UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-KSB/A
                                 AMENDMENT NO. 2


(Mark One)
[x]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934
       For the fiscal year ended November 30, 2003

[ ]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934
       For the transition period from ____________  to _____________

                         Commission file number: 0-32237

                            GALAXY ENERGY CORPORATION
                 (Name of small business issuer in its charter)

                COLORADO                                  98-0347827
(State or other jurisdiction of incorporation         (I.R.S. Employer
            or organization)                         Identification No.)

              1001 BRICKELL BAY DRIVE, SUITE 2202, MIAMI, FL 33131
               (Address of principal executive offices) (Zip Code)

                    Issuer's telephone number: (305) 373-5725

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:

                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the  registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.   Yes [x] No [ ]

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

State issuer's revenues for its most recent fiscal year:  $-0-

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average bid and asked  price of such  common  equity,  as of a
specified date within the past 60 days: $128,023,369 AS OF FEBRUARY 27, 2004

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 49,683,932 AS OF FEBRUARY 27, 2004

Transitional Small Business Disclosure Format (Check one):    Yes      ; No  X
                                                                  ----      ----

<PAGE>

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report includes "forward-looking statements." All statements other
than  statements of historical  facts included or  incorporated  by reference in
this report,  including,  without  limitation,  statements  regarding our future
financial position,  business strategy,  budgets,  projected costs and plans and
objectives of management for future operations, are forward-looking  statements.
In addition,  forward-looking  statements generally can be identified by the use
of  forward-looking  terminology  such as  "may,"  "will,"  "expect,"  "intend,"
"project,"  "estimate,"  "anticipate,"  "believe," or "continue" or the negative
thereof or variations thereon or similar  terminology.  Although we believe that
the expectations reflected in such forward-looking statements are reasonable, we
cannot  give any  assurance  that  such  expectations  will  prove to have  been
correct.  Important factors that could cause actual results to differ materially
from our expectations ("Cautionary Statements") include, but are not limited to,
our  assumptions  about  energy  markets,  production  levels,  reserve  levels,
operating  results,  competitive  conditions,  technology,  the  availability of
capital resources,  capital expenditure  obligations,  the supply and demand for
oil and natural gas, the price of oil and natural gas,  currency exchange rates,
the weather,  inflation, the availability of goods and services, drilling risks,
future processing volumes and pipeline  throughput,  general economic conditions
(either  internationally  or nationally or in the  jurisdictions in which we are
doing  business),  legislative  or  regulatory  changes  (including  changes  in
environmental regulation, environmental risks and liability under federal, state
and foreign  environmental  laws and  regulations),  the  securities  or capital
markets and other factors disclosed under "Item 6.  Management's  Discussion and
Analysis or Plan of Operation,"  "Item 2. Description of Property" and elsewhere
in this  report.  All  subsequent  written and oral  forward-looking  statements
attributable to us, or persons acting on our behalf, are expressly  qualified in
their  entirety  by the  Cautionary  Statements.  We assume no duty to update or
revise our forward-looking  statements based on changes in internal estimates or
expectations or otherwise.


                                    GLOSSARY

         The following is a  description  of the meanings of some of the natural
gas and oil industry terms used in this report.

         AFE  (AUTHORIZATION  FOR  EXPENDITURE).  An  estimate  of the  costs of
drilling and  completing a proposed  well,  which the operator  provides to each
working interest owner before the well is commenced.

         CASING.  Steel pipe that screws  together  and is lowered into the hole
after  drilling  is  complete.  It is used to seal off fluids and keeps the hole
from caving in.

         COMPLETION.  The installation of permanent equipment for the production
of  natural  gas  or  oil,  or in the  case  of a dry  hole,  the  reporting  of
abandonment to the appropriate agency.

         DEVELOPMENT  WELL.  A well  drilled in to a proved  natural  gas or oil
reservoir to the depth of a stratigraphic horizon known to be productive.

         DOWNHOLE. Refers to equipment or operations that take place down inside
a borehole.

         DRY HOLE. A well found to be incapable  of  producing  hydrocarbons  in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.

         EXPLORATORY WELL. A well drilled to find and produce natural gas or oil
reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of natural gas or oil in another reservoir or to extend a
known reservoir.

         FARM-IN OR FARM-OUT.  An  agreement  under which the owner of a working
interest  in a natural  gas and oil lease  assigns  the  working  interest  or a
portion of the  working  interest  to another  party who desires to drill on the
leased acreage.  Generally,  the assignee is required to drill one or more wells
in order to earn its interest in the acreage.  The  assignor  usually  retains a
royalty or  reversionary  interest  in the lease.  The  interest  received by an
assignee is a "farm-in"  while the  interest  transferred  by the  assignor is a
"farm-out."

