**
            **Period
                End**
            **High**
            **Low**2000
            1.4855
            1.4995
            1.5600
            1.43502001
            1.5487
            1.5925
            1.6023
            1.49332002
            1.5704
            1.5800
            1.6128
            1.51082003
            1.4008
            1.2923
            1.5750
            1.29232004
            1.3017
            1.2034
            1.3970
            1.1775





The
      following table sets forth the high and low exchange rate for the past six
      months. As of June 21, 2005, the exchange rate was $1.2310 for each U.S.
      $1.00.





**Month**
            
            **High**
            
            **Low**December
                2004
            
            $
            1.2401
            
            $
            1.1856January
                2005
            
            $
            1.2422
            
            $
            1.1982February
                2005
            
            $
            1.2562
            
            $
            1.2294March
                2005
            
            $
            1.2463
            
            $
            1.2017April
                2005
            
            $
            1.2568
            
            $
            1.2146May
                2005
            
            $
            1.2703
            
            $
            1.2373




**B.       **Capitalization
      and Indebtedness****




Not
      Applicable.




**C.** **Reasons
      for the Offer and Use of Proceeds**




Not
      Applicable.





5


**D.** **Risk
      Factors**





In
      addition to the other information presented in this Annual Report, the following
      should be considered carefully in evaluating the Company and its business.
      This
      Annual Report contains forward-looking statements that involve risk and
      uncertainties. The Company's actual results may differ materially from the
      results discussed in the forward-looking statements. Factors that might cause
      such a difference include, but are not limited to, those discussed below and
      elsewhere in this Annual Report.





*Failure
      to Locate Commercial Quantities of Hydrocarbons and Geological
      Risks.* There is
      no assurance that commercial quantities of hydrocarbons will be discovered.
      Geological conditions are variable and of limited predictability. Even if
      production is commenced from a well or field, production will inevitably decline
      over the course of time, reducing the operating profitability of the enterprise
      and eventually causing its termination.





*Oil
      and Natural Gas Prices.* The
      Company has little control over the price it receives for its products. Prices
      are determined by the worldwide supply of and demand for energy. Levels of
      production maintained by the Organization of Petroleum Exporting Countries,
      referred to as "OPEC", member nations and other major oil producing countries
      are expected to continue to be a major determinant of oil price movements in
      the
      future. As a result, future oil price movements cannot be predicted with any
      certainty. Similarly, during the past several years, the market price for
      natural gas has been subject to significant fluctuations on a monthly basis
      as
      well as from year to year. These frequent changes in the market price make
      it
      impossible for the Company to predict natural gas price movements with any
      certainty. Oil prices started the year 2004 at U.S. $32.78 per barrel compared
      to 2003 at U.S. $32.23 per barrel for West Texas Intermediate, or "WTI". Oil
      prices held steady throughout 2004 to close at year-end 2004 at U.S. $43.65.
      The
      2004 full year average price for WTI was U.S. $41.00 compared to $31.00 per
      barrel in 2003. Natural gas prices opened the year 2004 at Cdn $6.38 per
      thousand cubic feet, referred to as "mcf", and closed year-end at Cdn $6.30.
      The
      full year 2004 average price for natural gas at the Alberta Energy Company
      trading hub at Suffield, Alberta, referred to as "AECO", was Cdn $6.50 compared
      to an average of Cdn $6.70 for the year 2003.





The
      Company cannot provide assurance that it will be able to market all oil or
      natural gas that the Company produces or, if such oil or natural gas can be
      marketed, that favorable price and contractual terms can be negotiated. Changes
      in oil and natural gas prices may significantly affect the revenues and cash
      flow of the Company and the value of its oil and natural gas properties.
      Further, significant declines in the prices of oil and natural gas may have
      a
      material adverse effect on the business and financial condition of the
      Company.





*It
      May Be Difficult to Enforce Civil Liabilities Against the
      Company* .
      Because
      the assets of the Company and its subsidiary, as well as the Company ¢ s
      jurisdiction of incorporation and the residences of its officers and directors,
      are mostly located outside of the United States, it may be difficult or
      impossible to enforce judgments granted by a court in the United States against
      the assets of the Company and its subsidiaries or the directors and officers
      of
      the Company who reside outside the United States.





*Operating
      History and Significant Historical Operating Losses.* We
      commenced operations in the early 1980’s. We have five major properties which
      have been in production since the mid-1980’s. The majority of wells on the
      properties, proved reserves and future production attributable to these
      properties are more susceptible to estimation discrepancies than fields with
      larger reserves and longer production histories.





We
      experienced earnings in fiscal 2000 of $201,165. In fiscal 2001, 2002, 2003
      and
      2004, we reported losses of $292,576, $127,647, $255,456 and $729,034,
      respectively. As at December 31, 2004, we had an accumulated deficit of
      $1,323,764. Our future viability should be considered in light of the risks
      and
      difficulties frequently encountered by companies engaged in the junior stages
      of
      oil and gas exploration, development and production activities.





6


*Penny
      Stock Rules May Make it More Difficult to Trade the Company's Common Shares.* The
      Securities and Exchange Commission, which we refer to as the "SEC", has adopted
      regulations which generally define a "penny stock" to be any equity security
      that has a market price, as defined, of less than U.S.$5.00 per share or an
      exercise price of less than U.S.$5.00 per share, subject to certain exceptions.
      Our securities may be covered by the penny stock rules, which impose additional
      sales practice requirements on broker-dealers who sell to persons other than
      established customers and accredited investors such as institutions with assets
      in excess of U.S.$5,000,000 or an individual with net worth in excess of
      U.S.$1,000,000 or annual income exceeding U.S.$200,000 or U.S.$300,000 jointly
      with his or her spouse. For transactions covered by this rule, the
      broker-dealers must make a special suitability determination for the purchase
      and receive the purchaser ¢ s
      written
      agreement of the transaction prior to the sale. Consequently, the rule may
      affect the ability of broker-dealers to sell our securities and also affect
      the
      ability of our investors to sell their shares in the secondary
      market.





*No
      Reliable Information Regarding Reserves* .
      The
      Company has engaged independent petroleum consultants to compile oil and gas
      reserve information with respect to its major properties and does have reliable
      information regarding the quantities of natural gas or oil that may be
      recoverable from these properties in future years, if any. There can be no
      assurance, however, that such information has been accurately compiled or is
      not
      based on assumptions which may prove to be inaccurate. Furthermore, if any
      one
      of our major properties stop producing, it could have a material adverse effect
      on our business, financial condition and operating results.





*We
      are Dependent on Seven Properties* .
      The
      Company currently receives substantially all of its income from seven discrete
      areas. If any one of the seven areas stop producing, it could have a material
      adverse effect on our business, financial condition and operating
      results.





*Risks
      Pertaining to Acquisitions and Joint Ventures* . **** Part
      of
      our business strategy is to expand through acquisitions and is therefore
      dependent upon our ability to complete suitable acquisitions and effectively
      integrate acquired assets into our operations. Suitable acquisitions, on terms
      acceptable to us, may not be available in the future or may require us to assume
      certain liabilities, including, without limitation, environmental liabilities,
      known or unknown.





*Exploration
      and Development Risks.* Exploration and development of natural gas and oil involves a high degree of
      risk that no commercial production will be obtained or that the production
      will
      be insufficient to recover drilling and completion costs. The costs of drilling,
      completing and operating wells is sometimes uncertain, and cost overruns in
      exploration and development operations can adversely affect the economics of
      a
      project. Our drilling operations may be curtailed, delayed or canceled as a
      result of numerous factors, including title problems, joint venture partner
      and/or operator decisions, equipment failures, weather conditions, marine
      accidents, fires and explosions, compliance with governmental requirements,
      and
      shortages or delays in the delivery of equipment. Furthermore, the completion
      of
      a well does not ensure a profit on the investment or a recovery of drill,
      completion and tie-in costs.





*Replacement
      of Reserves.* In
      general, the rate of production from natural gas and oil properties declines
      as
      reserves are depleted. The rate of decline depends on reservoir characteristics
      and other factors. Except to the extent we acquire properties containing proven
      reserves or conduct successful exploration and development activities, or both,
      our estimated proven reserves will decline as reserves are exploited. Our future
      natural gas and oil production, and therefore cash flow from operations and
      net
      earnings, are highly dependent upon our level of success in finding or acquiring
      additional economically recoverable reserves. The business of exploring for,
      developing and acquiring reserves is capital intensive. To the extent cash
      flow
      from operations is reduced and external sources of capital become limited or
      unavailable, our ability to make the necessary capital investment to maintain
      or
      expand our asset base of natural gas and oil reserves could be materially
      impaired.





7


*Estimating
      of Reserves and Future Net Cash Flows Risk.* Estimating
      natural gas, natural gas liquids and crude oil reserves, and future net cash
      flows includes numerous uncertainties, many of which may be beyond our control.
      Such estimates are essential in our decision-making as to whether further
      investment is warranted. These estimates are derived from several factors and
      assumptions, some of which are:





·  reservoir
      characteristics based on variable geological, geophysical and engineering  assessments;


·  future
      rates of production based on historical draw-down rates;


·  future
      net cash flows based on commodity price/quality assumptions, production costs,  taxes
      and
      investment decisions;


·  recoverable
      reserves based on estimated future net cash flows; and


·  compliance
      expectations based on assumed federal, provincial and environmental laws  and
      regulations.





Ultimately,
      actual production rates, reserves recovered, commodity prices, production costs,
      government regulations or taxation may differ materially from those assumed
      in
      earlier reserve estimates. Higher or lower differences could materially impact
      our production, revenues, production costs, depletion expense, taxes and capital
      expenditures.





Reserve
      estimates and net present values reported by us elsewhere in this Annual Report
      are based on estimated commodity prices and associated production costs that
      are
      assumed constant for the life of the reserves. Actual future prices and costs
      may be materially higher or lower.





We
      have
      historically invested a significant portion of our capital budget in drilling
      exploratory wells in search of unproved oil and gas reserves. We cannot be
      certain that the exploratory wells we drill will be productive or that we will
      recover all or any portion of our investments. In order to increase the chances
      for exploratory success, we often invest in seismic or other geoscience data
      to
      assist us in identifying potential drilling objectives. Additionally, the cost
      of drilling, completing and testing exploratory wells is often uncertain at
      the
      time of our initial investment. Depending on complications encountered while
      drilling, the final cost of the well may significantly exceed that which we
      originally estimated.





*Potential
      Variability in Quarterly Operating Results.* Demand
      for our products will generally increase during the winter because they are
      often used as heating fuels. The amount of such increased demand will depend
      to
      some extent upon the severity of winter. Accordingly, our net operating revenues
      are likely to increase during winter months, although the amount of increase
      and
      its effect on profitability cannot be predicted. Because of the seasonality
      of
      our business and continuous fluctuations in the prices of our products, our
      operating results for any past quarterly period may not necessarily be
      indicative of results for future periods and there can be no assurance that
      we
      will be able to maintain steady levels of profitability on a quarterly or annual
      basis in the future.





*Competition
      and Business Risk Management.* The
      natural gas and oil industry is highly competitive. We experience competition
      in
      all aspects of our business, including: searching for, developing and acquiring
      reserves; obtaining pipeline and/or facilities processing capacity, leases,
      licenses and concessions; and obtaining the equipment and labor needed to
      conduct operations and market natural gas and oil. Our competitors include
      multinational energy companies, other independent natural gas and oil concerns
      and individual producers and operators. Because both natural gas and oil are
      fungible commodities, the principal form of competition with respect to product
      sales is price competition. Many competitors have financial and other resources
      substantially greater than those available to us and, accordingly, may be better
      able to respond to factors such as changes in worldwide natural gas or oil
      prices, levels of production, the cost and availability of alternative fuels
      or
      the application of government regulations. Such factors, which are beyond our
      control, may affect demand for our natural gas and oil production. We expect
      a
      high degree of competition to continue.





8


*Shortage
      of Supplies and Equipment.* Our
      ability to conduct operations in a timely and cost effective manner is subject
      to the availability of natural gas and crude oil field supplies, rigs, equipment
      and service crews. Although none are expected currently, any shortage of certain
      types of supplies and equipment could result in delays in our operations as
      well
      as in higher operating and capital costs.





*Interruption
      from Severe Weather.* Our
      operations are conducted principally in Alberta and Saskatchewan. The weather
      during colder seasons in these areas can be extreme and can cause interruption
      or delays in our drilling and construction operations.





*Dependence
      on Third-Party Pipelines.* Substantially all our sales of oil and natural gas were effected through
      deliveries to local third-party gathering systems to processing plants in
      Alberta and Saskatchewan. In addition, we rely on access to interprovincial
      pipelines for the sale and distribution of substantially all of our gas. As
      a
      result, a curtailment of our sale of natural gas by pipelines or by third-party
      gathering systems, an impairment of our ability to transport natural gas on
      interprovincial pipelines or a material increase in the rates charged to us
      for
      the transportation of natural gas by reason of a change in federal or provincial
      regulations or for any other reason, could have a material adverse effect upon
      us. In such event, we would have to obtain other transportation arrangements
      or
      we would have to construct alternative pipelines. There can be no assurance
      that
      we would have economical transportation alternatives or that it would be
      feasible for us to construct pipelines. In the event such circumstances were
      to
      occur, our field netbacks from the affected wells would be suspended until,
      and
      if, such circumstances could be resolved.





*Operating
      Hazards and Uninsured Risks.* The oil
      and gas business involves a variety of operating risks, including fire,
      explosion, pipe failure, casing collapse, abnormally pressured formations,
      adverse weather conditions, governmental and political actions, premature
      reservoir declines, and environmental hazards such as oil spills, gas leaks
      and
      discharges of toxic gases. The occurrences of any of these events with respect
      to any property operated or owned (in whole or in part) by us could have a
      material adverse impact on us. We, and the operators of our properties, maintain
      insurance in accordance with customary industry practices and in amounts that
      we
      believe to be reasonable. However, insurance coverage is not always economically
      feasible and is not obtained to cover all types of operational risks. The
      occurrence of a significant event that is not fully insured could have a
      material adverse effect on our financial condition.





As
      our
      reserves of natural gas, natural gas liquids and crude oil decline, our success
      at replacing and adding to them is highly reliant on further exploration and
      development. To the extent we succeed, our operating cash flows and other
      capital sources may become insufficient so as to impair our ability to re-invest
      capital.





*Kyoto
      Protocol Risk.* The
      Kyoto Protocol treaty, referred to as the "Protocol", was established in 1997
      to
      reduce emissions of greenhouse gases, referred to as "GHG", that are believed
      to
      be responsible for increasing the earth's surface temperatures and affecting
      the
      global climate change. Canada ratified the Protocol in December 2002. Since
      the
      implementation of the Protocol, approximately 160 countries have committed
      to
      reduce GHG internationally. The Protocol was legally made effective
      internationally on February 16, 2005 and Canada has committed to meet a six
      percent reduction of emission over base-year 1990 during the period 2008 to
      2012. Canadian government assurances of cost and volume limits suggest that
      incremental risks and liabilities attributable to addressing Protocol related
      policies are manageable. While we believe we are a low-emission producer, it
      is
      not possible to predict the impact of how Protocol-related issues will
      ultimately be resolved and to what extent their impact will affect our future
      unit operating costs and capital expenditures.





9


*We
      will not be able to develop our reserves or make acquisitions if we are unable
      to generate sufficient cash flow or raise capital. If we are unable to increase
      our reserves, our business will be adversely affected because we will eventually
      run out of reserves.* We
      will
      be required to make substantial capital expenditures to develop our existing
      reserves, to discover new oil and gas reserves and to make acquisitions. We
      will
      be unable to accomplish these tasks if we are unable to generate sufficient
      cash
      flow or raise capital in the future.





*We
      are Subject to Government Regulation on the Removal of Natural Gas from
      Canada.* The
      price of natural gas sold is not regulated and, therefore, is determined by
      negotiation between buyers and sellers. Exports of natural gas from Canada
      require the approval of the National Energy Board, or the "NEB". All exports
      of
      natural gas require the issuance by the NEB of a license and the approval of
      the
      Governor in Council. Exporters are free to negotiate prices with purchasers
      but
      natural gas export sales contracts, or any amendment, agreement or change
      pertaining thereto, requires NEB approval.





The
      government of Alberta also regulates the removal of natural gas from its
      province, based on such factors as reserve availability, transportation
      arrangements and market conditions. In each Canadian province, the relevant
      regulatory agency must approve any proposed export. The U.S. represents a
      significant market for Canadian natural gas and any significant change in access
      to such market will have an effect on the price of natural gas in
      Canada.





On
      January 1, 1994, the North American Free Trade Agreement, referred to as
“NAFTA”, among the Governments of Canada, the U.S. and Mexico became effective.
      In the context of energy resources, Canada may only impose restrictions on
      the
      export of energy goods to the U.S. or Mexico where such restrictions do not:
      (i)
      reduce the proportion of energy resources exported relative to domestic use
      in
      Canada; (ii) impose an export price higher than the domestic price; or (iii)
      disrupt normal channels of supply. All three countries are prohibited from
      imposing minimum export or import price requirements.





NAFTA
      prohibits discriminatory border restrictions and export taxes. The agreement
      also requires each party to seek to ensure that, in the application of any
      energy regulatory measures, regulatory bodies avoid disruption of contractual
      arrangements and provide for orderly and equitable implementation appropriate
      to
      such measures.





*The
      Company's Investments are Subject to Environmental Regulation* .
      All
      phases of the oil and natural gas business are subject to environmental
      regulation pursuant to a variety of Canadian, U.S., federal, provincial, state
      and municipal laws and regulations, as well as international conventions, which
      are collectively referred to as the “Environmental Legislation”. Environmental
      Legislation regulates, among other things, the release, emission, handling,
      storage, use, transportation and disposal of various substances and wastes
      associated with the oil and natural gas industry. In addition, Environmental
      Legislation requires that refineries, pipelines, service stations, wells,
      facility sites and waste storage and disposal facilities be operated,
      maintained, decommissioned and reclaimed in accordance with prescribed
      provincial, territorial or federal standards. A breach of such Environmental
      Legislation may result in suspension or revocation of necessary licenses and
      authorizations, liability for clean-up costs, damages and the imposition of
      fines and penalties.





Where
      they are probable and can be reasonably estimated, future removal and site
      restoration costs (as those terms are used under the accounting recommendations
      of the Canadian Institute of Chartered Accountants), net of expected recoveries,
      are provided for in the Company's financial statements. Costs are estimated
      in
      current dollars based on current requirements of Environmental Legislation,
      costs, technology and industry standards and are included in the capital costs
      of the oil and gas properties. The liability for site restoration is adjusted
      annually for the passage of time and revisions to the original estimates. The
      annual charge is included in the operations through depletion and accretion.
      Removal and site restoration expenditures are charged to the accumulated
      provision as incurred. Based on these parameters, estimated future removal
      and
      site restoration costs primarily related to upstream properties has been
      provided for in the financial statements of the Company. Not all future removal
      and site restoration costs are foreseeable and not all such costs, even if
      foreseeable, can be reasonably estimated based on the parameters noted above
      and, as such, are not included in the future removal and site restoration cost
      provisions. Although the Company currently does not expect that its future
      removal and site restoration costs will have a material adverse effect on its
      financial condition or results of operations, there can be no assurance that
      such costs could not have such an effect.





10


Environmental
      Legislation also imposes, among other things, restrictions and obligations
      in
      connection with the generation, handling, storage, transportation, treatment
      and
      disposal of hazardous materials and waste and in connection with spills,
      releases, and emissions of various substances into the air, soil, subsoil,
      water
      and groundwater. In addition, certain types of operations, including exploration
      and development projects and significant changes to certain existing projects,
      may require the submission and approval of environmental impact assessments,
      which could impose additional costs or delays or prevent the completion of
      a
      project. Compliance with Environmental Legislation can require significant
      expenditures, and failure to comply with Environmental Legislation may result
      in
      the imposition of fines and penalties. The Company is committed to protecting
      and conserving the natural environment and complying with applicable
      Environmental Legislation. The Company believes that it is currently in
      substantial compliance with all existing material Environmental Legislation.
      The
      Company does not believe that the costs of complying with Environmental
      Legislation will have a material adverse effect on its financial condition
      or
      results of operations. However, there can be no assurance that the costs of
      complying with Environmental Legislation will not have such an
      effect.