                                       2
<PAGE>

         GROSS ACRES OR GROSS WELLS.  The total acres or wells,  as the case may
be, in which a working interest is owned.

         NET ACRES OR NET  WELLS.  The sum of the  fractional  working  interest
owned in gross acres or wells, as the case may be.

         OPERATOR.  The individual or company  responsible for the  exploration,
development, and production of an oil or gas well or lease.

         OVERRIDING ROYALTY. A revenue interest in oil and gas, created out of a
working interest. Like the lessor's royalty, it entitles the owner to a share of
the proceeds from gross production, free of any operating or production costs.

         PRODUCTIVE  WELL.  A well  that is found  to be  capable  of  producing
hydrocarbons  in sufficient  quantities  such that proceeds from the sale of the
production exceed production expenses and taxes.

         PROSPECT.  A  specific  geographic  area  which,  based  on  supporting
geological,  geophysical or other data and also  preliminary  economic  analysis
using reasonably  anticipated  prices and costs, is deemed to have potential for
the discovery of commercial hydrocarbons.

         RESERVOIR.  A porous and permeable  underground  formation containing a
natural  accumulation  of producible  natural gas and/or oil that is confined by
impermeable rock or water barriers and is separate from other reservoirs.

         SURFACE CASING.  Pipe that is set with cement through the shallow water
sands to avoid  polluting  the  water  and keep the same  from  caving  in while
drilling a well.

         UNDEVELOPED ACREAGE. Lease acreage on which wells have not been drilled
or  completed  to a  point  that  would  permit  the  production  of  commercial
quantities of natural gas and oil  regardless  of whether such acreage  contains
proved reserves.

         WORKING INTEREST. The operating interest that gives the owner the right
to drill, produce and conduct operating activities on the property and receive a
share of  production  and  requires  the  owner  to pay a share of the  costs of
drilling and production  operations.  The share of production to which a working
interest  owner is entitled  will always be smaller than the share of costs that
the  working  interest  owner is  required  to bear,  with  the  balance  of the
production accruing to the owners of royalties.


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS.

         We are in the business of oil and gas  exploration  and  production and
are  currently  acquiring  and  developing  coal bed  methane  ("CBM") and other
unconventional  and  conventional  natural gas  properties in Wyoming,  Montana,
Texas, Europe and other areas that offer attractive  exploitation  opportunities
for natural gas. To date,  we have engaged in only limited  drilling  activities
and have mostly undeveloped acreage.

         We  conduct  exploration  activities  to locate  natural  gas and crude
petroleum through two wholly-owned subsidiaries,  Dolphin Energy Corporation and
Pannonian  International,  Ltd. Should we commence production of these products,
we anticipate  that generally they will be sold at the wellhead to purchasers in
the immediate area where the products are produced. We expect that the principal
markets for oil and gas will be refineries and transmission  companies that have
facilities near our producing properties.


                                       3
<PAGE>


BACKGROUND

         We were  incorporated  in the State of Colorado  on  December  17, 1999
under the name  "Galaxy  Investments,  Inc.," to explore for and,  if  possible,
develop  mineral  properties  primarily  in the  Province  of British  Columbia,
Canada,  and other  parts of Canada.  On November  1, 2002,  we entered  into an
agreement  and  plan  of  reorganization  to  acquire  all  of  the  issued  and
outstanding capital stock of Dolphin Energy  Corporation,  a Nevada corporation,
for  approximately  70% of our  outstanding  common stock.  The  acquisition  of
Dolphin  Energy was  completed as of November  13, 2002.  We changed our name to
"Galaxy Energy Corporation" on May 15, 2003.

         Upon  completion of the  transaction,  Dolphin Energy became our wholly
owned  subsidiary.  However,  since this  transaction  resulted in the  existing
stockholders of Dolphin Energy acquiring control of the surviving  company,  for
financial  reporting  purposes the business  combination  was accounted for as a
reverse  acquisition  with  Dolphin  Energy as the  acquirer.  Accordingly,  all
financial information presented in this report for periods prior to November 13,
2002 represents the historical information of Dolphin Energy.

         On May 7,  2003,  we  entered  into a  share  exchange  agreement  with
Pannonian International,  Ltd., a Colorado corporation, whereby we would acquire
that company solely for shares of our common stock. We completed the acquisition
as of June 2, 2003 and  issued  1,951,241  shares of our  common  stock,  making
Pannonian International a wholly-owned subsidiary.

DEVELOPMENT AND ACQUISITION CAPITAL EXPENDITURES

         During the fiscal years ended  November 30, 2003 and 2002,  we incurred
$2,312,011 and $873,797,  respectively,  in identifying and acquiring  petroleum
and natural gas leases and prospect rights.