**Item
      4. Information on the Company**





**A.** **History
      and Development of the Company**





The
      Company was organized under the Company Act of the Province of British Columbia,
      Canada on July 18, 1986 under the name of Berkley Resources Inc. by virtue
      of a
      statutory amalgamation among Fortune Island Mines Ltd., Kerry Mining Ltd. and
      Berkley Resources Inc. The principal executive office of the Company is located
      at 455 Granville Street, Suite 400, Vancouver, British Columbia V6C 1T1, and
      its
      telephone number is 604-682-3701. The principal business of the Company is
      that
      of a drilling participant in various oil and gas properties principally located
      in Alberta and Saskatchewan, Canada. In August 2001, the Company purchased
      the
      remaining interest in the office building that it occupies and became its sole
      owner. As a result, the Company now leases the other offices that it does not
      occupy to other businesses.





The
      Company presently participates in approximately 32 oil and gas wells in Alberta
      and Saskatchewan ranging from one percent to 35% working interests.
      Substantially all of the Company's oil and gas revenue is produced from seven
      discrete areas. Three are natural gas producers, three produce oil and one
      has a
      combination of oil and gas. Five areas have been producing for several years
      while two (one oil and one gas) are new developments. Since December 31, 2001,
      the Company has made principal capital expenditures of $25,458 for the year
      ended December 31, 2002, $582,707 for the year ended December 31, 2003 and
      $2,540,288 for the year ended December 31, 2004. In 2003, a major portion of
      the
      expenditures were in connection with the acquisition of the Dollard interest
      in
      southwestern Saskatchewan. In 2004, a major portion of the expenditures were
      incurred in connection with the drilling program conducted on the Brazeau area
      (as to approximately $1.3 million net) and the Senex area (as to approximately
      $1.0 million net). In 2005, approximately $1.7 million of capital expenditures
      have been made on the 3-D seismic program on the Senex area (as to approximately
      $0.340 million net) and the Brazeau area program (as to approximately $0.8
      million net). In 2005, the Company also divested itself of its interests in
      a
      substantial portion of its Halkirk area leases for approximately $112,500.
      These
      capital expenditures were primarily financed through the issuance of 2,871,043
      common shares for aggregate gross proceeds of $2,680,520.





11


Effective
      March 1, 2004, the Company swapped its ± 7.68%
      WI
      in most of its Skiff area leases and 25 oil and injection wells located thereon
      for a 15 to 20% interest in the Senex area of northern central Alberta. The
      Senex area now has four completed wells on the acquired lands, three of which
      are considered capable of producing oil in economic quantities. The Company
      also
      sold its interest in a substantial portion of its Halkirk area leases effective
      March 1, 2005. These were low interest properties with complex partnership
      issues. These transactions result in the Company presently holding participating
      interests in approximately 22 oil and gas wells in Alberta capable of production
      in economic quantities and ten in Saskatchewan.





The
      Company also owns a 100% interest in an office building and land in the downtown
      core of Vancouver, British Columbia, Canada.





**B.** **Business
      Overview**





The
      Company’s principal business activities are the acquisition, development and
      exploration, production, and marketing of petroleum and natural gas reserves
      and
      the management of the Company’s real estate holdings.





The
      investments made by the Company in petroleum and natural gas properties are
      chosen on the basis of, among other things: (i) the amount of cash available;
      (ii) the desired diversification of oil as contrasted by natural gas
      exploration; (iii) the geographical area in which the property is located;
      (iv)
      the nature and extent of available geological and geophysical data concerning
      the property; and (v) the time at which it is desirable to commence drilling
      activities, for reasons such as the availability of drilling equipment and
      the
      provisions of the drilling rights agreement and other relevant
      agreements.





In
      making
      an investment, the Company will enter into an operating agreement, which we
      refer to as an "Operating Agreement", with other investors. The Operating
      Agreement sets forth the participating interest of the parties and incorporates
      the operating procedures manual, referred to as the "Manual", adopted by the
      Canadian Association of Petroleum Landmen. According to the Manual, the parties'
      interest and liability in each investment is several, and not joint, with the
      other participants. The interest of the Company in the lands, wells and
      equipment is that of tenants in common. Each investor in a drilling property
      is
      deemed to be a "Joint Operator", and an "Operator" is the party appointed to
      carry out the operations of the drilling program for the joint account. The
      Company would be one of the Joint Operators in any Operating Agreement in which
      it participates. Each Joint Operator owns a share of the petroleum substances
      produced from the wells which is proportionate to that Joint Operator's
      ownership interest. Each Joint Operator, at its own expense, takes in kind
      and
      separately disposes of its proportionate share of production. If the Joint
      Operator fails or refuses to take its share of the products, the Operator has
      the authority to sell on behalf of that Joint Operator its share of the
      production. The Operator is delegated the authority to manage the exploration,
      development and operation of the joint lands. The Operator typically has the
      authority to commit on behalf of all Joint Operators up to $25,000 without
      separate written approval of all Joint Operators. Prior to commencement of
      work
      on any well covered by the Operating Agreement, the Operator must submit to
      each
      Joint Operator a program of drilling and an estimate of drilling costs and
      completion costs for approval by all Joint Operators.





Any
      assignment or transfer of the Company ¢ s
      interest in an Operating Agreement is subject to the procedures set forth in
      the
      Manual. The Company may be required to offer its interest to the Joint Operators
      prior to attempting a sale to a third party. In addition, the Company may
      "farmout" a portion of its interest and retain an overriding royalty on
      production.





12


The
      oil
      and gas industry deals in two basic forms of ownership interests, namely
      "Working Interest" and "Overriding Royalties":





(i) Working
      Interest, or "WI": WI means the percentage of undivided interest held by a
      Joint
      Operator (i.e. leaseholder) in a specific tract of land (i.e. joint lands).
      The
      WI held by all Joint Operators in any specific tract of joint lands must total
      100%. Each WI party is responsible for its WI percentage share of costs incurred
      to conduct "work" (i.e. drilling, seismic, production etc.) on the joint lands.
      WI are always considered to be an active interest in the costs, risks and
      benefits associated with the joint lands and operations conducted thereon and
      the oil or gas produced therefrom.





(ii) Overriding
          Royalties, or "ORR's": ORR's are a specified share of oil and/or gas as
          and when
          produced. ORR's are free and clear of costs, risk and expense to the holder
          of
          the ORR. Usually ORR's are based on gross production and as such are referred
          to
          as "Gross" ORR's or "GORR's". ORR's are considered a passive interest in
          as much
          as the holder of an ORR is not subject to any cost, risk or expense, nor
          is the
          ORR holder involved in any decision-making with respect to the royalty
          lands.





The
      Company's program for investing in drilling programs is based on several
      factors. The Company endeavors to obtain and review geological opinions on
      the
      property involved and if it is not the Operator of the well, it considers the
      reputation of the Operator. The Company attempts to identify drilling programs
      offering a low to medium risk on its investments. The Company also tries to
      keep
      a balance between investments in oil and gas. The Company attempts to reduce
      its
      risks by spreading its investments over several drilling ventures. The Company
      has not borrowed money for purposes of investing in any oil or gas
      venture.





In
      each
      investment, the Operator maintains its own staff or retains independent
      operating personnel (including landmen, geologists, accountants and engineers)
      that are employed to conduct the oil and gas operations of each joint venture,
      including supervision of the drilling and producing activities of the joint
      venture, and therefore the Company does not maintain independent staff or
      employees. The Operator exercises general control over the activities of the
      joint venture and has the authority to determine the timing of commencing,
      completing or abandoning any particular well authorized for drilling by the
      Joint Operators. The Operator maintains all records which are available to
      the
      Company upon reasonable request and at its expense. Most geotechnical
      information (such as well logs, geological and geophysical interpretative data)
      remains in the possession of the Operator but is available to a Joint Operator
      upon request.





**Operating
      Costs and Special Project Charges**





In
      Canada, the relationship of all investors in a drilling program is that of
      Joint
      Operators. The property on which drilling is conducted is deemed "joint lands"
      and is held by the Joint Operators as tenants in common. The Joint Operators
      are
      owners of the undeveloped joint lands and each Joint Operator is entitled to
      its
      percentage of the production and can dispose of it as it deems necessary.
      Therefore, the gross revenue from oil or gas production is the percentage of
      oil
      and gas owned by the Company which it has sold to a buyer company. Each Joint
      Operator, such as the Company, must pay its share of the expenses incurred
      in
      extracting its share of the production from the well. The Company ¢ s
      investment in any one drilling program ranges from approximately $20,000 to
      $2,000,000, the majority of which must be paid prior to any production revenue
      being realized.





13


**Company
      Activity**





The
      Company continues to pursue its dual objectives: (i) to participate in
      developing new drilling prospects; and (ii) to purchase on-line production
      whenever the right opportunity is found. Areas of significant Company activity
      are as follows:





1.
            John
                Lake, Alberta (Twp 55 Rge 1 W4M) - This sweet natural gas producing
                area
                is located in east central Alberta and was acquired by the Company
                through
                a farm in arrangement . The Company holds a 10.00% WI in this area
                which
                is operated by Crescent Point Energy Partnership.





2.
            Carbon
                Area, Alberta (Twp 29 Rge 22 W4M) - This natural gas producing area
                is
                operated by ATCO Gas and is located in central Alberta. It was acquired
                by
                the Company through a joint venture agreement. The Company’s interest is a
                6.00% to 10.00% WI.





3.
            Halkirk
                Area, Alberta (Twp 38 Rge 16 W4M) - This oil/natural gas producing
                area is
                operated by Compton Petroleum Partnership and is located in east
                central
                Alberta. It was acquired by the Company pursuant to a joint venture
                agreement. The Company’s WI's range from 3.125% to 6.25%. This area is
                operationally complex due to partnership and processing issues. The
                Company sold its interest in a substsantial portion of its Halkirk
                properties effective March 1, 2005 for approximately
                $112,500.





4.
            Zama/Virgo
                Area, Alberta (Twp 114 Rge 5 W6M) - The Company holds a 5.00% ORR
                on this
                oil production operated by Apache Canada Ltd. It is located in northwest
                Alberta and was acquired in the mid 1990s by the Company through
                a lease
                purchase and farm out arrangement.





5.
            Dollard
                Area, Saskatchewan (Twp 6 Rge 19 W3M) - This on-line oil production
                was
                purchased in late 2003 for a cash cost to the Company of $365,970.
                This
                property is located in southwestern Saskatchewan. Some infill drilling
                was
                conducted in 2004 which should increase the Company’s net daily production
                from this area to about 25 to 30 barrels per day. Infill drilling,
                retooling of some facilities and planned cleanup work will use up
                some
                cash in the short term. These expenditures are expected to provide
                increased production and cash flow into 2005 and
                beyond.





6.
            Senex
                Area, Alberta (Twp 92/93 Rge 6/7 W5M) - This multi-zone prospect
                was
                acquired by the Company on March 1, 2004 pursuant to the swap of
                its Skiff
                property discussed below. The Company holds a 15% to 20% WI in 14
                sections
                over this oil and gas prospect. An extensive 3-D seismic program
                was
                conducted over the joint lands in early 2005 at a cost of approximately
                $1.7 million (the Company's 20% share amounted to $340,000). Drilling
                is
                expected to resume in the middle of 2005. Two suspended wells acquired
                in
                the swap were recompleted and placed into production at an initial
                monthly
                average of approximately 75 barrels per day. Three additional wells
                were drilled in late 2004. Two are producing oil while the third
                is
                suspended.





7.
            Leduc
                Area, Alberta (Twp 49 Rge 26 W4M) - This D-1 (Wabamun) gas prospect
                was
                completed and placed into production in August 2004. This single
                well
                produces at 1.4 million cubic feet per day, or "mmcf/d". The Company
                holds a 4.00% WI in this project. Additional wells are expected to
                be
                drilled or tested in 2005.





8.
            Crossfield
                Area, Alberta (Twp 28 Rge 1 W5M) - This natural gas prospect is located
                50
                miles north of Calgary and is near ready to drill. The property was
                acquired through a joint leasing program. We have surveyed the location
                and acquired the surface lease. Formal licencing procedures will
                take time
                to complete as this is a “sour-gas” prospect. The Company holds a 35% WI
                in this project, which has as its primary objective, natural gas
                in the
                Crossfield formation at a depth of approximately 9,800 feet. The
                test well
                has targeted projected reserves of 30 to 50 billion cubic feet of
                natural
                gas and drilling costs are estimated at $2.5 million of which the
                Company's share is estimated at approximately $875,000.





14


9.
            Brazeau
                Area, Alberta (Twp 46 Rge 13 W5M) - This Nisku (D-2) natural gas
                prospect
                was drilled in the second half of 2004. The Company participated
                with two
                major oil and gas operators in completing this project which was
                placed
                into production in February 2005 at the initial rate of 4.0 mmfc/d.
                The Company paid 30% of the well costs to earn its 19.50 % WI. The
                test
                well cost approximately $7.1 million of which the Company's share was
                approximately $2.13 million.





10.
            Sturgeon
                Lake Area, Alberta (Twp 70 Rge 24 W5M) -This oil prospect is a
                well-defined seismic opportunity with projected recoverable reserves
                of
                five to ten million barrels and is located in central Alberta. It
                was
                acquired by the Company through a direct joint lease purchase. The
                Company
                holds a 27.50% WI in this prospect and it proposes to participate
                for ±15%
                of the drilling costs and farm out the remaining ±12.50%. The person to
                which the Company has farmed out the remaining 12.5% WI expects to
                complete the purchase of a 28.25% WI and have this project drill-ready
                by
                the fourth quarter of 2004. The Company's level of participation
                in the
                well costs will be influenced by the surface location obtained by
                the
                person to whom the Company has farmed out the remaining 12.5% WI.
                The
                preferred but more difficult to obtain surface location closer to
                the
                bottom-hole target (which is under Sturgeon Lake) would see well
                costs of
                about $2.2 million. The fallback location which is more distant from
                the
                bottom-hole target would see drilling costs projected at $3.1 million.





11.
            Skiff
                Area, Alberta (Twp 5 Rge 14 W4M) - The Company swapped its 5% to
                10%
                interests in this oil producing property for a 15% to 20% WI in the
                Senex
                area in northern central Alberta effective March 1, 2004.





12.
            Other
                Propects - The Company will continue to seekout and develop new drilling
                opportunities for its own account and jointly with other operators.





As
      reported throughout 2004, high oil and gas prices have provided the larger
      oil
      and gas producers with huge amounts of unbudgeted cash which they are now using
      to purchase on-line production as well as conduct aggressive drilling programs.
      This is the first time in several years that conventional oil and gas companies
      have been able or willing to compete with Income Trust Funds for on-line
      production. The ever increasing prices paid for on-line production and the
      threat of increasing interest rates has cooled-down Income Trust Funds to some
      degree. Also, Income Trust Funds must, by design, distribute large amounts
      of
      their cash to unit holders. These distributions do not seem to be finding their
      way back to industry as quickly as in the past thus opening the field to cash
      strong conventional operators. The Company continues its watch for on-line
      production that may be found below the radar of both Income Trust Funds and
      cash
      strong mid-sized operators; however these opportunities are very
      limited.





**Reserves**





Through
      to December 31, 2003, the Company engaged independent petroleum consultants
      to
      compile oil and gas reserve information with respect to its two major producing
      properties, Skiff and John Lake. The Company had access to similar oil and
      gas
      reserve information from other Joint Operators or the Operator of the other
      major properties. Some information was obtained from the unrelated Joint
      Operator ¢ s
      independent petroleum consultants. Since the Joint Operator for whom the report
      was prepared had a different percentage ownership from that of the Company,
      it
      is necessary to adjust the numbers to reflect the Company ¢ s
      percentage of ownership. Furthermore, the oil and gas reserve information relied
      upon by the Company in its financial statements ascertains the reserves on
      pricing assumptions which are not permitted under SEC rules but are acceptable
      under Canadian accounting rules. Effective December 31, 2004, the Company had
      all of its major producing properties evaluated by independent petroleum
      consultants who assigned total recoverable reserves to the Company's interest
      of
      541,000 barrels of oil equivalent, or "boe": 40% was comprised of natural gas
      and 60% was comprised of oil and liquids. Natural gas is converted to boe at
      the
      industry standard rate of 6:1. The Company has an average interest of 15.23%
      in
      8.504 billion cubic feet of recoverable natural gas or 1.295 billion cubic
      feet
      net, which equates to 216,000 boe, and 20.17% in 1.614 million barrels of
      recoverable oil which equates to 325,000 barrels net.





15


**Competition**





The
      crude
      oil and natural gas industry, domestically and in the international arena,
      is
      highly competitive by nature. The Company must compete with integrated oil
      and
      natural gas companies and independent producers and marketers of crude oil
      and
      natural gas products in all aspects of the Company's business. This competition
      extends to exploration, property and asset acquisition and the selling of the
      Company's crude oil and natural gas products. The financial strength of the
      Company's competitors may be at times greater than that of the
      Company.





**Government
      Regulation and Environmental Matters**





*Government
      Regulation*





On
      March
      28, 1985, an agreement regarding energy pricing and taxation, known as the
      Western Accord, was entered into by the Government of Canada and the Canadian
      provinces of Alberta, Saskatchewan and British Columbia. The Western Accord
      called for the deregulation of Canadian crude oil pricing and marketing,
      proposed changes to domestic natural gas pricing, and announced the elimination
      of an amendment to a number of federal oil and gas taxes, charges and
      incentives. Based on the Western Accord, crude oil pricing, including synthetic
      oil pricing, was deregulated June 1, 1985, so that prices would be negotiated
      between the buyer and seller.





On
      October 31, 1985, the Province of Alberta and the Canadian government reached
      an
      agreement that provided a framework for natural gas deregulation. The agreement
      established a mechanism to allow prices to be negotiated directly between
      consumers and producers. After November 1, 1985, the price of natural gas
      exported to the United States or sold in Canada was deregulated.





At
      the
      present time, Canadian natural gas is supplied to California by two pipelines:
      (i) a direct link through the San Francisco based Pacific Gas Transmission
      Company; and (ii) a displacement link via Pacific International Transmission
      Company. Both lines are presently committed. Pacific Gas Transmission has
      announced a proposed expansion of its pipeline which will deliver more Alberta
      natural gas to California. In 1998, construction of a new pipeline covering
      approximately 620 miles was completed, running from Alberta to the Montana
      border and to Opal, Wyoming, connecting with the Kern River Gas Transmission
      Co.
      pipeline which runs to southern California. California is an important market
      for Alberta natural gas producers because of the growing demand for natural
      gas
      in that state, but such importance has shifted slightly due to the integration
      of U.S. Midwest markets through the Alliance Pipeline system, which commenced
      operations in 1999.





Since
      1974, the Province of Alberta has had a program entitled "Price-Sensitive
      Alberta Royalty Tax Credit Program", referred to as the "Tax Credit Program".
      The Tax Credit Program provided for a refund of portions of the royalties paid
      to the Province of Alberta by the producers on the sale of oil and gas produced
      in Alberta. The refund amount to producers is based on the price received for
      the oil and gas produced. For financial statement purposes, the Company accounts
      for the tax credit by reducing its operating expenses by the amount of the
      credit resulting in an increase in income before taxes. For tax purposes, since
      it is intended not to be taxed, the amount of the credit is reinstated as an
      operating expense and thus reduces taxable income. The maximum credit available
      to a company is $1.0 million.





16


*Environmental
      Matters*





Environmental
      regulations impose, among other things, restrictions, liabilities and
      obligations in connection with the generation, handling, use, storage,
      transportation, treatment and disposal of hazardous substances and waste, and
      in
      connection with spills, releases and emissions of various substances to the
      environment. Environmental regulation also requires that wells, facility sites
      and other properties associated with our operations be operated, maintained,
      abandoned and reclaimed to the satisfaction of applicable regulatory
      authorities. In addition, certain types of operations, including exploration
      and
      development projects and changes to certain existing projects, may require
      the
      submission and approval of environmental impact assessments or permit
      applications. Compliance with environmental regulation can require significant
      expenditures, including expenditures for clean up costs and damages arising
      out
      of contaminated properties and failure to comply with environmental regulations
      may result in the imposition of fines and penalties. We believe that we are
      in
      substantial compliance with such laws and regulations, however, such laws and
      regulations may change in the future in a manner which will increase the burden
      and cost of compliance.





In
      1994,
      the United Nations' Framework Convention on Climate Change came into force
      and
      three years later led to the Protocol which requires, upon ratification, nations
      to reduce their emissions of carbon dioxide and other greenhouse gases. In
      December 2002, the Canadian federal government ratified the Protocol. If certain
      conditions are met and the Protocol enters into force internationally, Canada
      will be required to reduce its GHG emissions. Currently, the upstream crude
      oil
      and natural gas sector is in discussions with various provincial and federal
      levels of government regarding the development of GHG regulations for the
      industry. It is premature to predict what impact these potential regulations
      could have on the Company's sector but it is possible that the Company would
      face increases in operating costs in order to comply with a GHG emissions
      target.





Certain
      laws and governmental regulations may impose liability on us for personal
      injuries, clean-up costs, environmental damages and property damages, as well
      as
      administrative, civil and criminal penalties. We maintain limited insurance
      coverage for sudden and accidental environmental damages, but do not maintain
      insurance coverage for the full potential liability that could be caused by
      sudden and accidental environmental damage. Accordingly, we may be subject
      to
      liability or may be required to cease production from properties in the event
      of
      such damages.





Each
      province in Canada has its own regulatory authorities which oversee, licence
      and
      monitor all oil and gas activity including seismic, drilling, production,
      transportation, processing and environmental matters related thereto. In
      Alberta, where most of the Company’s assets are located, that authority is the
      Alberta Energy and Utilities Board or the "AEUB". In order to explore any claim
      or lease, it is necessary to obtain a geophysical or drilling license and it
      may
      be necessary to post a bond with notices to several Canadian governmental
      agencies, including the provincial environmental agency. The procurement of
      drilling licenses has had no material adverse impact on the Company ¢ s
      operations. In certain areas defined as "sensitive areas", the provincial
      environmental agency requires special work permits. The Company's investments
      do
      not include property located within any defined "sensitive areas".





**Interruption
      from Severe Weather**





Presently,
      our operations are conducted principally in the central region of Alberta and
      in
      Saskatchewan. The weather can be extreme at times due to cold or rain which
      can
      cause interruption or delays in our drilling and construction
      operations.





**C.** **Organizational
      Structure**





The
      Company has no subsidiaries.





17


**D.** **Property,
      Plants and Equipment**





The
      Company is in the business of participating in various oil and gas drilling
      ventures in Alberta and Saskatchewan, by entering into Operating Agreements
      with
      other investors. Operating Agreements specify that each investors' ownership
      in
      the lands, wells and equipment is that of tenants-in-common. The following
      map
      sets forth the Company's more significant areas of activity:










The
      following is a description of the various interests of the Company in its oil
      and gas properties as at June 1, 2005.





**Lease
                  No.**
              **Description**
              **Interest**
              **Status**Berry34305
              Sec.29-27-13
                  W4M
              8.92867%
              Not
                  ProducingBrazeau
              Sec.13-46-13
                  W5M
              30.00%
                  WI BPO
              Producing
                  - gas19.50%
                  WI APOCarbon047790068
              Sec.29-29-22
                  W4M
              6%WI
              Producing
                  - gas32443
              Sec.32-29-22
                  W4M
              6.25%WI
              Producing
                  - gas25906
              Sec.28-29-22
                  W4M
              6.25%WI
              Producing
                  - gas0477010002
              Sec.31-29-22
                  W4M
              10%WI
              Producing
                  - gasCrossfield
              Twp
                  28 Rge 1 W5M
              35%
                  WI
              Prep.
                  to drillDollard
              Twp
                  6/7 Rge 19 W3M
              20%
                  WI
              Producing
                  - oilEconomy
                  Creek5498120007
                5498120007
                5498120008
                5498120008
                0598040371
              Sec.3-70-1W6M
                Sec.10-70-1W6M
                Secs.4,
                  5, 8&9-70-1W6M
                Sec.17-70-1W6M
                Secs.20&21-70-1
                  W6M
              25%WI
                50%WI
                25%WI
                50%WI
                50%WI
              Not
                  Producing
                Not
                  Producing
                Not
                  Producing
                Not
                  Producing
                Not
                  ProducingNorth
                  Halkirk34397
              Sec.14-39-16
                  W4M
              6.25%WI
              Not
                  Producing34398
              S1/2
                  & N1/2 Sec.22-39-16 W4M
              6.25%WI
              Not
                  Producing26457
              N/2
                  Sec.22-39-16 W4M
              6.25%WI
              Not
                  ProducingSouth
                  Halkirk34282
              Sec.16
                  38-16 W4M
              3.125%WI
              Producing
                  - gas/oil32298
              Sec.20-38-16
                  W4M
              6.25%WI
              Producing
                  - gas/oil
   18
  Freehold
                Sec.E/2
                    19-38-16 W4M
                6.25%WI
                Producing
                    - gas/oilFreehold
                    A-8057
                Sec.8-38-16
                    W4M
                6.25%WI
                Producing
                    - gas/oilPanCan
                    PNG 16258
                NE/4
                    Sec.17-38-16 W4M
                6.25%WI
                Producing
                    - gas/oil0478020150
                S/2&NE/4
                    Sec.18-38-16 W4M
                3.125%WI
                Producing
                    - gas/oil0478080305
                SE/4
                    Sec.20-38-16 W4M
                0.75%WI
                Producing
                    - gas/oilHaven047939297
                Sec.12-25-4
                    W4M
                0.3%WI
                Not
                    ProducingSec.7,
                    18-25-3 W4M
                0.3%WI
                Not
                    Producing38054
                Sec.7,
                    18&20-25-4 W4M
                0.50%WI
                Not
                    ProducingJohn
                    Lake40852
                All
                    Sec.26&27-55-1 W4M
                10%WI
                Producing
                    - gasSec.1-56-1
                    W4M
                10%WI
                Producing
                    - gas485070102
                W/2
                    36-55-1 W4M
                10%WI
                Producing
                    - gas487040220
                E/2
                    Sec.36-55-1 W4M
                10%WI
                Producing
                    - gas40854
                NW/4
                    12-56-1 W4M
                  SE/4
                    14-56-1-W4M
                10%WI
                  10%WI
                Producing
                    - gas
                  Producing
                    - gas40853A
                All
                    Sec.15-56-1-W4M
                10%WI
                Producing
                    - gas40855A
                All
                    Sec.24-56-1 W4M
                10%WI
                Producing
                    - gas40856
                All
                    Sec.34-56-1 W4M
                10%WI
                Producing
                    - gasLeduc
                  
                  Manyberries
                All
                    Sec.33-49-26 W4M
                4%
                    WI
                Producing
                    - gas35828
                SE
                    Sec.23-5-5 W4M
                50%WI
                Not
                    Producing26592
                W/2
                    Sec.23-5-5 W4M
                50%WI
                Not
                    Producing01818
                NE/4
                    Sec.23-5-5 W4M
                50%WI
                Not
                    ProducingOyen30364
                S/2
                    Sec.16-29-4 W4M
                1%WI
                Not
                    Producing30365
                SW/4
                    Sec. 24-29-5 W4M
                0.750%WI
                Not
                    Producing29517
                N/2
                    Sec.24-29-5 W4M
                0.750%WI
                Not
                    ProducingSenex
                Twp
                    92/93 Rge 6/7 W5M
                15/20%
                    WI
                Producing
                    - oilSibbald39367
                Sec.2,4,
                    E/2 9&10-28-1 W4M
                0.50%WI
                Producing
                    - gas0476122257
                W/2
                    9-28-1 W4M
                  Sec.3-28-1
                    W4M
                0.25%WI
                  0.25%WI
                Not
                    Producing
                  Not
                    Producing29513
                S/2
                    Sec.15-28-1 W4M
                1.00%WI
                Producing
                    - gas6359A
                N/2
                    Sec.15&S/2 Sec.22-28-1
                1.00%WI
                Not
                    ProducingSkiffSawtooth
                NW1/4Sec.16,SE1/4Sec.20;Lsds
                    2,
                  7&8
                    & SW1/4Sec.21-5-14 W4M
                7.67%WI
                Producing
                    - oil0484080300
                NW1/4Sec.29-4-14
                    W4M
                10.526%WI
                Producing
                    - oilW1/2Sec.32-4-14
                    W4M
                5.26315%
                Producing
                    - oil048307070286
                Lsds.3,4&5
                    of Sec.5-5-14
                5.50%WI
                Producing
                    - oilLsds.6
                    of Sec.5-5 14 W4M
                5.50%WI
                Producing
                    - oilNW1/4
                    of Sec.9-5-14 W4M
                5.50%WI
                Producing
                    - oil
   19
  32596
                Lsd.5
                    of Sec.16-5-14 W4M
                10%WI
                Producing
                    - oil0483030060
                NW1/4
                    of Sec.16-5-14-W4M
                10%WI
                Producing
                    - oil0496100384
                W1/2&Lsd.10,15-5-14
                    W4M
                10%WI
                Producing
                    - oil36854
                Lsd.1&NW1/4
                    of Sec.21-5-14
                10%WI
                Producing
                    - oilLsds.2,7&8
                    & SW1/4 of Sec.21-5-14 W4M
                10%WI
                Producing
                    - oil7865A
                NE1/4
                    of Sec.21-5-14 W4M
                10%WI
                Producing
                    - oil0486070002
                NW1/4
                    of Sec.22-5-14 W4M
                6.30%WI
                Producing
                    - oil0477080167
                SW1/4
                    of Sec.28-5-14 W4M
                10%WI
                Producing
                    - oilSturgeon
                    Lake5495080092
                Sec.23,26,27,34,35-70-24
                    W5M
                27.5%WI
                Not
                    ProducingZama
                    Virgo0591080261
                N/2
                    Sec.20-114-5 W6M
                5.00%
                    GORR
                Producing
                    - oil091120175
                NW/4
                    Sec.26-114-5 W6M
                5.00%
                    GORR
                Producing
                    - oil092020380
                W/2
                    Sec.22-115-5 W6M
                Sliding
                    Scale ORR
                Producing
                    - oil093020449
                SE/4
                    Sec.27-114-5 W6M
                50%
                    of 10% GORR
                Producing
                    - oil




Office
                Building455
                Granville Street
              Vancouver,
                Canada
            Lot
                B, Block 22, District
              Lot
                541, Plan 8227
            100%
            N/A




**Productive
      Wells and Acreage**





The
      following chart of the Company's total gross and net productive wells, expressed
      separately for oil and gas, and the total gross and net developed acres (i.e.,
      acres spaced or assignable to productive wells) by the geographic areas is
      as at
      June 1, 2005.





**Geographic****Region**
            **Total
                Gross****Wells**
            **Total
                Net Productive****Wells**
            **Target
                Oil Or****Gas**
            **Total
                Gross****Developed
                Acres**
            **Total
                Net****Developed
                Acres**Alberta
            22
            1.1
                oil - 2.0 gas
            both
            12,166
            2,433Saskatchewan
            10
            2
            oil
            4,480
            850





**Undeveloped
      Acreage**





As
      at
      June 1, 2005, the amounts of undeveloped acreage, both leases and concessions,
      in the western Canada (Alberta) geographic area consists of 40,554 gross acres
      and 5,488 net acres. The remaining terms on the leases within those properties
      are variable. Producing leases continue for duration of productive
      lives.





**Drilling
      Activity**





The
      following table explains the number of productive and dry exploratory or
      development wells drilled in the last three fiscal years. A dry well (hole)
      is
      an exploratory or a development well found to be incapable of producing either
      oil or gas in sufficient quantities to justify completion as an oil or gas
      well.
      A productive well is an exploratory or a development well that is not a dry
      well. The number of wells drilled refers to the number of wells (holes)
      completed at any time during the fiscal years, regardless of when drilling
      was
      initiated. The term "completion" refers to the installation of permanent
      equipment for the production of oil or gas, or, in the case of a dry hole,
      to
      the reporting of abandonment to the appropriate agency.




20





**Exploratory
                Wells Drilled**
            **Development
                Wells Drilled****Geographic****Region**
            **Year**
            **Number
                of Net****Productive**
            **Number
                of Net****Dry**
            **Number
                of Net****Productive**
            **Number
                of Net Dry**Alberta
            2004
            0.70
            0.15
            0.20
            Nil2003
            Nil
            0.28
            0.10
            Nil2002
            Nil
            Nil
            Nil
            NilSaskatchewan
            2004
            Nil
            Nil
            0.20
            Nil2003
            Nil
            Nil
            Nil
            Nil2002
            Nil
            Nil
            Nil
            Nil




**Delivery
      Commitments**





The
      Company has no obligation to provide a fixed and determinable quantity of oil
      or
      gas in the near future under existing contracts or agreements or material
      information concerning the estimated availability of oil and gas from any
      principal sources. *See
      also* Item 3.
      D. Risk Factors regarding quantity and price limitation by government
      agencies.





**Item
      5. Operating and Financial Review and Prospects**





This
      discussion and analysis of the operating results and the financial position
      of
      the Company for the years ended December 31, 2004 and 2003 should be read in
      conjunction with the financial statements and the related notes attached
      hereto.





**A.** **Operating
      Results**





The
      Company's principal business is participating in various oil and gas drilling
      ventures in western Canada. The Company has interests in various wells which
      vary from 1.00% to 35% and covers approximately 40 oil and gas wells. Based
      on
      its oil and gas revenues for the year ended December 31, 2004, the Company
      received substantially all of its income from seven discrete areas: (i) John
      Lake; (ii) Skiff; (iii) Zama/Virgo; (iv) Halkirk; (v) Carbon; (vi) Dollard;
      and
      (vii) Leduc. These properties are expected to stay in production during the
      year
      ended December 31, 2005 except for Skiff and Halkirk which have been sold.
      Brazeau is expected to produce throughout 2005 as well.





**Overall
      Performance**





The
      Company operates in two distinct segments, oil and gas and real estate rental.
      An overview analysis by segment is as follows:





*Oil
      and Gas*





The
      Company has continued its commitment to prospect development with the objective
      of bringing prospects to drilling stage and then farming out the drilling to
      other parties. The strong cash position enjoyed by many operators due to high
      oil and gas prices has resulted in a strong demand for drillable prospects.
      The
      Company expects this situation to enable it to leverage-up its investment in
      prospects developed by it and brought to drilling stage.





The
      Company presently participates in approximately 32 oil and gas wells in Alberta
      and Saskatchewan ranging from 1% to 35% working interests. Substantially all
      of
      the oil and gas revenue the Company received in 2004 was from seven discrete
      areas: John Lake; Halkirk; Carbon; Skiff; Zama/Virgo; Dollard; and Leduc. There
      are four producing gas wells in John Lake; four gas wells in Carbon; seven
      producing gas wells in Halkirk (which was sold in March, 2005); 20 producing
      oil
      wells in Skiff (which was sold in March, 2004); two producing oil wells in
      Zama/Virgo; ten producing oil wells in Dollard; and one producing gas well
      in
      Leduc. All areas, except Leduc, have been producing for over ten years. The
      Company is not the Operator of any of these wells.




21


*Oil
      and Gas Industry Overview*




Although
      2004 saw a 32% increase in the average price paid for WTI oil over that paid
      during 2003, natural gas prices did not track the substantial increase
      experienced for WTI benchmark oil. The steady average price received for natural
      gas during 2004 of about Cdn. $6.50 per thousand cubic feet (mcf) followed
      a 65%
      increase during 2003 over 2002. The 2002/2003 increase partially explains the
      limited changed during 2004; however natural gas also competes with energy
      sources other than WTI oil. Regardless of cause, natural gas prices remained
      strong and steady through out 2004 while oil prices soared to new
      heights.





Oil
      prices opened on January 1, 2004, at U.S. $32.78 per barrel for WTI and rose
      steadily throughout 2004 to close on December 31, 2004 at U.S. $43.65. The
      average 2004 full year price for WTI was over U.S. $41.00 per barrel, compared
      to U.S. $31.00 for 2003 - a 32% increase year over year. Natural gas opened
      the
      year 2004 at Cdn. $6.38 per mcfand closed December 31, 2004 at Cdn. $6.30.
      The
      full year average for 2004 was about Cdn. $6.50 mostly unchanged over 2003.
      The
      first quarter 2005 has seen oil prices exceed U.S. $55.00 per barrel while
      natural gas prices have remained steady near Cdn. $7.00 per mcf.





*Real
      estate*





The
      office building continues to have near full occupancy, with consistent operating
      results within a narrow range. In all material respects, the building achieves
      breakeven on an operating and cash flow basis. There are no changes foreseen
      with respect to this segment.





**Results
      of Operations - Year Ended December 31, 2004 Compared to Year Ended December
      31,
      2003**





The
      Company's balance sheet as at December 31, 2004, as compared to December 31,
      2003, reflects its expenditures on oil and gas properties and equipment and
      rental income for the period ended December 31, 2004 and the results of its
      operations for fiscal year December 31, 2004. Overall, total assets increased
      by
      $3,143,655 and total liabilities increased by $1,163,907. The Company's working
      capital deficiency increased from $280,293 at December 31, 2003 to a working
      capital deficiency of $1,039,862 at December 31, 2004.





*Revenues*





In
      total,
      net oil and gas income was $187,782 for the twelve months to December 31, 2004,
      down from $278,147 for the same period for 2003. This was due to higher
      amortization and depletion charges in 2004. Gross revenue of $866,811 was up
      43%
      compared to 2003 and was due to both increased production and pricing. Of this
      total gross revenue in 2004, the Company received $273,009 from the Dollard
      leases, $234,520 from the John Lake leases, $77,703 from the Carbon leases,
      $71,629 from the Senex leases, $57,732 from the Leduc leases, $50,006 from
      the
      Halkirk leases, $41,756 from the Skiff leases and $34,275 from the Zama/Virgo
      leases. Operating costs increased by 71% to $416,254 for the twelve months
      to
      December 31, 2004 compared to $243,717 in 2003. This increase was primarily
      due
      to increased production volumes and related production expenses. Amortization
      and depletion charges increased from $79,500 in 2003 to $260,000 in 2004.





22


Rental
      revenue for 2004 decreased by $5,992 from 2003 and net rental loss for 2004
      increased by $12,839 from 2003. The changes were due to several larger repair
      and maintenance projects undertaken during the first three quarters of
      2004.





*Expenses*





General
      and administrative costs for the twelve months ended December 31, 2004 were
      $903,692, an increase of $401,893 over fiscal 2003. This increase is due
      primarily to the recognition of stock-based compensation expenses of $273,793
      in
      2004 as compared to $2,390 in 2003. Prior to 2004, the Company was only required
      to record the fair market value of stock options granted to non-employees as
      illustrated by the lesser 2003 amount. As of January 1, 2004 the Company was
      required to record the fair market value of stock options granted to employees
      as well as non-employees which resulted in the higher 2004 amount charged to
      operations.





Other
      general and administrative items that had significant increases in costs were
      administrative, office services, and premises expenses, which increased by
      $39,385; consulting and management fees, which increased by $58,243; and
      professional fees, which increased by $46,779. These increases were primarily
      the result of the increase in oil and gas exploration and production
      activities.




*Loss
      for the period*





Loss
      for
      the twelve months ended December 31, 2004 was $729,034 compared with $255,456
      for the twelve months ended December 31, 2003, a decrease of approximately
      $473,578. The increase in the loss for the respective periods is due primarily
      to higher stock based compensation expense and to a lesser extent an increase
      in
      professional fees, management and consulting fees.





**Results
      of Operations - Year Ended December 31, 2003 Compared to Year Ended December
      31,
      2002**





The
      Company's balance sheet as at December 31, 2003, as compared to December 31,
      2002, reflects its expenditures on oil and gas properties and equipment and
      rental income for the period ended December 31, 2003 and the results of its
      operations for fiscal year December 31, 2003. Overall, total assets decreased
      by
      $213,544 and total liabilities increased by $34,422. The Company's working
      capital decreased from $431,740 at December 31, 2002 to a working capital
      deficiency of $280,293 at December 31, 2003.





*Revenues*





Oil
      and
      gas revenues increased by approximately $199,995 from 2002 to 2003 after
      decreasing by approximately $231,000 from 2001 to 2002. The total oil and gas
      gross revenues were $606,133 in 2003. Of the total oil and gas revenues of
      $406,138 in 2002, the Company received $135,122 from the John Lake leases,
      $107,695 from the Skiff leases, $67,200 from the Halkirk leases, $46,153 from
      the Carbon leases, and $42,762 from the Zama/Virgo leases. Of the total oil
      and
      gas revenues of $606,133 in 2003, the Company received $201,660 from the John
      Lake leases, $160,746 from the Skiff leases, $100,315 from the Halkirk leases,
      $68,857 from the Carbon leases and $63,826 from the Zama/Virgo leases. In
      general, factors affecting the oil and gas revenues are a combination of oil
      and
      gas production and price fluctuations. The increase in revenue in 2003 was
      mainly due to price increases. The Company's oil and gas operating costs
      increased by approximately $54,036 from $189,681 in 2002 to $243,717 in 2003
      after decreasing by approximately $68,000 from 2001 to 2002. The increase in
      operating costs was primarily due to increased royalties and costs associated
      with acquiring on-line production.Amortization and depletion expense is
      determined by the unit of production method. Accordingly, depletion fluctuates
      with levels of production and reserves and is not directly related to oil and
      gas revenues which are also dependent upon price fluctuations. Interest income
      decreased from $23,506 for the year ended December 31, 2002 to $23,469 for
      the
      year ended December 31, 2003.





23


Rental
      revenue for 2003 was $238,599, an increase of $2,929 compared to $235,670 in
      2002. The increase was primarily due to rental rate increases. Rental profit
      before interest and amortization was $40,003 in 2003 compared to $67,062 for
      2002 and $75,549 for 2001.





*Expenses*





The
      Company's administration expenses for the year ended December 31, 2003 of
      $501,799 shows an increase of approximately $156,737 from the December 31,
      2002
      year end amount of $345,062. The increase in administration expenses arose
      primarily from an increase of $93,027 for consulting and management fees, a
      decrease of $11,617 for professional fees and a increase of $47,701 for
      administrative services. The increase of $93,027 in consulting and management
      fees arose primarily from the management contract with a former director and
      related individual ($30,000 for the year) and $30,000 in fees to the president
      of the Company. The increase of $47,701 in office expenses was due to added
      space in Calgary, Alberta.





Accounts
      payable and accrued liabilities increased by approximately $62,544 from December
      31, 2002 to December 31, 2003 after decreasing by approximately $150,915 from
      December 31, 2001 to December 31, 2002.





Accounts
      receivable fluctuate from year to year depending on the timing of production
      receipts from operators and amounts due from participants in oil and gas
      activities. Accounts receivable increased by approximately $905 from December
      31, 2002 to December 31, 2003 and decreased by approximately $7,000 from
      December 31, 2001 to December 31, 2002.





**Impact
      of Inflation**





Inflation
      was modest through 2004. Dramatic swings in world oil prices have affected
      the
      Company much more than inflation. At the end of 2004 all provincial and federal
      fiscal regimes were stable which enabled the oil and gas industry to operate
      within a predictable environment.





**B.** **Liquidity
      and Capital Resources**





At
      December 31, 2004 the Company had current assets of approximately $928,739
      comprised of cash and accounts receivable, offset by accounts payable of
      approximately $1,522,545.





Total
      working capital deficiency at December 31, 2004 was approximately $1,039,862,
      compared with a working capital deficiency of approximately $280,293 at December
      31, 2003. Total working capital deficiency includes a bank demand loan of
      approximately $446,056. The Company's present arrangements with the lender
      call
      for monthly payments of $11,900. Management does not anticipate any material
      change to the repayment arrangements to its principal lender.





The
      Company's debt facilities available comprises a $50,000 standby line of credit,
      none of which had been drawn against at December 31, 2004.





There
      have been no material changes in the Company's contractual obligations since
      its
      last fiscal year end, December 31, 2003.





Certain
      of the projects set out above will be tested under the Cdn. $3.10 million (the
      Company's share) drilling and seismic budget previously set for the fourth
      quarter of 2004 and the first half of 2005. Additional projects are under
      investigation. Cash flow is projected as sufficient to cover operating needs
      for
      the next fiscal year. New project drilling will be financed by joint ventures
      or
      arranging new financing through the issuance of common shares.




The
      Company believes that the most recent financial information is more indicative
      of future performance because oil and gas revenues are expected to increase
      over
      the 2004 figures. This is due to oil and gas prices remaining steady at a high
      level and the Company having producing wells on the Senex, John Lake, Leduc,
      Dollard and Carbon properties. Further drilling programs are planned during
      the
      last half of 2005 and first half of 2006 on the Senex property and on the
      prospective Crossfield property.





24


The
      Company addressed its 2004 working capital deficiency of $1,039,862 by first
      arranging loan financing of $1,000,000 through IMOR Corp. in the first quarter
      of 2005 and subsequently increasing this loan to $1,500,000 in the third quarter
      of 2005. In addition to this loan, the Company sold its Halkirk property in
      the
      second quarter of 2005 for $112,500. During 2005 there has been approximately
      $200,000, $150,000, $100,000 and $80,000 net cash brought into the Company
      from
      the Dollard, John Lake, Carbon and Leduc properties and this is expected to
      continue into 2006. The Brazeau property was expected to generate approximately
      $1,000,000 in net revenues but production was delayed due to adverse water
      conditions. The Senex project is expected to provide a monthly in-flow of cash
      during 2006. During the fourth quarter of 2005, the Company completed a private
      placement of $3.8 million to provide funds for working capital and exploration
      in 2006.





The
      Company's financial statements are prepared in accordance with Canadian GAAP.
      US
      GAAP has certain notable differences which are set out on Note 14 to the
      financial statements of the Company which are included in this Annual
      Report.





**C.** **Research
      and Development, Patents and License, etc.**





Not
      Applicable.





**D.** **Trend
      Information**





The
      year
      2004 saw an increase in oil prices which opened at U.S.$32.78 per barrel for
      WTI
      to a year-end close of U.S.$43.65 per barrel. The 2004 full year average price
      for WTI was over U.S.$41.00 per barrel compared to the 2003 average price of
      U.S.$31.00 per barrel. In the first quarter of 2005 oil prices exceeded US$55.00
      per barrel.





Natural
      gas prices held steady during 2004 where the full year average price for natural
      gas at the AECO was $6.50/mcf compared to $6.70 per mcf average for year 2003.
      During the first quarter of 2005 natural gas prices have remained steady near
      $7.00 per mcf.





Regardless
      of these and other specific influences on oil and gas prices from time to time,
      the management of the Company believes that U.S.$25.00 per barrel for WTI oil
      is
      a reasonable, industry accepted benchmark on which to base investment decisions.
      This benchmark price for oil will translate into natural gas prices within
      the
      range of Cdn $3.75 to $6.00 per mcf. The combination of steady natural gas
      prices and very strong oil prices during 2004 again provided large amounts
      of
      unbudgeted cash flow to producers. This strong cash flow kept Income Trust
      Funds
      operating at a high activity level as it did for all senior producers. The
      inevitable shortage of available on-line production saw Income Trust Funds
      start
      the merger process as a means of maintaining production levels whereas junior
      and mid-sized firms turned to the drill bit to develop new reserves. This
      combination saw on-line production being purchased at very high prices, if
      and
      when available, and drilling and operating costs reaching record highs, if
      and
      when equipment and services were available. These pressures are expected to
      continue into 2005 which will call for diligent attention to forward planning
      by
      the Company and indeed all operators.





Overall,
      2004 was highly active on several fronts. In many ways it was a difficult
      atmosphere in which to do business. Although 2005 has started off as a
      continuation of 2004 the Company is well positioned to operate in this dynamic
      milieu and to develop new opportunities from the grassroots.





25


**E.** **Off-balance
      sheet arrangements**





The
      Company does not have any off-balance sheet arrangements.





**F.** **Tabular
      disclosure of contractual obligations**





**Payments
                due by period****Total****Amount**
            
            **Less
                than****one
                year**
            
            **One
                to****three
                years**
            
            **Three
                to****five
                years**
            
            **More
                than****five
                years**$
            
            $
            
            $
            
            $
            
            $Consulting
                Agreements
            
            
            192,000
            
            
            96,000
            
            
            96,000
            
            
            -
            
            
            -





**G.** **Safe
      Harbor**





Certain
      statements in this Annual Report, including those appearing under this Item
      5,
      constitute "forward-looking statements" within the meaning of the United States
      Private Securities Litigation Reform Act of 1995, Section 21E of the United
      States Securities Exchange Act of 1934, as amended, and Section 27A of the
      United States Securities Act of 1933, as amended. Additionally, forward-looking
      statements may be made orally or in press releases, conferences, reports, on
      our
      website or otherwise, in the future, by us or on our behalf. Such statements
      are
      generally identifiable by the terminology used such as "plans", "expects",
      "estimates", "budgets", "intends", "anticipates", "believes", "projects",
      "indicates", "targets", "objective", "could", "may", or other similar
      words.





The
      forward-looking statements are subject to known and unknown risks and
      uncertainties and other factors that may cause actual results, levels of
      activity and achievements to differ materially from those expressed or implied
      by such statements. Such factors include, among others: market prices for
      natural gas, natural gas liquids and oil products; the ability to produce and
      transport natural gas, natural gas liquids and oil; the results of exploration
      and development drilling and related activities; economic conditions in the
      countries and provinces in which we carry on business, especially economic
      slowdown; actions by governmental authorities including increases in taxes,
      changes in environmental and other regulations, and renegotiations of contracts;
      political uncertainty, including actions by insurgent groups or other conflict;
      the negotiation and closing of material contracts; and the other factors
      discussed in Item 3 Key Information - "Risk Factors", and in other documents
      that we file with the SEC. The impact of any one factor on a particular
      forward-looking statement is not determinable with certainty as such factors
      are
      interdependent upon other factors; our course of action would depend upon our
      assessment of the future considering all information then available. In that
      regard, any statements as to future natural gas, natural gas liquids or oil
      production levels; capital expenditures; the allocation of capital expenditures
      to exploration and development activities; sources of funding of our capital
      program; drilling of new wells; demand for natural gas, natural gas liquids
      and
      oil products; expenditures and allowances relating to environmental matters;
      dates by which certain areas will be developed or will come on-stream; expected
      finding and development costs; future production rates; ultimate recoverability
      of reserves; dates by which transactions are expected to close; cash flows;
      uses
      of cash flows; collectability of receivables; availability of trade credit;
      expected operating costs; expenditures and allowances relating to environmental
      matters; debt levels; and changes in any of the foregoing are forward-looking
      statements, and there can be no assurances that the expectations conveyed by
      such forward-looking statements will, in fact, be realized.





Although
      we believe that the expectations conveyed by the forward-looking statements
      are
      reasonable based on information available to us on the date such forward-looking
      statements were made, no assurances can be given as to future results, levels
      of
      activity, achievements or financial condition.





26


Readers
      should not place undue reliance on any forward-looking statement and should
      recognize that the statements are predictions of future results, which may
      not
      occur as anticipated. Actual results could differ materially from those
      anticipated in the forward-looking statements and from historical results,
      due
      to the risks and uncertainties described above, as well as others not now
      anticipated. The foregoing statements are not exclusive and further information
      concerning us, including factors that could materially affect our financial
      results, may emerge from time to time. We do not intend to update
      forward-looking statements to reflect actual results or changes in factors
      or
      assumptions affecting such forward-looking statements.





**Item
      6.**  **Directors,
      Senior Management and Employees**





**A.** **Directors
      and Senior Management**





The
      following is a list of the Company's directors and officers as at December
      31,
      2004.





**Name**
            **Position
                Held**
            **Principal
                Occupation, Business or****Employment
                for the Last Five Years**
            **Director/Officer****Since**Louis
                Wolfin(1)
            Director
                and Former Chief Executive Officer
            Mining
                Executive; Chief Executive Officer and Director of Bralorne Gold
                Mines
                Ltd., Director of Coral Gold Resources Ltd., Director of Avino Silver
                & Gold Mines Ltd., Director of Levon Resources Ltd. and Director of
                Cresval Capital Corp.
            1986
                - PresentMatt
                Wayrynen(1)
            President
                and Director
            Corporate
                Executive; President and Director of Coral Gold Resources Ltd., VP,
                Operations and Director of Bralorne Gold Mines Ltd., Retired Real
                Estate
                and Investment Adviser.
            June
                2002 - PresentLloyd
                Andrews
            Director
                and Chairman
            Retired
                Businessman; Director of Smith Barney Mutual Fund; Director of Coral
                Gold
                Corp.; Director of Bralorne Gold Mines Ltd.; and Senior Consultant
                to Chem
                Nuclear Systems and Flow International.
            June
                2002 - PresentJames
                O’Byrne
            Director
            Oil
                and Gas Consultant; President of O’Byrne Resource Management
                Ltd.
            June
                2003- PresentLindsay
                E. Gorrill(2)
            Director
            Former
                President and Chief Executive Officer of WGI Heavy Minerals Incorporated;
                Manger, KPMG.
            July
                2004-PresentConnie
                Lillico
            Secretary
            Officer
                of five other reporting issuers; Former office administrator and
                paralegal.
            July
                2004-Present


___________________________________


(1)  Mr.
      Matt
      Wayrynen is the son-in-law of Mr. Louis Wolfin.


(2)  Mr.
      Lindsay Gorrill became a director in July 2004.





27


**B.** **Compensation**





**Compensation
      of Directors**





The
      directors of the Company have not been paid fees or other cash compensation
      in
      their capacity as directors. The Company has no arrangements, standard or
      otherwise, pursuant to which its directors are compensated by the Company or
      its
      subsidiaries for their services in their capacity as directors, or for committee
      participation, or involvement in special assignments during the fiscal year
      ended December 31, 2004, except that directors may be reimbursed for actual
      expenses reasonably incurred in connection with the performance of their duties
      as directors and certain directors may be compensated for services as
      consultants or experts. Incentive stock options, however, have been granted
      to
      non-executive directors and other insiders of the Company and are outstanding
      to
      purchase an aggregate of 800,000 common shares of the Company as
      follows:





**Name
                of Optionee**
            
            
            **No.
                of Shares**
            
            
            **Exercise
                Price Per****Share**
            
            
            **Date
                of Grant**
            
            
            **Expiry
                Date**Louis
                Wolfin
            
            
            95,000
            
            $
            0.34
            
            
            April
                25, 2000
            
            
            April
                25, 20055,000
            
            $
            0.52
            
            
            September
                19, 2003
            
            
            September
                19, 2008Lloyd
                Andrews
            
            
            200,000
            
            $
            0.52
            
            
            September
                19, 2003
            
            
            September
                19, 2008James
                O'Byrne
            
            
            50,000
            
            $
            0.52
            
            
            September
                19, 2003
            
            
            September
                19, 200820,000
            
            $
            0.81
            
            
            October
                19, 2004
            
            
            October
                19, 2009Matt
                Wayrynen
            
            
            300,000
            
            $
            0.52
            
            
            September
                19, 2003
            
            
            September
                19, 2008Lindsay
                Gorrill
            
            
            50,000
            
            $
            0.81
            
            
            October
                19, 2004
            
            
            October
                19, 2009Ron
                Andrews
            
            
            50,000
            
            $
            0.81
            
            
            October
                19, 2004
            
            
            October
                19, 2009Connie
                Lillico
            
            
            30,000
            
            $
            0.81
            
            
            October
                19, 2004
            
            
            October
                19, 2009





No
      pension plan or retirement benefit plans have been instituted by the Company
      and
      none are proposed at this time.





The
      following table sets forth particulars concerning the compensation of the
      Company's executives for the Company ¢ s
      calendar year ended December 31, 2004.





**Summary
                Compensation Table****Annual
                Compensation**
            **Long-Term
                Compensation Awards****Name/Principal****Position**
            **Year**
            **Salary**(1)
            **Bonus
                for****the
                Year**
            **Other
                Annual****Compensation**
            **Securities
                Under Options/SARs****Granted
                (#)****(2)**
            **Restricted
                Shares/Units****Awarded**
            **All
                Other****Compensation**$
            $
            $
            
            $
            $Matt
                Wayrynen
              President
            2004
              2003
              2002(3)
            60,000
              60,000
              30,000
            24,628.73
              NIL
              NIL
            NIL
              NIL
              NIL
            300,000
              300,000
              NIL
            NIL
              NIL
              NIL
            1,082.08
              NIL
              NIL


_________________________________________________


(1)  No
      executive officer earned in excess of $100,000.


(2)  Represents
      total common shares under option as of the end of the calendar
      year.


(3)  Became
      the president in July, 2002.





No
      pension plan or retirement benefit plans have been instituted by the Company
      and
      none are proposed at this time.





**C.** **Board
      Practices**





As
      of
      December 31, 2004, the board of directors of the Company consisted of five
      directors: Matt Wayrynen, Lloyd Andrews, Louis Wolfin, James O'Byrne and Lindsay
      Gorrill. Each of the directors will serve until the next Annual General Meeting
      of shareholders. The officers of the Company are elected by the board and serve
      at the pleasure of the board. The size and experience of the board is important
      for providing the Company with effective governance. The board’s mandate and
      responsibilities can be effectively and efficiently administered through the
      five directors. The chairman of the board is not a member of management. The
      board has functioned, and is of the view that it can continue to function,
      independently of management as required.





28


The
      board
      has considered the relationships of each director to the Company and considers
      two of the five directors to be "unrelated" (Messrs. Andrews and Gorrill).
      "Unrelated director", means a director who is independent of management and
      free
      from any interest and any business or other relationship which could reasonably
      be perceived to materially interfere with the director’s ability to act with a
      view to the best interest of the Company, other than interest and relationships
      arising solely from shareholdings.





Two
      of
      the directors (Messrs. Matt Wayrynen and Louis Wolfin) are related family
      members.





Procedures
      are in place to allow the board to function independently. The board has
      experienced directors that have made a significant contribution to the Company’s
      success, and are satisfied that it is not constrained in its access to
      information, in its deliberations or in its ability to satisfy the mandate
      established by law to supervise the business and affairs of the Company. The
      Company’s chairman and independent directors meet in the absence of managing
      directors. Committees meet independent of management and other directors.
      Committees appoint a chairman from their number who presides over the committee
      meetings.





The
      Company has no standard arrangement pursuant to which directors are compensated
      by the Company for their services in their capacity as directors. Further,
      the
      Company has no contracts with any of its directors that provide for payments
      upon termination.





**Mandate
      of the Board of Directors, its Committees and Management**




The
      role
      of the board is to oversee the conduct of the Company’s business, including the
      supervision of management, and determining the Company’s strategy. Management is
      responsible for the Company’s day to day operations, including proposing its
      strategic direction and presenting budgets and business plans to the board
      of
      directors for consideration and approval. The strategic plan takes into account,
      among other things, the opportunities and risks of the Company’s business.
      Management provides the board with periodic assessments as to those risks and
      the implementation of the Company’s systems to manage those risks. The board
      reviews the personnel needs of the Company from time to time, having particular
      regard to succession issues relating to senior management. Management is
      responsible for the training and development of personnel. The board assesses
      how effectively the Company communicates with shareholders, but has not adopted
      a formal communications policy. Through the audit committee, and in conjunction
      with its auditors, the board assesses the adequacy of the Company’s internal
      control and management information systems. The board looks to management to
      keep it informed of all significant developments relating to or effecting the
      Company’s operations. Major financings, acquisitions, dispositions and
      investments are subject to board approval. A formal mandate for the board of
      directors and the chief executive officer has not been considered necessary
      since the relative allocation of responsibility is well understood by both
      management and the board.





The
      board
      has established that they will meet at a minimum of every three months, unless
      additional meetings are required. The board and committees may take action
      at
      these regularly held meetings or at a meeting by conference call or by written
      consent.





**Committees**





*Audit
      Committee*





The
      audit
      committee assists the board in its oversight of the Company’s financial
      statements and other related public disclosures, the Company’s compliance with
      legal and regulatory requirements relating to financial reporting, the external
      auditors, qualifications and independence and the performance of the internal
      audit function and the external auditors. The committee has direct
      communications channels with the Company’s auditors. The committee reviews the
      Company’s financial statements and related management’s discussion and analysis
      of financial and operating results. The committee can retain legal, accounting
      or other advisors.





29


The
      audit
      committee consists of three directors (Messrs. Lindsay Gorrill, Lloyd Andrews
      and Louis Wolfin) two of whom are unrelated (Messer. Andrews and Gorrill) and
      all of whom are financially literate, and have accounting or related financial
      expertise. "Financially literate" means the ability to read and understand
      a
      balance sheet, an income statement, and a cash flow statement. "Accounting
      or
      related financial expertise" means the ability to analyze and interpret a full
      set of financial statements, including the notes attached thereto, in accordance
      with Canadian GAAP.





It
      is
      intended that this committee will eventually be comprised solely of unrelated
      directors.





The
      board
      has adopted a charter for the audit committee which is reviewed annually and
      sets out the role and oversight responsibilities of the audit committee with
      respect to:





-
            its
                relationship with and expectation of the external auditors, including
                the
                establishment of the independence of the external auditor and the
                approval
                of any non-audit mandates of the external
                auditor;





-
            determination
                of which non-audit services the external auditor is prohibited from
                providing;





-
            the
                engagement, evaluation, remuneration, and termination of the external
                auditors;





-
            appropriate
                funding for the payment of the auditor’s compensation and for any advisors
                retained by the audit committee;





-
            its
                relationship with and expectation of the internal
                auditor;





-
            its
                oversight of internal control;





-
            disclosure
                of financial and related information;
                and





-
            any
                other matter that the audit committee feels is important to its mandate
                or
                that which the board chooses to delegate to
                it.





**D.** **Employees**





The
      Company has no full time employees.





**E.** **Share
      Ownership**





The
      following table sets for the share ownership of the directors and officers
      of
      the Company as of June 1, 2005.





**Name
                of Beneficial Owner**
            **Number
                of Shares**
            **Percent**Louis
                Wolfin
            100,000
            1.00Matt
                Wayrynen(1)
            1,164,656
            11.74Lloyd
                Andrews
            225,000
            2.27James
                O'Byrne
            45,000
            0.45Lindsay
                Gorrill
            20,000
            0.20David
                Wolfin
            100,800
            1.02Ronald
                Andrews
            36,500
            0.37Connie
                Lillico
            5,000
            0.05All
                Officers and Directors as a Group (eight in number)
            1,696,956
            17.11


_____________________________________


(1)  1,163,556
      shares are held by his spouse.





30


*Options
      Granted to Directors and Officers During the Fiscal Year*





**Name
                of Director/Officer**
            
            **Securities****Under
                Option**
            
            **Exercise
                Price**
            
            **Purchase
                Price,****if
                any**
            
            **Expiration
                Date**Lindsay
                Gorrill
            
            
            50,000
            
            $
            0.81
            
            
            N/A
            
            
            10/19/09Ron
                Andrews
            
            
            50,000
            
            $
            0.81
            
            
            N/A
            
            
            10/19/09Connie
                Lillico
            
            
            30,000
            
            $
            0.81
            
            
            N/A
            
            
            10/19/09James
                O'Byrne
            
            
            20,000
            
            $
            0.81
            
            
            N/A
            
            
            10/19/09





*Outstanding
      Options*





The
      following information, as of June 1, 2005, reflects outstanding options held
      by
      directors, officers, employees and consultants of the Company.





**No.
                of Shares**
            
            **Date
                of Grant**
            
            **Exercise
                Price**
            
            **Expiration
                Date**Louis
                Wolfin
            
            
            5,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08James
                O'Byrne
            
            
            50,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Andrea
                Regnier
            
            
            3,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08David
                Wolfin
            
            
            50,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Matt
                Wayrynen
            
            
            300,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08Lloyd
                Andrews
            
            
            175,000
            
            
            09/19/03
            
            $
            0.52
            
            
            09/19/08David
                Wolfin
            
            
            150,000
            
            
            11/26/03
            
            $
            0.57
            
            
            09/19/08Lynn
                Lydiard
            
            
            15,000
            
            
            03/25/04
            
            $
            0.74
            
            
            09/19/08Jevin
                Werbes
            
            
            6,000
            
            
            03/25/04
            
            $
            0.74
            
            
            09/19/08Lindsay
                Gorrill
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Ron
                Andrews
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Dennis
                Goruk
            
            
            50,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Connie
                Lillico
            
            
            30,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09James
                O'Byrne
            
            
            20,000
            
            
            10/19/04
            
            $
            0.81
            
            
            10/19/09Edward
                Lawson
            
            
            15,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Kjeld
                Werbes
            
            
            15,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Freddie
                Chapel
            
            
            2,500
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Jim
                Baylis
            
            
            5,000
            
            
            10/29/04
            
            $
            0.77
            
            
            10/29/09Options
                held by officers and directors as a group
            
            
            880,000





**Item
      7. Major Shareholders and Related Party Transactions**





**A.** **Major
      Shareholders**





As
      far as
      it is known to the Company, it is not directly or indirectly owned or controlled
      by any other corporation or by the Canadian Government or any foreign
      government, or by any other natural or legal person.





The
      following sets forth, as of June 1, 2005, the share ownership of directors,
      officers and persons known to the Company to own beneficially five percent
      (5%)
      or more of the outstanding shares of each class of the Company ¢ s
      voting
      securities. The Company's major shareholders do not have different voting rights
      and there are no arrangements known to the Company which may at a subsequent
      date result in a change of control of the Company:





31


**Name**
            **Number
                of Shares of Common Stock Owned**
            **Percent
                of Class**Matt
                Wayrynen
            1,110
            *Lisa
                Wayrynen**
            1,163,566
            11.73


*****  Less
      than
      1%.


******  Spouse
      of
      Matt Wayrynen, the Company's president.





**B.** **Related
      Party Transactions**





The
      Company owns a certain office building located in Vancouver, British Columbia.
      Tenants in this office building include several companies in which Messr. Wolfin
      has an interest. For the years 2004, 2003 and 2002, these related companies
      paid
      annual rent to the Company of $31,200, $31,200 and $31,200, respectively. The
      Company believes such rent was comparable to the rent that would have been
      charged to an unaffiliated third party.





For
      the
      years 2004, 2003 and 2002, the Company paid to other companies whose
      shareholders are directors of the Company $79,200, $55,592 and $48,291,
      respectively, for accounting, administrative and premises expenses, and
      $133,257, $69,927 and $117,000, respectively, for consulting and management
      fees
      and expenses.





On
      May 1,
      2002, the Company entered into an employment contract with the former
      President/CEO Mr. Ernest Calvert, that terminates December 31, 2006. The
      agreement provides for an annual salary of $60,000 payable monthly for Mr.
      Calvert ¢ s
      continued services as a consultant to the Company. In addition, on May 1, 2002
      the Company entered into an employment contract with the named former executive
      officer ¢ s
      wife,
      namely Janie Calvert, for accounting services. The agreement provides for an
      annual salary of $36,000 payable monthly and terminates December 31,
      2006.





**C.** **Interests
      of Experts and Counsel**





Not
      Applicable.





**Item
      8. Financial Information**





**A.** **Consolidated
      Statements and Other Financial Information**





1.  The
      following financial statements of the Company are attached to this Annual
      Report:





Auditors'
      Report.


Balance
      Sheet as at December 31, 2004 and 2003.


Statements
      of Operations for the years ended December 31, 2004, 2003 and 2002.


Statements
      of Retained Earnings (Deficit) for the years ended December 31, 2004, 2003
      and
      2002.


Statements
      of Cash flows for the years ended December 31, 2004, 2003 and 2002.


Notes
      to
      the Financial Statements.





2.  The
      Company has never paid any dividends and does not intend to in the near
      future.





**B.** **Significant
      Changes**





None.





32


**Item
      9. The Offer and Listing**





**A.** **Offer
      and Listing Details**





The
      Common stock of the Company is listed on the TSX
      Venture Exchange under
      the symbol "BKS."





As
      of
      December 31, 2004, 3.5% of the Company ¢ s
      outstanding common stock was registered in the names of U.S. residents. There
      were, as of December 31, 2004, 36 record holders in the United States. The
      Company ¢ s
      common
      stock is issued in registered form and the percentage of shares reported to
      be
      held by record holders in the United States is taken from the records of
      Computershare Trust Company of Canada in the City of Vancouver, the registrar
      and transfer agent for the common stock.





The
      high
      and low prices expressed in Canadian dollars on the TSX
      Venture Exchange for the
      Company's common stock for the last six months, for each quarter for the last
      two fiscal years, and for the five most recent fiscal years is as follows:





**TSX
                Venture Exchange**
              **(Canadian
                Dollars)**Last
                Six Months
            
            High
            
            LowMay
                2005
            
            
            $1.00
            
            
            $0.85April
                2005
            
            
            $1.15
            
            
            $0.85March
                2005
            
            
            $1.35
            
            
            $0.90February
                2005
            
            
            $1.44
            
            
            $1.15January
                2005
            
            
            $1.49
            
            
            $1.20December
                2004
            
            
            $1.39
            
            
            $1.142004
            
            
            High
            
            
            LowFourth
                Quarter
            
            
            1.50
            
            
            0.96Third
                Quarter
            
            
            1.13
            
            
            0.65Second
                Quarter
            
            
            1.04
            
            
            0.75First
                Quarter
            
            
            1.09
            
            
            0.722003
            
            
            High
            
            
            LowFourth
                Quarter
            
            
            0.80
            
            
            0.68Third
                Quarter
            
            
            0.80
            
            
            0.60Second
                Quarter
            
            
            0.64
            
            
            0.42First
                Quarter
            
            
            0.53
            
            
            0.40Five
                Most Recent Fiscal Years
            
            
            High
            
            
            LowDecember
                31, 2004
            
            
            1.50
            
            
            0.72December
                31, 2003
            
            
            0.80
            
            
            0.40December
                31, 2002
            
            
            0.60
            
            
            0.28December
                31, 2001
            
            
            0.45
            
            
            0.28December
                31, 2000
            
            
            0.51
            
            
            0.20





**B.** **Plan
      of Distribution**





Not
      Applicable.





33


**C.** **Markets**





The
      Company ¢ s
      common
      stock is listed in Canada on the TSX
      Venture Exchange under
      the symbol "BKS".





**D.** **Selling
      Shareholders**





Not
      Applicable.





**E.** **Dilution**





Not
      Applicable.





**F.** **Expenses
      of the Issue**





Not
      Applicable.





**Item
      10. Additional Information**





**A.** **Share
      Capital**





Not
      Applicable.





**B.** **Memorandum
      and Articles of Association**





Fortune
      Island Mines Ltd., which was incorporated on the first day of February, 1966,
      under the name Fortune Island Mines Ltd. (N.P.L.), under Certificate No. 68018,
      which converted to a limited company Fortune Island Mines Ltd., on the eight
      day
      of July, 1982, and Kerry Mining Ltd., which was incorporated on the 26th day
      of
      February, 1973, under the name Kerry Mining Ltd. (N.P.L.),under Certificate
      No.
      116112, which converted to a limited company Kerry Mining Ltd., on the seventh
      day of July, 1982, and the Company, which was incorporated on the 29th day
      of
      January, 1974, under the name Trevlac Resources, Inc., under Certificate No.
      124754 and subsequently changed its name to Berkley Resources Inc., on the
      30th
      day of July, 1976, were amalgamated on July 18, 1986, pursuant to the Company
      Act as one company with the name Berkley Resources Inc.





**Common
      Shares**





All
      issued and outstanding common shares are fully paid and non-assessable. Each
      holder of record of common shares is entitled to one vote for each common share
      so held on all matters requiring a vote of shareholders, including the election
      of directors. The holders of common shares will be entitled to dividends on
      a
      pro-rata basis, if and when as declared by the board of directors. There are
      no
      preferences, conversion rights, preemptive rights, subscription rights, or
      restrictions or transfers attached to the common shares. In the event of
      liquidation, dissolution, or winding up of the Company, the holders of common
      shares are entitled to participate in the assets of the Company available for
      distribution after satisfaction of the claims of creditors.





**Powers
      and Duties of Directors**





The
      directors shall manage or supervise the management of the affairs and business
      of the Company and shall have authority to exercise all such powers of the
      Company as are not, by the Company Act or by the Memorandum or the Articles,
      required to be exercised by the Company in a general meeting.





34


Directors
      will serve as such until the next annual meeting. In general, a director who
      is,
      in any way, directly or indirectly interested in an existing or proposed
      contract or transaction with the Company whereby a duty or interest might be
      created to conflict with his duty or interest as a director, shall declare
      the
      nature and extent of his interest in such contract or transaction or the
      conflict or potential conflict with his duty and interest as a director. Such
      director shall not vote in respect of any such contract or transaction with
      the
      Company in which he is interested and if he shall do so, his vote shall note
      be
      counted, but he shall be counted in the quorum present at the meeting at which
      such vote is taken. However, notwithstanding the foregoing, directors shall
      have
      the right to vote on determining the remuneration of the directors.





The
      directors may from time to time on behalf of the Company: (a) borrow money
      in
      such manner and amount from such sources and upon such terms and conditions
      as
      they think fit; (b) issue bonds, debentures and other debt obligations; and
      (c)
      mortgage, charge or give other security on the whole or any part of the property
      and assets of the Company.





The
      majority of the directors of the Company must be persons ordinarily resident
      in
      Canada and one director of the Company must be ordinarily resident in British
      Columbia. There is no age limitation, other than the statutorily prescribed
      minimum age requirement of 18 years, or minimum share ownership, for the
      Company ¢ s
      directors.





**Shareholders**





An
      annual
      general meeting shall be held once in every calendar year at such time and
      place
      as may be determined by the directors. A quorum at an annual general meeting
      and
      special meeting shall be two shareholders or one shareholder and a proxy holder
      representing another shareholder. There is no limitation imposed by the laws
      of
      Canada or by the charter or other constituent documents of the Company on the
      right of a non-resident to hold or vote the common shares, other than as
      provided in the Investment Canada Act, referred to as the "Investment Act",
      discussed below under "Item 10. Additional Information, D. Exchange Controls."





In
      accordance with British Columbia law, directors shall be elected by an "ordinary
      resolution" which means (a) a resolution passed by the shareholders of the
      Company at a general meeting by a simple majority of the votes cast in person
      or
      by proxy, or (b) a resolution that has been submitted to the shareholders of
      the
      Company who would have been entitled to vote on it in person or by proxy at
      a
      general meeting of the Company and that has been consented to in writing by
      such
      shareholders of the Company holding shares carrying not less than the prescribed
      majority of the votes entitled to be cast on it.





Under
      British Columbia law certain items such as an amendment to the Company's
      articles or entering into a merger, requires approval by a special resolution
      which shall mean (a) a resolution passed by a majority of not less than the
      prescribed majority of the votes cast by the shareholders of the Company who,
      being entitled to do so, vote in person or by proxy at a general meeting of
      the
      company; and (b) a resolution consented to in writing by every shareholder
      of
      the Company who would have been entitled to vote in person or by proxy at a
      general meeting of the Company, and a resolution so consented to is deemed
      to be
      a special resolution passed at a general meeting of the Company.





**Recent
      Developments**





On
      March
      29, 2004, the British Columbia legislature enacted the British Columbia Business
      Corporations Act ("BCBCA") and repealed the British Columbia Company Act (the
      "Company Act"). The BCBCA removes many of the restrictions contained in the
      Company Act, including restrictions on the residency of directors, the location
      of annual general meetings and limits on authorized share capital. As well,
      the
      BCBCA uses new forms and terminology and has replaced the Memorandum with a
      Notice of Articles. At the Company's annual and special general meeting, held
      on
      June 13, 2005, shareholders were asked to approve:






35


1.
            a
                special resolution to remove the application of the Pre-existing
                Company
                Provisions, as defined in the Business Corporations Act (British
                Columbia);





2.
            a
                special resolution to alter the Company's share structure to an unlimited
                number of common shares without par value; and





3.
            a
                special resolution to approve new articles for the
                Company.





The
      regulations under the BCBCA effectively added certain provisions, called
      "Pre-Existing Company Provisions" or "PCPs", to every company's Notice of
      Articles. The PCPs provide that the number of votes required to pass a special
      resolution (formerly also referred to as a special resolution under the Company
      Act) or a special separate resolution is at least three-quarters of the votes
      cast by shareholders present in person or by proxy at the meeting. This is
      the
      majority that was required under the Company Act. The BCBCA allows a special
      resolution to be passed by at least two-thirds of the votes cast by shareholders
      present in person or by proxy at the meeting. The Company proposes to amend
      its
      Notice of Articles to delete the PCPs so that the provisions of the BCBCA
      permitting a two-thirds majority will apply to the Company.





The
      shareholders have approved the above resolutions such that special resolutions
      will now require a two-thirds majority vote, instead of a three-quarters
      majority vote. Management believes that this now provides the Company with
      greater flexibility for future corporate activities and is consistent with
      special resolution requirements for companies in other
      jurisdictions.





**C.** **Material
      Contracts**





Other
      than as otherwise disclosed in this Annual Report, the Company has not entered
      into any material contracts.





**D.** **Exchange
      Controls**





There
      is
      no law, governmental decree or regulation in Canada that restricts the export
      or
      import of capital or affects the remittance of dividends, interest or other
      payments to a non-resident holder of common shares other than withholding tax
      requirements. Any such remittances to United States residents are subject to
      withholding tax. See "Taxation".





There
      is
      no limitation imposed by the laws of Canada or by the charter or other
      constating documents of the Company on the right of a non-resident to hold
      or
      vote the common shares, other than as provided in the Investment Act. The
      following discussion summarizes the principal features of the Investment Act
      for
      a non-resident who proposes to acquire the common shares.





The
      Investment Act generally prohibits implementation of a reviewable investment
      by
      an individual, government or agency thereof, corporation, partnership, trust
      or
      joint venture (each an "entity") that is not a "Canadian" as defined in the
      Investment Act (a "non-Canadian"), unless after review, the Director of
      Investments appointed by the minister responsible for the Investment Act is
      satisfied that the investment is likely to be of net benefit to Canada. An
      investment in the common shares by a non-Canadian other than a "WTO Investor"
      (as that term is defined by the Investment Act, and which term includes entities
      which are nationals of or are controlled by nationals of member states of the
      World Trade Organization) when the Company was not controlled by a WTO Investor,
      would be reviewable under the Investment Act if it was an investment to acquire
      control of the Company and the value of the assets of the Company, as determined
      in accordance with the regulations promulgated under the Investment Act, equals
      or exceeds $5 million for direct acquisition and over $50 million for indirect
      acquisition, or if an order for review was made by the federal cabinet on the
      grounds that the investment related to Canada's cultural heritage or national
      identity, regardless of the value of the assets of the Company. An investment
      in
      the common shares by a WTO Investor, or by a non-Canadian when the Company
      was
      controlled by a WTO Investor, would be reviewable under the Investment Act
      if it
      was an investment to acquire control of the Company and the value of the assets
      of the Company, as determined in accordance with the regulations promulgated
      under the Investment Act, was not less than a specified amount, which for 2004
      is any amount in excess of $137 million. A non-Canadian would acquire control
      of
      the Company for the purposes of the Investment Act if the non-Canadian acquired
      a majority of the common shares. The acquisition of one third or more, but
      less
      than a majority of the common shares, would be presumed to be an acquisition
      of
      control of the Company unless it could be established that, on the acquisition,
      the Company was not controlled in fact by the acquirer through the ownership
      of
      the common shares.





36


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





**E.** **Taxation**




**Canadian
      Federal Income Tax Consequences**





The
      following summarizes the principal Canadian federal income tax consequences
      applicable to the holding and disposition of common shares in the capital of
      the
      Company by a United States resident, and who holds common shares solely as
      capital property (a "U.S. Holder"). This summary is based on the current
      provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations
      thereunder, all amendments thereto publicly proposed by the government of
      Canada, the published administrative practices of Revenue Canada, Customs,
      Excise and Taxation, and on the current provisions of the Canada-United States
      Income Tax Convention, 1980, as amended (the "Treaty"). Except as otherwise
      expressly provided, this summary does not take into account any provincial,
      territorial or foreign (including without limitation, any U.S.) tax law or
      treaty. It has been assumed that all currently proposed amendments will be
      enacted substantially as proposed and that there is no other relevant change
      in
      any governing law or practice, although no assurance can be given in these
      respects.




**Each
      U.S. Holder is advised to obtain tax and legal advice applicable to such U.S.
      Holder's particular circumstances.**





Every
      U.S. Holder is liable to pay a Canadian withholding tax on every dividend that
      is or is deemed to be paid or credited to the U.S. Holder on the U.S. Holder's
      common shares. The statutory rate of withholding tax is 25% of the gross amount
      of the dividend paid. The Treaty reduces the statutory rate with respect to
      dividends paid to a U.S. Holder for the purposes of the Treaty. Where
      applicable, the general rate of withholding tax under the Treaty is 15% of
      the
      gross amount of the dividend, but if the U.S. Holder is a company that owns
      at
      least 10% of the voting stock of the Company and beneficially owns the dividend,
      the rate of withholding tax is 5% for dividends paid or credited after 1996
      to
      such corporate U.S. Holder. The Company is required to withhold the applicable
      tax from the dividend payable to the U.S. Holder, and to remit the tax to the
      Receiver General of Canada for the account of the U. S. Holder.





Pursuant
      to the Tax Act, a U.S. Holder will not be subject to Canadian capital gains
      tax
      on any capital gain realized on an actual or deemed disposition of a common
      share, including a deemed disposition on death, provided that the U.S. Holder
      did not hold the common share as capital property used in carrying on a business
      in Canada, and that neither the U. S. Holder nor persons with whom the U.S.
      Holder did not deal at arms length (alone or together) owned or had the right
      or
      an option to acquire 25% or more of the issued shares of any class of the
      Company at any time in the five years immediately preceding the
      disposition.





37


**United
      States Tax Consequences**





*Passive
      Foreign Investment Companies*





The
      Treaty essentially calls for taxation of shareholders by the shareholder's
      country of residence. In those instances in which a tax may be assessed by
      the
      other country, a corresponding credit against the tax owed in the country of
      residence is generally available, subject to limitations.





Under
      Section 1296 of the Internal Revenue Code of the United States, referred to
      as
      the "Code", a foreign investment corporation is treated as a passive foreign
      investment company, referred to as a "PFIC", if it earns 75% or more of its
      gross income from passive sources or if 50% or more of the value of its assets
      produce passive income. The Company has not been a PFIC for United States
      federal income tax purposes for prior taxable years and believes that it will
      not be treated as a PFIC for the current and future taxable years, but this
      conclusion is a factual determination made annually and subject to
      change.





*Controlled
      Foreign Corporations*





Sections
      951 through 964 and Section 1248 of the Code relate to controlled foreign
      corporations, referred to as "CFCs". A foreign corporation that qualifies as
      a
      CFC will not be treated as a PFIC with respect to a shareholder during the
      portion of the shareholder's holding period after December 31, 1997, during
      which the shareholder is a 10% United States shareholder and the corporation
      is
      a CFC. The PFIC provisions continue to apply in the case of PFIC that is also
      a
      CFC with respect to shareholders that are less than 10% United States
      shareholders.





The
      10%
      United States shareholders of a CFC are subject to current U.S. tax on their
      pro
      rata shares of certain income of the CFC and their pro-rata shares of the CFC's
      earnings invested in certain U.S. property. The effect is that the CFC
      provisions may impute some portion of such a corporation's undistributed income
      to certain shareholders on a current basis and convert into dividend income
      some
      portion of gains on dispositions of stock which would otherwise qualify for
      capital gains treatment. **





The
      Company does not believe that it will be a CFC. Even if the Company were
      classified as a CFC in a future year, however, the CFC rules referred to above
      would apply only with respect to 10% shareholders.





*Personal
      Holding Company/Foreign Personal Holding Company/Foreign Investment
      Company*





A
      corporation will be classified as a personal holding company, referred to as
      a
      "PHC", if at any time during the last half of a tax year: (i) five or fewer
      individuals (without regard to their citizenship or residence) directly or
      indirectly or by attribution own more than 50% in value of the corporation's
      stock; and (ii) at least 60% of its ordinary gross income, as specially
      adjusted, consists of personal holding company income (defined generally to
      include dividends, interest, royalties, rents and certain other types of passive
      income). A PHC is subject to a United States federal income tax of 39.6% on
      its
      undistributed personal holding company income (generally limited, in the case
      of
      a foreign corporation, to United States source income).





A
      corporation will be classified as a foreign personal holding company, referred
      to as an "FPHC", and not a PHC, if at any time during a tax year: (i) five
      or
      fewer individual United States citizens or residents directly or indirectly
      or
      by attribution own more than 50% of the total combined voting power or value
      of
      the corporation's stock; and (ii) at least 60% of its gross income consists
      of
      foreign personal holding company income (defined generally to include dividends,
      interest, royalties, rents and certain other types of passive income). Each
      United States shareholder in a FPHC is required to include in gross income,
      as a
      dividend, an allocable share of the FPHC's undistributed foreign personal
      holding company income (generally the taxable income of the FPHC, as specially
      adjusted).





38


A
      corporation will be classified as a foreign investment company, referred to
      as
      an "FIC", if for any taxable year it: (i) is registered under the Investment
      Company Act of 1940, as amended, as a management company or share investment
      trust or is engaged primarily in the business of investing or trading in
      securities or commodities (or any interest therein); and (ii) 50% or more of
      the
      value or the total combined voting power of all the corporation's stock is
      owned
      directly or indirectly (including stock owned through the application of
      attribution rules) by United States persons. In general, unless an FIC elects
      to
      distribute 90% or more of its taxable income (determined under United States
      tax
      principles as specially adjusted) to its shareholders, gain on the sale or
      exchange of FIC stock is treated as ordinary income (rather than capital gain)
      to the extent of such shareholder's ratable share of the corporation's earnings
      and profits for the period during which such stock was held.





The
      Company believes that it is not and will not be a PHC, FPHC or FIC. However,
      no
      assurance can be given as to the Company's future status.





*Other
      Consequences*





To
      the
      extent a shareholder is not subject to the tax regimes outlined above with
      respect to foreign corporations that are PFIC, PHC, FPHC or FIC, the following
      discussion describes the United States federal income tax consequences arising
      from the holding and disposition of the Company's Common Shares.





*U.S.
      Holders*





A
      "U.S.
      Holder" includes a holder of common shares who is a citizen or resident of
      the
      United States, a corporation created or organized in or under the laws of the
      United States or of any political subdivision thereof and any other person
      or
      entity whose ownership of common shares is effectively connected with the
      conduct of a trade or business in the United States. A U.S. Holder does not
      include persons subject to special provisions of federal income tax laws, such
      as tax exempt organizations, qualified retirement plans, financial institutions,
      insurance companies, real estate investment trusts, regulated investment
      companies, broker-dealers, non-resident alien individuals or foreign
      corporations whose ownership of common shares is not effectively connected
      with
      the conduct of a trade or business in the United States and shareholders who
      acquired their stock through the exercise of employee stock options or otherwise
      as compensation.





*Distribution
      of Common Shares*





U.S.
      Holders receiving dividend distributions (including constructive dividends)
      with
      respect to the Company's common shares are required to include in gross income
      for United States federal income tax purposes the gross amount of such
      distribution to the extent that the Company has current or accumulated earnings
      or profits, without reduction for any Canadian income tax withheld from such
      distributions. Such Canadian tax withheld may be credited, subject to certain
      limitations, against the U.S. Holder's United States federal income tax
      liability or, alternatively, may be deducted in computing the U.S. Holder's
      United States federal income tax by those who itemize deductions. (See more
      detailed discussions at "Foreign Tax Credit" below). To the extent that
      distributions exceed current or accumulated earnings and profits of the Company,
      they will be treated first as a return of capital up to the U.S. Holder's
      adjusted basis in the common shares and thereafter as a gain from the sale
      or
      exchange of such shares. Preferential tax rates for the long-term capital gains
      are applicable to a U.S. Holder that is an individual, estate or trust. There
      are currently no preferential tax rates for long-term capital gains for a U.S.
      Holder which is a corporation.





39


Dividends
      paid on the Company's common shares will not generally be eligible for the
      dividends received deduction provided to corporations receiving dividends from
      certain United States corporations. A U.S. Holder which is a corporation may,
      under certain circumstances, be entitled to a 70% deduction of the United States
      source portion of dividends received from the Company if such U.S. Holder owns
      shares representing at least 10% of the voting power and value of the
      Company.





*Foreign
      Tax Credit*





A
      U.S.
      Holder who pays (or has withheld from distribution) Canadian income tax with
      respect to the ownership of the Company's common shares may be entitled, at
      the
      option of the U.S. Holder, to either a deduction or a tax credit for such
      foreign tax paid or withheld. Generally, it will be more advantageous to claim
      a
      tax credit, because a credit reduces United States federal income taxes on
      a
      dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
      subject to tax. This election is made on a year-by-year basis and generally
      applies to all foreign income taxes paid by (or withheld from) the U.S. Holder
      during that year. There are significant and complex limitations which apply
      to
      the credit, among which is the general limitation that the credit cannot exceed
      the proportionate share of the U.S. Holder's United States income tax liability
      that the U.S. Holder's foreign source income bears to his or its worldwide
      taxable income. In the determination of the application of this limitation,
      the
      various items of income and deduction must be classified into foreign and
      domestic sources. Complex rules govern this classification process. There are
      further limitations on the foreign tax credit for certain types of income,
      such
      as "passive income", "high withholding tax interest", "financial services
      income", "shipping income" and certain other classifications of income. The
      availability of foreign tax credit and the application of the limitations on
      the
      credit are fact specific and holders and prospective holders of common shares
      should consult their own tax advisors regarding their individual
      circumstances.





*Disposition
      of Common Shares*





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





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





40


**F.** **Dividends
      and Paying Agents**





Not
      Applicable.





**G.** **Statement
      by Experts**





Not
      Applicable.





**H.** **Documents
      on Display**





The
      Company files annual reports and other information with the SEC. You may read
      and copy any document that we file at the SEC's Public Reference Room at 450
      Fifth Street, N.W., Room 1024, Washington, D.C. 20549 or on its website at
      www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information about
      the Public Reference Room. The Company also files its annual reports and other
      information with the Canadian Securities Administrators via SEDAR at
      www.sedar.com.





Copies
      of
      the Company's material contracts are kept in the Company's administrative
      headquarters.





**I.** **Subsidiary
      Information**





None.





**Item
      11. Quantitative and Qualitative Disclosures About Market
      Risk**





Because
      the Company is a small business issuer, this section is
      inapplicable.





**Item
      12. Description of Securities Other than Equity Securities**





Not
      Applicable.





**Part
      II**





**Item
      13. Defaults, Dividend Arrearages and Delinquencies**





None.





**Item
      14. Material Modifications to the Rights of Security Holders and Use of
      Proceeds**





None.





**Item
      15. Controls and Procedures**





The
      Company carried out an evaluation under the supervision, and with the
      participation, of the Company’s management, including the Company’s chief
      executive officer and principal financial officer, of the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures
      pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
      Based upon that evaluation, the Company’s chief executive officer and principal
      financial officer concluded that the Company’s disclosure controls and
      procedures as of the end of the fiscal year covered by this Form 20-F
      are:





41


1.
            effective
                in timely alerting them to information relating to the Company required
                to
                be included in this Form 20-F; and





2.
            effective
                in ensuring that information required to be disclosed by the issuer
                in the
                reports that it files or submits under the Act is recorded, processed,
                summarized and reported, within the time periods specified in the
                Commission’s rules and forms.





**Item
      16. [Reserved]**





**Item
      16A. Audit Committee Financial Expert**





The
      board
      of directors determined that Mr. Lindsay Gorrill is qualified as an Audit
      Committee Financial Expert. Mr. Gorrill is independent as determined by the
      NASD
      listing standards.





**Item
      16B. Code of Ethics**





The
      Company has not currently adopted a code of ethics but is evaluating its
      internal procedures to determine the necessity of same.





**Item
      16C. Principal Accountant Fees and Services**





The
      independent auditor for the fiscal year ended December 31, 2003 was Hoogendoorn
      Vellmer, Chartered Accountants, and for the fiscal year ended December 31,
      2004
      it was Staley, Okada & Partners, Chartered Accountants.





**Audit
      Fees**





The
      aggregate fees billed by the Company’s external auditors for professional
      services rendered for the audit of the Company's annual financial statements
      for
      the fiscal year ended December 31, 2004 was $30,000 and December 31, 2003 was
      $18,000.





**Audit-Related
      Fees**





There
      were no fees billed for assurance and related services by the principal
      accountant that are reasonably related to the performance of the audit or review
      of the Company's financial statements for the year ended December 31, 2004
      and
      December 31, 2003 other than as described above under the heading "Audit Fees"
      and those fees related solely to audit services.





**Tax
      Fees**





The
      aggregate fees billed for tax compliance, tax advice and tax planning rendered
      by our independent auditors for the fiscal year ended December 31, 2004 was
      $1,500 and December 31, 2003 was $1,500. The services comprising these fees
      were
      regarding preparation of corporate tax returns and taxation advisory
      services.





**All
      Other Fees**





Other
      than referred to above, there were no aggregate fees billed for professional
      services rendered by the Company’s independent auditors for the fiscal years
      ended December 31, 2004 and December 31, 2003.





The
      Audit
      Committee approved 100% of the fees paid to the principal accountant for
      audit-related, tax and other fees in the fiscal year 2004. The Audit Committee
      pre-approves all non-audit services to be performed by the auditor in accordance
      with the Audit Committee Charter. No time was expended on the principal
      accountant's engagement to audit the Company's financial statements for the
      most
      recent fiscal year that were attributed to work performed by persons other
      than
      the principal accountant's full-time, permanent employees.





42


**Item
      16D. Exemptions from the Listing Standards for Audit
      Committees**





Not
      applicable.





**Item
      16E. Purchases of Equity Securities by the Issuer and Affiliated
      Purchasers**





None.





**Part
      III**





**Item
      17. Financial Statements**





The
      following Financial Statements pertaining to the Company are filed as part
      of
      this annual report:





Auditors'
                Reports
            F-1
                thru F-3Balance
                Sheets
            F-4Statements
                of Operations
            F-5Statements
                of Deficit
            F-6Statements
                of Cash Flows
            F-7
                thru F-8Notes
                to Financial Statements.
            F-9
                thru F-20





**Item
      18. Financial Statements**





See
      Item
      17.





**Item
      19. Exhibits**





**1.** **Audited
      Financial Statements and Financial Statement Schedules:**





Auditors'
                Reports
            F-1
                thru F-3Balance
                Sheets
            F-4Statements
                of Operations
            F-5Statements
                of Deficit
            F-6Statements
                of Cash Flows
            F-7
                thru F-8Notes
                to Financial Statements.
            F-9
                thru F-20





**2.** **Exhibits**





Exhibit
                Number
            Name1.
            Memorandum
                of Berkley Resources Inc.*2.
            Articles
                of Berkley Resources Inc.*12.1
            Certification
                of the Principal Executive Officer under the Sarbanes-Oxley
                Act12.2
            Certification
                of the Principal Financial Officer under the Sarbanes-Oxley
                Act13
            Certificate
                under section 906




*  Previously
      filed.





43





**SIGNATURE**





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








**BERKLEY RESOURCES INC.**







Dated:
      February 10,
      2006 By:  */s/
      Matt Wayrynen*


Matt
      Wayrynen, President











44


**Report
      of Independent Registered Chartered Accounting Firm**







AUDITORS'
      REPORT





**To
      the Shareholders of Berkley Resources Inc.:**





We
      have
      audited the accompanying balance sheet of Berkley Resources Inc. (the “Company”)
      as at 31 December 2004 and the related statements of operations, deficit, and
      cash flows for the year ended 31 December 2004. 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 audit.





We
      conducted our audits in accordance with Canadian generally accepted auditing
      standards and with the standards of the Public Company Accounting Oversight
      Board (United States). Those standards require that we plan and perform the
      audit to obtain reasonable assurance about whether the financial statements
      are
      free of material misstatement. The Company is not required to have, nor were
      we
      engaged to perform an audit of its internal control over financial reporting.
      Our audit included consideration of internal control over financial reporting
      as
      a basis for designing audit procedures that are appropriate in the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, 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, the financial statements referred to above present fairly, in all
      material respects, the financial position of the Company as at 31 December
      2004,
      and the results of its operations and its cash flows for the year ended
      31 December 2004, in accordance with Canadian generally accepted accounting
      principles.





The
      comparative figures as at 31 December 2003 and the two year periods ended 31
      December 2003 and 2002 are based on financial statements audited by other
      auditors who expressed unqualified opinions thereon in their reports dated
      31
      March 2004 and 11 April 2003.








Vancouver,
      B.C. ***“Staley,
      Okada & Partners”***


23
      April
      2005 CHARTERED
      ACCOUNTANTS





F-1


**Report
      of Independent Registered Chartered Accounting Firm**




The
      following audit report is a copy of the original
      audit report and has not been reissued by the auditing firm.  We have been
      advised that said auditing firm was not registered with the Public Company
      Accounting Oversight Board at the time of issuing the following audit report
      and
      although it is now so registered, it has ceased to provide auditing services
      to
      Berkley Resources Inc. for the purposes of meeting their reporting obligations
      in the United States.







**AUDITORS’
        REPORT**
 
 
 **To
        the Shareholders of**
 **Berkley
        Resources Inc.**
 
 
 We
        have
        audited the balance sheet of Berkley Resources Inc. as at December 31,
        2003  and
        the
        statements of operations, deficit, and cash flows for the year 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 audit.
 
 We
        conducted our audit in accordance with Canadian and United States generally
        accepted auditing standards. Those standards require that we plan and perform
        an
        audit to obtain reasonable assurance whether the financial statements are
        free
        of material misstatement. An audit includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements. An audit
        also includes assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation.
 
 In
        our
        opinion, these financial statements present fairly, in all material respects,
        the financial position of the Company as at December 31, 2003  and
        the
        results of its operations and its cash flows for the year then ended in
        accordance with Canadian generally accepted accounting principles. We also
        report that in our opinion, these principles have been applied, except for
        the
        method of accounting for site restoration liabilities as explained in Note
        2(e)
        to the financial statements, on a basis consistent with that of the preceding
        year.
 
 The
        comparative financial statements as at December 31, 2002 and for the two
        year
        period then ended are based on financial statements audited by other auditors
        who expressed an unqualified opinion thereon in their report dated April
        11,
        2003.
 
 
 Vancouver,
        Canada**** ***“Hoogendoorn
        Vellmer”***
 March
        31,
        2004 CHARTERED
        ACCOUNTANTS








F-2


**Report
      of Independent Registered Chartered Accounting Firm**





The
      following audit report is a copy of the original audit report and has not been
      reissued by the auditing firm. We have been advised that said auditing firm
      is
      not and was not registered with the Public Company Accounting Oversight Board
      and has ceased to provide auditing services to public companies for the purposes
      of meeting their reporting obligations in the United States.








**AUDITORS'
        REPORT**
 
 To
        the
        Shareholders of
 Berkley
        Resources Inc.
 
 We
        have
        audited the balance sheets of Berkley Resources Inc. as at December 31, 2002
        and
        2001 and the statements of operations and retained earnings (deficit) and
        cash
        flows for each of the years in the three year period ended December 31, 2002.
        These financial statements are the responsibility of the Company's management.
        Our responsibility is to express an opinion on these financial statements
        based
        on our audits.
 
 We
        conducted our audits in accordance with Canadian and United States generally
        accepted auditing standards. Those standards require that we plan and perform
        an
        audit to obtain reasonable assurance whether the financial statements are
        free
        of material misstatement. An audit includes examining, on a test basis, evidence
        supporting the amounts and disclosures in the financial statements. An audit
        also includes assessing the accounting principles used and significant estimates
        made by management, as well as evaluating the overall financial statement
        presentation.
 
 In
        our
        opinion, these 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 cash flows for each of the years in the three
        year
        period ended December 31, 2002 in accordance with Canadian generally accepted
        accounting principles. As required by the Company Act of British Columbia,
        we
        report that, in our opinion, these principles have been applied on a consistent
        basis.
 
 Our
        audits were conducted for the purpose of forming an opinion on the basic
        financial statements taken as a whole. The supplementary information included
        in
        the schedules is presented for purposes of additional analysis and is not
        a
        required part of the basic financial statements. Such supplementary information
        has been subjected to the auditing procedures applied in the basic financial
        statements and, in our opinion, is fairly stated in all material respects
        in
        relation to the basic financial statements taken as a whole.
 
 ***"Collins
        Barrow"***
 CHARTERED
        ACCOUNTANTS
 Vancouver,
        Canada
 April
        11,
        2003





F-3


**BERKLEY
                RESOURCES INC.**
              **BALANCE
                SHEETS****December
                31,****2004**
            
            **2003**$
            
            
            $**ASSETS****Current**Cash
            
            
            712,678
            
            
            235,225Accounts
                receivable
            
            
            145,422
            
            
            100,003Taxes
                recoverable
            
            
            31,079
            
            
            44,492Prepaid
                expenses
            
            
            17,500
            
            
            29,149Due
                from related party
            
            
            22,060
            
            
            22,060928,739
            
            
            430,929**Prepaid
                oil and gas costs**
            
            
            376,693
            
            
            -**Oil
                and gas properties and equipment (Note 4)**
            
            
            3,389,679
            
            
            1,109,391**Rental
                property (Note 5)**
            
            
            2,061,915
            
            
            2,075,370**Other
                property plant and equipment (Note 6)**
            
            
            2,320
            
            
            1**6,759,346**
            
            
            **3,615,691****LIABILITIES****Current**Accounts
                payable and accrued liabilities
            
            
            1,522,545
            
            
            145,413Bank
                loan (Note 7)
            
            
            446,056
            
            
            565,8091,968,601
            
            
            711,222**Site
                restoration liabilities (Note 2(f))**
            
            
            43,030
            
            
            136,5022,011,631
            
            
            847,724**SHAREHOLDERS’
                EQUITY****Share
                capital (Note 8)**
            
            
            5,734,921
            
            
            3,254,426**Contributed
                surplus (Note 9)**
            
            
            336,558
            
            
            77,390**Deficit**
            
            
            (1,323,764
            )
            
            (563,849
            )4,747,715
            
            
            2,767,967**6,759,346**
            
            
            **3,615,691**


Approved
      by the Directors:





Director
            /s/
                Matt Wayrynen
            
            Director
            /s/
                Lindsay Gorrill


F-4





**BERKLEY
                RESOURCES INC.**
              **STATEMENTS
                OF OPERATIONS****Years
                Ended December 31,****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$****OIL
                AND GAS REVENUE**
            
            
            866,811
            
            
            606,133
            
            
            406,138**Oil
                and gas production expenses**Operating
                costs
            
            
            416,254
            
            
            243,717
            
            
            189,681Amortization
                and depletion
            
            
            260,000
            
            
            79,500
            
            
            39,900Accretion
                of site restoration liabilities
            
            
            2,775
            
            
            4,769
            
            
            -679,029
            
            
            327,986
            
            
            229,581NET
                OIL AND GAS INCOME
            
            
            187,782
            
            
            278,147
            
            
            176,557**RENTAL
                REVENUE**
            
            
            232,607
            
            
            238,599
            
            
            235,670**Rental
                operations expenses**Operating
                costs
            
            
            209,229
            
            
            198,596
            
            
            168,608Interest
                on bank loan
            
            
            23,047
            
            
            26,272
            
            
            35,110Amortization
            
            
            13,455
            
            
            14,016
            
            
            14,600245,731
            
            
            238,884
            
            
            218,318NET
                RENTAL (LOSS) INCOME
            
            
            (13,124
            )
            
            (285
            )
            
            17,352**GENERAL
                AND ADMINISTRATION EXPENSES**Administrative,
                office services and premises
            
            
            188,863
            
            
            149,478
            
            
            104,167Stock
                based compensation
            
            
            273,793
            
            
            2,390
            
            
            -Consulting
                and management fees
            
            
            310,270
            
            
            252,027
            
            
            159,000Professional
                fees
            
            
            101,121
            
            
            54,342
            
            
            65,959Filing
                and transfer agent fees
            
            
            19,413
            
            
            12,176
            
            
            9,467Shareholder
                information
            
            
            9,823
            
            
            11,032
            
            
            3,056Amortization
            
            
            409
            
            
            20,354
            
            
            3,413(903,692
            )
            
            (501,799
            )
            
            (345,062
            )**OTHER
                INCOME (EXPENSES)**Computer
                software written off
            
            
            -
            
            
            (54,988
            )
            
            -Interest
                and other income
            
            
            -
            
            
            23,469
            
            
            23,506-
            
            
            (31,519
            )
            
            23,506**LOSS
                FOR THE YEAR**
            
            
            **(729,034**
            **)**
            
            **(255,456**
            **)**
            
            **(127,647**
            **)****LOSS
                PER SHARE**
            
            
            **(0.10**
            **)**
            
            **(0.04**
            **)**
            
            **(0.02**
            **)****WEIGHTED
                AVERAGE NUMBER OF**
              **SHARES
                OUTSTANDING**
            
            
            **7,175,945**
            
            
            **6,797,184**
            
            
            **6,382,350**







F-5





**BERKLEY
                RESOURCES INC.**
              **STATEMENTS
                OF DEFICIT**





**Years
                Ended December 31,****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$****DEFICIT**,
                beginning of year
            
            
            (563,849
            )
            
            (308,393
            )
            
            (180,746
            )Retroactive
                adjustment-Stock
                based compensation (Note 3a)
            
            
            (30,881
            )
            
            -
            
            
            -(594,730
            )
            
            (308,393
            )
            
            (108,746
            )Net
                loss for the year
            
            
            (729,034
            )
            
            (255,456
            )
            
            (127,647
            )**DEFICIT**,
                end of year
            
            
            **(1,323,764**
            **)**
            
            **(563,849**
            **)**
            
            **(308,393**
            **)**





F-6


**BERKLEY
      RESOURCES INC.**


**STATEMENTS
      OF CASH FLOWS**





**Years
                Ended December 31,****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$****CASH
                PROVIDED BY (USED IN):****OPERATING
                ACTIVITIES**Loss
                for the year
            
            
            (729,034
            )
            
            (255,456
            )
            
            (127,647
            )Items
                not requiring cash in the yearAccretion
                of site restoration liability
            
            
            2,775
            
            
            4,769
            
            
            -Amortization
                and depletion
            
            
            273,864
            
            
            113,870
            
            
            57,913Computer
                software written off
            
            
            -
            
            
            54,988
            
            
            -Stock
                based compensation
            
            
            273,793
            
            
            2,390
            
            
            -(178,602
            )
            
            (79,439
            )
            
            (69,734
            )Net
                change in non-cash working capital balancesAccounts
                receivable
            
            
            (45,419
            )
            
            11,155
            
            
            6,955Prepaid
                expenses
            
            
            11,649
            
            
            (2,527
            )
            
            (25,131
            )Due
                from related party
            
            
            -
            
            
            (12,060
            )
            
            -Computer
                software held for resale
            
            
            -
            
            
            (4,008
            )
            
            (50,980
            )Taxes
                recoverable
            
            
            13,413
            
            
            (40,370
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            1,377,239
            
            
            62,545
            
            
            (43,225
            )1,178,280
            
            
            (64,704
            )
            
            (182,115
            )**INVESTING
                ACTIVITIES**Prepaid
                oil and gas costs
            
            
            (376,693
            )
            
            -
            
            
            -Oil
                and gas properties and equipment, net
            
            
            (2,540,288
            )
            
            (582,707
            )
            
            (25,458
            )Other
                capital assets
            
            
            (2,728
            )
            
            -
            
            
            (17,800
            )Site
                reclamation recovery
            
            
            (96,247
            )
            
            -
            
            
            -(3,015,956
            )
            
            (582,707
            )
            
            (43,258
            )





F-7


**FINANCING
                ACTIVITIES**Repayment
                of bank loan
            
            
            (119,753
            )
            
            (109,424
            )
            
            (107,690
            )Issuance
                of common shares
            
            
            2,434,882
            
            
            5,100
            
            
            250,0002,315,129
            
            
            (104,324
            )
            
            142,310**Increase
                (decrease) in cash for the year**
            
            
            477,453
            
            
            (751,735
            )
            
            (83,063
            )**CASH,**beginning of the year
            
            
            235,225
            
            
            986,960
            
            
            1,070,023**CASH,**end of the year
            
            
            **712,678**
            
            
            **235,225**
            
            
            **986,960****CASH
                IS COMPRISED OF:**Cash
            
            
            712,678
            
            
            235,225
            
            
            36,230Bankers’
                acceptances and treasury bills
            
            
            -
            
            
            -
            
            
            950,730**712,678**
            
            
            **235,225**
            
            
            **986,960**





**Years
                Ended December 31,****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$****SUPPLEMENTAL
                DISCLOSURE OF NON-CASH****FINANCING
                AND INVESTING ACTIVITIES******Site
                reclamation recovery
            
            
            96,247
            
            
            -
            
            
            -**SUPPLEMENTAL
                STATEMENTS OF CASH FLOWS****DISCLOSURE**Interest
                on long term debt
            
            
            23,047
            
            
            26,272
            
            
            35,110











F-8


**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**





**NOTE
      1 - NATURE OF OPERATIONS**





Berkley
      Resources Inc. (“the Company or Berkley”) was created on the amalgamation of
      Fortune Island Mines Ltd., Kerry Mining Ltd. and Berkley Resources Ltd. under
      the Company Act (British Columbia) on July 18, 1986. The Company is in the
      business of acquisition, exploration, development and production from petroleum
      and natural gas interests in Alberta and Saskatchewan, Canada. The Company
      also
      rents commercial office space in a building it owns in Vancouver,
      Canada.





The
      Company will likely have to periodically raise additional funds to participate
      in future exploration and development work on its petroleum and natural gas
      properties. Management intends to issue additional shares in the upcoming year
      for this purpose.





**NOTE
      2 - SIGNIFICANT ACCOUNTING POLICIES**





**(a)**
            **Basis
                of presentation**





These
      financial statements are prepared in accordance with Canadian generally accepted
      accounting principles, which do not materially differ from accounting principles
      generally accepted in the United States, except as disclosed in Note
      14.





Certain
      comparative balances have been reclassified to conform with current year
      accounting policies and financial statement presentation.





**(b)**
            **Currency**





All
      amounts in these financial statements are expressed in Canadian
      dollars.





**(c)**
            **Revenue
                recognition**





Revenue
      associated with the sale of crude oil, natural gas and liquids represent the
      sales value of the Company’s share of petroleum production during the year
      received from third party purchasers on delivery. Differences between production
      and amounts delivered and sold are not significant.





Rental
      revenue is recognized on a monthly basis under the terms of lease agreements
      with tenants.





**(d)**
            **Oil
                and gas properties and equipment**





Berkley
      follows the full cost method of accounting for oil and gas properties and
      equipment whereby all costs of acquiring, exploring for and developing oil
      and
      gas reserves are capitalized. The Company does not capitalize interest or
      administrative expenses.





Capitalized
      costs of proven reserves and equipment are depleted using a unit of production
      method based upon estimated proven reserves (energy content) net of
      royalties.





Unless
      a
      significant amount of reserves is involved, proceeds received from the
      disposition of oil and gas properties are credited to the relevant cost centre.
      In the event of a significant sale of reserves, a proportionate amount of cost
      and accumulated depletion, based upon the ratio of reserves sold to total
      reserves, is removed from the appropriate cost centre and the resultant profit
      or loss taken into income.





F-9




**BERKLEY
                  RESOURCES INC.**
                **NOTES
                  TO FINANCIAL STATEMENTS**
 
 **NOTE
        2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**


In
      accordance with guidelines published by the Canadian Institute of Chartered
      Accountants, the company applies an annual “ceiling test” by cost centre to
      ensure that capitalized costs net of accumulated depletion do not exceed the
      estimated future net revenues from production of proven reserves (based on
      commodity prices in effect at the financial statement date and current operating
      costs) plus unproven reserves at cost less provisions for impairment. The
      aggregate future value for all cost centres is further reduced for recurring
      general and administrative costs, future financing costs and income taxes.
      Capitalized costs inexcess of this ceiling test limit are written off as
      additional depletion.




**(e)**
            **Oil
                and gas properties and equipment
                (continued)**





Substantially
      all of the Company’s oil and gas interests are conducted jointly with others.
      The financial statements reflect only the Company’s share of assets,
      liabilities, and operations.





**(f)**
            **Site
                restoration liability**





In
      accordance with the new Handbook Section 3110 of the Canadian Institute of
      Chartered Accountants, the Company recognizes the fair value of its liability
      for asset retirement obligations, which in the oil and gas industry are
      categorized as “site restoration costs”, in the year in which such liability is
      incurred. Upon recognition of an asset retirement obligation, the capitalized
      cost of the oil and gas property is increased by the same amount as the
      liability. In periods subsequent to initial measurement, the asset retirement
      obligation is adjusted for both the passage of time and revisions to the
      original estimates. This policy has been applied prospectively commencing
      January 1, 2003. The Company evaluated its site restoration costs effective
      January 1, 2003 on a present value basis, giving regard to known estimated
      site
      restoration costs and the estimated time period in which the restoration work
      will need to be performed. The present value of the site restoration costs
      were
      added to the capitalized cost of the oil and gas properties and recorded as
      a
      liability at the equivalent amount.





The
      following table sets out the activity for the Company’s site restoration
      liabilities for the years ending December 31, 2004 and 2003:





**2004**
            
            **2003**$
            
            
            $Opening
                balance
            
            
            136,502
            
            
            55,200Accretion
            
            
            2,775
            
            
            4,769Additions
            
            
            22,915
            
            
            76,533Reduction
                due to subsequentDisposal
                (Note 15(a))
            
            
            (119,162
            )
            
            -43,030
            
            
            136,502





**(g)**
            **Rental
                property and other capital
                assets**





Land
      and
      building are recorded at cost, net of accumulated amortization on the building.
      The cost of the building is amortized over its estimated useful life, currently
      at the rate of 4% per annum by the declining balance method.





Other
      capital assets consist of computer equipment and is amortized at the rate of
      30%
      per annum by the declining balance method.





F-10




**BERKLEY
                  RESOURCES INC.**
                **NOTES
                  TO FINANCIAL STATEMENTS**
 
 **NOTE
        2 - SIGNIFICANT ACCOUNTING POLICIES (continued)**


**(h)**
            **Financial
                instruments**





The
      Company’s financial instruments include cash, accounts receivable, taxes
      recoverable, due from related party, accounts payable and accrued liabilities
      and bank loan. The carrying values of these financial instruments approximate
      their fair values. The Company is not exposed to significant credit or currency
      risk on financial instruments. It is exposed to interest risk on its bank
      loan.




**(i)**
            **Use
                of estimates**





The
      preparation of financial statements in conformity with Canadian generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from those estimates. Significant
      areas requiring the use of management estimates relate to the determination
      of
      useful lives of oil and gas properties and equipment and the rental property
      for
      purposes of calculating amortization and depletion.





**(j)**
            **Stock
                based compensation plan**





Compensation
      expense is recorded for the estimated fair value of stock options granted.
      The
      estimated fair value of the options at the date of grant is accrued and charged
      to operations, with an offsetting credit to contributed surplus, on a
      straight-line basis over the vesting period. If and when the stock options
      are
      ultimately exercised, the applicable amounts of contributed surplus are
      transferred to share capital (Note 3).





**(k)**
            **Loss
                per share**





Basic
      loss per share is calculated by dividing the loss for the year by the weighted
      average number of shares outstanding in the year. Diluted loss per share on
      the
      potential exercise of share options and warrants is not presented where it
      is
      anti-dilutive.





**(l)**
            **Income
                taxes**





Future
      income tax assets and liabilities are recorded where the accounting net book
      value of assets and liabilities differ from their corresponding tax bases.
      The
      benefit of future income tax assets is only recognized when their realization
      is
      considered more likely than not.





**NOTE
      3 - ACCOUNTING CHANGES**





**(a)**
            Effective
                January 1, 2004, the Company adopted the provisions of*CICA
                Handbook Section 3870 “Stock Based Compensation and Other Stock Based
                Payments”*with respect to the fair market value accounting for stock options
                granted
                to employees. In prior years, the Company recorded the fair market
                value
                of the stock options granted to non-employees only as compensation
                expense. In 2003, the Company did not account for stock based compensation
                when stock options were granted to employees and directors, however,
                it
                disclosed the pro forma effect of the stock based compensation on
                its
                financial results. In 2004, the Company adopted the fair value based
                method of accounting for stock based compensation, as described in
                Note
                2(j). This change has been applied retroactively, however, the financial
                statements for 2003 have not been restated. Rather, the opening retained
                earnings for 2004 has been adjusted to reflect the impact of the
                new
                accounting policy on the 2003 year. This accounting treatment is
                in
                keeping with Canadian generally accepted accounting principles. The
                effect
                of this change was to increase the deficit at January 1, 2004 by
                $30,881
                to $594,730.


F-11




**BERKLEY
                  RESOURCES INC.**
                **NOTES
                  TO FINANCIAL STATEMENTS**


**(b)**
            Effective
                January 1, 2004, the Company adopted, on a prospective basis, the
                recommendations of*Emerging
                Issues Committee - 146*with respect to flow-through shares. For all flow-through shares
                issued
                subsequent to December 31, 2003, the Company will recognize the future
                income tax liability and a corresponding decrease to shareholders
                equity
                on the date the company renounces the tax credits associated with
                the
                expenditures, provided there is reasonable assurance that the expenditures
                will be made. The recognition of any portion of previously unrecognized
                future income tax assets will be recorded as a reduction of income
                tax
                expenses. This policy has no impact on the December 31, 2004 financial
                statements. The Company will recognize the tax liability and the
                decrease
                in shareholders equity associated with the 2004 flow through shares
                in the
                first quarter of the 2005 year.




**NOTE
      4 - OIL AND GAS PROPERTIES AND EQUIPMENT**





**2004**
            
            **2003**$
            
            
            $Oil
                and gas properties and equipment, cost
            
            
            6,633,806
            
            
            4,093,518Less:
                Accumulated amortization and depletion
            
            
            (3,244,127
            )
            
            (2,984,127
            )**3,389,679**
            
            
            **1,109,391**





Oil
      and
      gas properties and equipment includes the cost of unproven properties of
      approximately $188,918 (2003 - $208,000) which are currently not subject to
      depletion. The company expects to incur additional oil and gas expenditures
      in
      2005 of approximately $2,000,000 to further develop its existing properties.
      The
      company expects to finance these expenditures through debt (Note 15b), existing
      production revenue and a farm out of a portion of its property interests (if
      required). In addition, the company may make further oil and gas expenditures
      on
      new properties as finances permit.





During
      the year ended December 31, 2004, four property areas produced 76% of the total
      oil and gas revenue. There is no guarantee that this revenue will continue
      in
      future periods.





**NOTE
      5 - RENTAL PROPERTY**




**2004**
            
            **2003**$
            
            
            $Building,
                at cost (Note 15(b))
            
            
            447,652
            
            
            447,652Less:
                Accumulated amortization
            
            
            (124,731
            )
            
            (111,276
            )322,921
            
            
            336,376Land,
                at cost
            
            
            1,738,994
            
            
            1,738,994**2,061,915**
            
            
            **2,075,370**





**NOTE
      6 - OTHER PROPERTY PLANT AND EQUIPMENT**


**2004**
            
            **2003**Cost
            
            Accumulated
              Amortization
            
            Net
            
            Net$
            
            
            $
            
            
            $
            
            
            $Computer
                equipment
            
            
            15,564
            
            
            (13,245
            )
            
            2,319
            
            
            -Furniture
                and fixtures
            
            
            5,585
            
            
            (5,585
            )
            
            -
            
            
            -Truck
            
            
            39,040
            
            
            (39,039
            )
            
            1
            
            
            1**60,189**
            
            
            **(57,869**
            **)**
            
            **2,320**
            
            
            **1**





F-12




**BERKLEY
                  RESOURCES INC.**
                **NOTES
                  TO FINANCIAL STATEMENTS**
  **NOTE
        7 - BANK LOAN**





The
      bank
      loan is payable to the Canadian Imperial Bank of Commerce (“CIBC”), bears
      interest at prime plus 0.50% per annum, is due on demand, and is secured by
      a
      first mortgage in the amount of $1,304,000 over the Company’s rental property
      (Note 5) and an assignment of rents and insurance. Also, two directors have
      supplied guarantees of $150,000 each. The Company is currently making monthly
      payments of $11,900 towards interest and reduction of principal.





In
      addition, the Company has a $50,000 revolving demand credit line with the CIBC
      that bears interest at prime plus 1% per annum. As at December 31, 2004, there
      was a nil balance outstanding with regard to the credit line.




**NOTE
      8 - SHARE CAPITAL**





**(a)****Authorized**100,000,000
                common shares,
              without
                par value





**2004**
            
            **2003**Number
                of shares
            
            Amount
            
            Number
                of shares
            
            Amount**Issued
                and fully paid**
            
            
            
            
            $
            
            
            
            
            
            $Balance,
                beginning of year
            
            
            6,810,934
            
            
            3,254,426
            
            
            6,795,934
            
            
            3,249,326Issued
                in the year for cash:Pursuant
                to private placements-flow-through
            
            
            1,726,500
            
            
            1,726,500
            
            
            -
            
            
            --non
                flow-through
            
            
            811,543
            
            
            819,800
            
            
            -
            
            
            -Exercise
                of stock options
            
            
            333,000
            
            
            134,220
            
            
            15,000
            
            
            5,100Less
                share issuance costs
            
            
            -
            
            
            (245,638
            )
            
            -
            
            
            -Add
                contributed surplus on of stock options (Note 9)
            
            
            -
            
            
            45,613
            
            
            -
            
            
            -Balance,
                end of year
            
            
            **9,681,977**
            
            
            **5,734,921**
            
            
            **6,810,934**
            
            
            **3,254,426**





**(b)****Warrants****2004**
            
            **2003**Number
                of shares subject to warrants
            
            Exercise
                price range
            
            Number
                of shares subject to warrants
            
            Exercise
                price rangeOutstanding,
                beginning of year
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            1,289,232
            
            $
            1.10/$1.50
            
            
            -
            
            
            -Outstanding,
                end of year
            
            
            **1,289,232**
            
            **$**
            **1.10/$1.50**
            
            
            **-**
            
            
            **-**





F-13





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**





**NOTE
      8 - SHARE CAPITAL (continued)**




At
      December 31, 2004, the following share purchase warrants were
      outstanding:





**Number
                of warrants**
            **Expiry
                date**
            **Exercise
                price Range**241,110
            November
                10, 2005/2006
            $1.10/$1.25553,750
            November
                10, 2005/2006
            $1.25/$1.50129,000
            November
                30, 2005/2006
            $1.10/$1.25319,500
            November
                30, 2005/2006
            $1.25/$1.5045,872
            December
                1, 2006
            $1.36**1,289,232**




**(c)      
      Management incentive options**





The
      Company has established a 2003 Stock Option Plan (“the Plan”) which provides for
      the granting of options to acquire up to 1,350,000 shares. The Plan provides
      for
      the granting of options to employees and service providers, with no single
      optionee to be granted options in excess of 5% of the number of issued shares
      of
      the Company. All options granted are to be with the allowable discount off
      market price and the term of the options granted is not to exceed five years.
      Options granted under the plan vest as follows:





1)
            20%
                during the first six months after the date of the
                grant;


2)
            20%
                at the end of nine months after the date of
                grant;


3)
            20%
                at the end of the twelve months after the date of
                grant;


4)
            20%
                at the end of the fifteen months after the date of
                grant;


5)
            20%
                at the end of the eighteen months after the date of
                grant.





**2004**
            
            **2003****Number
                of shares subject to option**
            
            **Weighted
                Average exercise price per share**
            
            **Number
                of Shares subject to option**
            
            **Weighted
                average exercise price per share**Balance
                outstanding,****beginning
                of year
            
            
            1,302,500
            
            $
            0.49
            
            
            437,500
            
            $
            0.34Activity
                in the yearGranted
            
            
            287,500
            
            
            0.79
            
            
            885,000
            
            
            0.53Exercised
            
            
            (333,000
            )
            
            0.40
            
            
            (15,000
            )
            
            0.34Cancelled
            
            
            (31,000
            )
            
            0.64
            
            
            -Lapsed
            
            
            -
            
            
            
            
            
            (5,000
            )
            
            0.52Balance
                outstanding, end of year
            
            
            **1,226,000**
            
            **$**
            **0.57**
            
            
            **1,302,500**
            
            **$**
            **0.49**Vested,
                end of year
            
            
            **808,347**
            
            **$**
            **0.49**
            
            
            **653,750**
            
            **$**
            **0.40**





The
      weighted average grant date fair value of options granted in 2004 was $0.51
      per
      share (2003: $0.42).





F-14





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**





**NOTE
      8 - SHARE CAPITAL (continued)**




A
      summary of
      management incentive options outstanding is as follows:





**2004**
            
            **2003**Exercise
                PricePer
                Share
            
            Expiry
                Date
            
            Number
                of Shares RemainingSubject
                to Options at December 31$0.34
            
            
            April
                25, 2005
            
            
            197,500
            
            
            422,500$0.52
            
            
            September
                19, 2008
            
            
            614,000
            
            
            730,000$0.57
            
            
            September
                19, 2008
            
            
            150,000
            
            
            150,000$0.74
            
            
            September
                19, 2008
            
            
            27,000
            
            
            -$0.81
            
            
            October
                19, 2009
            
            
            200,000
            
            
            -$0.77
            
            
            October
                29, 2009
            
            
            37,000
            
            
            -**1,226,000**
            
            
            **1,302,500**





The
      fair
      value of the stock options granted were determined on the date of grant using
      the Black-Scholes option pricing model with the following weighted average
      assumptions:





**2004**
            **2003**Risk
                free interest rate
            3.82%
            3.5%Weighted
                average life
            3
                years
            3
                yearsVolatility
                factor
            62.87%
            85.95%Dividend
                yield
            0%
            0%




**(c)      
      Management incentive options (continued)**





Option
      pricing models require the input of highly subjective assumptions including
      the
      expected price volatility. Changes in the subjective input assumptions can
      materially affect the fair value estimate, and therefore the existing models
      do
      not necessarily provide a reliable single measure of the fair value of the
      Company’s stock options.





**NOTE
      9 - CONTRIBUTED SURPLUS**





**2004**
            
            **2003**$
            
            
            $Balance,
                beginning of year
            
            
            77,390
            
            
            75,000Retroactive
                adjustment -Stock-based
                compensation (Note 3a)
            
            
            30,988
            
            
            -Stock-based
                compensation on issueOf
                options
            
            
            273,793
            
            
            2,390Exercise
                of stock options (Note 8(a))
            
            
            (45,613
            )
            
            -Balance,
                end of year
            
            
            **336,558**
            
            
            **77,390**








F-15





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**




**NOTE
      10 - INCOME TAXES**





The
      potential benefit of net operating loss carry forwards has not been recognized
      in the financial statements since the Company cannot be assured that it is
      more
      likely than not that such benefit will be utilized in future years. The
      components of the net deferred tax asset, the statutory tax rate, the effective
      rate and the elected amount of the valuation allowance are as
      follows:





**December
                31,****2004**
            
            **2003**
            
            **2002**Statutory
                rate
            
            
            **35**
            **%**
            
            **40**
            **%**
            
            **44**
            **%**$
            
            
            $
            
            
            **$**Income
                taxes recovered at the Canadian statutory rate
            
            
            1,095,002
            
            
            102,000
            
            
            51,000Benefit
                of tax losses not recognized In year
            
            
            (1,095,002
            )
            
            (102,000
            )
            
            (51,000
            )3⁄4
            
            
            3⁄4
            
            
            3⁄4




**NOTE
      10 - INCOME TAXES (continued)**





The
      approximate tax effects of each type of temporary difference that gives rise
      to
      future tax assets are as follows:





**December
                31,****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$**Operating
                loss carry forwards, expiring 2005-2011
            
            
            302,542
            
            
            66,000
            
            
            1,000Property,
                plant and equipment
            
            
            333,262
            
            
            3⁄4
            
            
            3⁄4Undetected
                resource property acquisition and exploration expenditures
            
            
            2,492,774
            
            
            500,000
            
            
            244,000Deferred
                tax assets
            
            
            3,128,578
            
            
            566,000
            
            
            245,000Less:
                valuation allowance
            
            
            (3,128,578
            )
            
            (566,000
            )
            
            (245,000
            )Net
                deferred tax assets
            
            
            3⁄4
            
            
            3⁄4
            
            
            3⁄4





**NOTE
      11 - RELATED PARTY TRANSACTIONS**





(a)****
            As
                at December 31, 2004 there is $22,060 due from a Director (2003:
                $22,060).





(b)
            Accounts
                payable at December 31, 2004 includes $20,975 owed to Directors and
                or
                former Directors.





(c)
            Management
                and consulting fees totalling $193,257 were paid to Directors and
                their
                private companies in 2004 (2003:
                $129,927).





(d)
            During
                the year, current and or former Directors and or Officers exercised
                320,000 options for total


proceeds
      of $126,800 (2003: 15,000 options for total proceeds of $5,100). In addition,
      current and or former Directors and Officers subscribed for 476,000 shares
      of
      the Company for total proceeds of $476,000 (2003: none).





(e)
            Consulting
                fees totalling $96,000 were paid to a former Director and his spouse
                in
                2004 (2003: $96,000).





F-16





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**




(f)
            Administrative
                services, office supplies and accounting charges totalling $79,200
                were
                paid to a private company owned by public companies having common
                Directors (2003: $55,592).





**NOTE
      12 - COMMITTMENTS**





Under
      the
      terms of Consulting Agreements with a former Director and his spouse, the
      Company is required to make the following future payments, by fiscal
      year:





2005
            
            $
            96,0002006
            
            
            96,000$
            192,000




**NOTE
      13 - SEGMENT DISCLOSURE**





The
      Company operates in two segments - oil and gas and real estate rental. Operating
      results by segment are reported in the statement of operations. Total assets
      and
      capital expenditures by operating segment are as follows:





**2004**
            
            **2003****Assets
                by operating segment**
            
            $
            
            
            $Oil
                and gas
            
            
            4,520,389
            
            
            1,251,126Real
                estate
            
            
            2,010,262
            
            
            2,076,203**Assets
                not allocated**Head
                office
            
            
            228,695
            
            
            288,3626,759,346
            
            
            3,615,691**2004**
            
            
            **2003****Capital
                expenditures by segment**
            
            
            
            
            $
            $Oil
                and gas
            
            
            -
            
            
            582,707Head
                office
            
            
            2,728
            
            
            -**2,728**
            
            
            **582,707**





All
      of
      the Company’s operations are in Canada.  Rental
      revenue of $6,000 (2003: $6,000) has been eliminated  on
      consolidation representing the rental of office premises by the corporate head
      office.





**NOTE
      14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED** **ACCOUNTING
      PRINCIPLES**





The
      financial statements of Berkley have been prepared in accordance with Canadian
      generally accepted accounting principles (“Canadian GAAP”) which differs in
      certain material respects from accounting principles generally accepted in
      the
      United States of America (“US GAAP”). The material differences between Canadian
      and US GAAP and their effect on Berkley’s financial statements are summarized
      below:





F-17





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**




**NOTE
        14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED** **ACCOUNTING
        PRINCIPLES (continued)**




**Statement
                of operations****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$**Loss
                for the year under Canadian GAAP
            
            
            (729,034
            )
            
            (255,456
            )
            
            (127,647
            )(Additional)
                reduction in depletion of oil and gas
              Properties
                under US GAAP (a)
            
            
            -
            
            
            -
            
            
            (14,200
            )Increase
                in compensation expense arising
              From
                stock options (b)
            
            
            -
            
            
            -
            
            
            (50,000
            )Loss
                for the year under US GAAP
            
            
            (729,034
            )
            
            (255,456
            )
            
            (191,847
            )Loss
                per share under US GAAP
            
            
            (0.10
            )
            
            (0.04
            )
            
            (0.03
            )




**Statement
                of Cash Flows****2004**
            
            **2003**
            
            **2002**$
            
            
            $
            
            
            **$**Increase
                (decrease) in cash during the year
              -
                Canadian GAAP
            
            
            477,453
            
            
            (751,735
            )
            
            (83,063
            )Decrease
                (increase) in marketable securities (c)
            
            
            -
            
            
            950,730
            
            
            (240,022
            )Increase
                (decrease) in cash during the year underUS
                GAAP
            
            
            477,453
            
            
            198,895
            
            
            (323,085
            )





**Balance
                Sheets****2004**
            
            **2003**Canadian
              GAAP
            
            US
              GAAP
            
            Canadian
              GAAP
            
            US
              GAAP$
            
            
            $
            
            
            $
            
            
            $Oil
                and gas properties (a)
            
            
            3,389,679
            
            
            3,487,479
            
            
            1,109,391
            
            
            1,207,191Shareholder’s
                equity (a)
            
            
            4,747,715
            
            
            4,845,515
            
            
            2,767,967
            
            
            2,865,767





(a)
            Under
                US GAAP the ceiling test for impairment used in connection with the
                full
                cost method of accounting for oil and gas operations requires the
                discounting of future net operating revenues by 10%, but without
                taking
                into account provisions for future administrative costs. Under Canadian
                GAAP, the ceiling test is based on undiscounted future net operating
                revenues, but does require taking into account future administrative
                costs. The cumulative difference between Canadian and US GAAP since
                inception of oil and gas operations to December 31, 2004 is that
                additional depletion of $97,800 has been recorded under Canadian
                GAAP.
                There was no provision for impairment required in 2004 on the basis
                of the
                ceiling test applied by either of the Canadian or US methods. In
                2002,
                additional depletion of $14,200 was required under US
                GAAP.


F-18





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**





**NOTE
      14 - DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED** **ACCOUNTING
      PRINCIPLES (continued)**




(b)
            During
                2004, the Company adopted the fair value based method of accounting
                under
                Canadian GAAP for stock based compensation, as described in Notes
                2(j) and
                3, with retroactive application with restatement of the prior year’s
                statement of operations. Statement of Financial Accounting Standards
                (“SFAS”) No. 148,*Accounting
                for Stock-based Compensation - Transition and Disclosure*,
                issued by the United States Financial Accounting Standards Board
                (“FASB”)
                provides alternative methods of transition for entities that voluntarily
                change to the fair value based method of accounting and amends the
                disclosure provisions of SFAS No. 123,*Accounting
                for Stock-based Compensation.*For
                US GAAP purposes, the Company has adopted SFAS No. 123 prospectively
                as of
                January 1, 2003. As a result, the stock option compensation expense
                recognized in 2004 is not materially different between US and Canadian
                GAAP.





In
      2001,
      the stock compensation expense of $50,000 under US GAAP relates to the expense
      as measured by the intrinsic value method in accordance with SFAS No. 123 and
      Accounting Principles Board Opinion No. 25.





(c)
            Under
                US GAAP, banker’s acceptances and treasury bills held at December 31, 2003
                and 2002 would have been classified as marketable securities rather
                than
                cash.




(d)
            Pro-forma
                disclosure of asset retirement obligations





SFAS
      143
“Accounting for Asset Retirement Obligations” requires the recognition of the
      estimated fair value of asset retirement obligations as a liability commencing
      for all fiscal years beginning after June 15, 2002. The Company has adopted
      CICA
      Handbook Section 3110, which is in all material respects the same as FASB 143,
      effective January 1, 2003. Accordingly, there were no material differences
      between Canadian GAAP and US GAAP in respect of the accounting for asset
      retirement obligations.





(e)
            Under
                Canadian GAAP, the future income taxes are calculated based on enacted
                or
                substantially enacted tax rates applicable to future years. Under
                US GAAP,
                only enacted rates are used in the calculation of future income taxes.
                This difference in GAAP did not result in a difference in the financial
                position, results of operations or cash flows of the Company for
                the years
                ended December 31, 2004, 2003 and
                2002.





Under
      Canadian income tax legislation, a company is permitted to issue shares whereby
      the company agrees to incur qualifying expenditures and renounce the related
      income tax deductions to the investors. The Company has accounted for the issue
      of flow-through shares using a method in accordance with Canadian GAAP. At
      the
      time of issue, the funds received are recorded as share capital. For US GAAP,
      the premium paid in excess of the market value is credited to other liabilities
      and included in income as the qualifying expenditures are made. There was no
      premium on the flow-through shares issued for all periods
      presented.





Also,
      notwithstanding whether there is a specific requirement to segregate the funds,
      the flow through funds which are unexpended at the balance sheet dates are
      considered to be restricted and are not considered cash or cash equivalents
      under US GAAP. At December 31, 2004, unexpended flow through funds were $897,000
      (2003 - $0).





(f) In
      May
      2003, the FASB issued Statement No. 150 (“SFAS No. 150”), *Accounting
      for Certain Financial* *Instruments
      with Characteristics of both Liabilities and Equity.* SFAS No.
      150 establishes standards for classifying and measuring as liabilities certain
      financial instruments that embody obligations of the issuer and have
      characteristics of both liabilities and equity. SFAS No. 150 represents a
      significant change in practice in the accounting for a number of financial
      instruments, including mandatorily redeemable equity instruments and certain
      equity derivatives. SFAS No. 150 is effective for all financial instruments
      created or modified after May 31, 2003, and to other instruments as of September
      1, 2003. The Company has not issued any financial instruments that fall under
      the scope of SFAS No. 150 and the adoption of this statement did not have a
      material impact on the Company’s financial position or results of operations.





F-19





**BERKLEY
                RESOURCES INC.**
              **NOTES
                TO FINANCIAL STATEMENTS**





**NOTE
      15 - SUBSEQUENT EVENTS**





(a)
            Effective
                March 1, 2005, the Company disposed of its interest in its Halkirk
                property for $112,500. In addition, the Company is in the process
                of
                disposing a second property, the final terms of which have not yet
                been
                determined.





(b)
            
            On
                March 16, 2005, the Company secured a mortgage to provide $1,000,000.
                The
                mortgage bears interest at prime plus 4% per annum (minimum 9.5%
                per
                annum) with monthly interest only payments of $7,917 and is secured
                by a
                second mortgage over the Company’s real estate and an assignment of rents
                and a general security agreement.





F- 20


**EXHIBIT
      INDEX**





Exhibit
                Number
            Name





1. Memorandum
      of Berkley Resources Inc.*





2. Articles
      of Berkley Resources Inc.*





12.1 Certification
      of the Principal Executive Officer under the Sarbanes-Oxley Act





12.2 Certification
      of the Principal Financial Officer under the Sarbanes-Oxley Act





13 Certificate
      under section 906


_______________________________


*
      Previously filed.











45