PRINCIPAL PRODUCTS

         We  conduct  exploration  activities  to locate  natural  gas and crude
petroleum.  Should we commence production of these products,  we anticipate that
generally  they will be sold at the wellhead to purchasers in the immediate area
where the products are produced.  We expect that the  principal  markets for oil
and gas will be refineries and transmission  companies that have facilities near
our producing properties.

COMPETITION

         Oil and gas exploration and acquisition of undeveloped  properties is a
highly competitive and speculative  business.  We compete with a number of other
companies,  including major oil companies and other independent  operators which
are more experienced and which have greater financial resources.  We do not hold
a significant competitive position in the oil and gas industry.

COMPLIANCE WITH GOVERNMENTAL REGULATIONS

         Our operations are subject to various levels of government controls and
regulations in the United States and internationally.

         UNITED STATES REGULATION.  In the United States,  legislation affecting
the oil and gas industry has been  pervasive  and is under  constant  review for
amendment or expansion.  Pursuant to such legislation,  numerous federal,  state
and local  departments and agencies have issued  extensive rules and regulations
binding on the oil and gas industry and its  individual  members,  some of which
carry  substantial  penalties for failure to comply.  Such laws and  regulations
have a significant  impact on oil and gas drilling,  gas  processing  plants and
production  activities,  increase the cost of doing business and,  consequently,
affect  profitability.  Inasmuch as new  legislation  affecting  the oil and gas
industry is commonplace and existing laws and regulations are frequently amended
or  reinterpreted,  we are  unable  to  predict  the  future  cost or  impact of
complying with such laws and regulations.

         We  consider  the cost of  environmental  protection  a  necessary  and
manageable  part of our  business.  We  believe  we will be able to plan for and
comply  with new  environmental  initiatives  without  materially  altering  our
operating strategies.

                                       4

<PAGE>

         EXPLORATION AND PRODUCTION. Our United States operations are or will be
subject to various types of  regulation at the federal,  state and local levels.
Such  regulation   includes   requiring  permits  for  the  drilling  of  wells;
maintaining   bonding   requirements   in  order  to  drill  or  operate  wells;
implementing  spill  prevention  plans;  submitting  notification  and receiving
permits  relating  to  the  presence,  use  and  release  of  certain  materials
incidental to oil and gas operations;  and regulating the location of wells, the
method of  drilling  and casing  wells,  the use,  transportation,  storage  and
disposal of fluids and materials used in connection with drilling and production
activities,  surface usage and the  restoration  of properties  upon which wells
have been drilled,  the plugging and abandoning of wells and the transporting of
production.  Our operations are or will be also subject to various  conservation
matters,  including the  regulation of the size of drilling and spacing units or
proration  units,  the number of wells  which may be drilled in a unit,  and the
unitization or pooling of oil and gas  properties.  In this regard,  some states
allow the forced  pooling or  integration  of tracts to  facilitate  exploration
while other states rely on voluntary pooling of lands and leases, which may make
it more  difficult  to  develop  oil  and gas  properties.  In  addition,  state
conservation  laws establish maximum rates of production from oil and gas wells,
generally  limit the venting or flaring of gas, and impose certain  requirements
regarding the ratable purchase of production. The effect of these regulations is
to limit the amounts of oil and gas we may be able to produce from our wells and
to limit the number of wells or the locations at which we may be able to drill.

         ENVIRONMENTAL AND OCCUPATIONAL REGULATIONS.  Various federal, state and
local laws and regulations concerning the discharge of incidental materials into
the  environment,  the  generation,  storage,  transportation  and  disposal  of
contaminants or otherwise  relating to the protection of public health,  natural
resources,  wildlife  and the  environment,  affect our  existing  and  proposed
exploration,  development,  processing,  and production operations and the costs
attendant  thereto.  These laws and regulations  increase our overall  operating
expenses.  We plan to maintain levels of insurance  customary in the industry to
limit our financial exposure in the event of a substantial  environmental  claim
resulting  from sudden,  unanticipated  and  accidental  discharges of oil, salt
water or other substances.  However,  we do not intend to maintain 100% coverage
concerning  any  environmental  claim,  and we do not  intend  to  maintain  any
coverage  with respect to any penalty or fine  required to be paid by us because
of our violation of any federal, state or local law. We are committed to meeting
our  responsibilities  to  protect  the  environment  wherever  we  operate  and
anticipate making increased expenditures of both a capital and expense nature as
a result of the  increasingly  stringent  laws relating to the protection of the
environment.  We cannot  predict with any  reasonable  degree of  certainty  our
future exposure  concerning such matters.  We consider the cost of environmental
protection a necessary and manageable  part of our business.  We believe we will
be able to plan  for and  comply  with  new  environmental  initiatives  without
materially altering our operating strategies.

         We are also  subject to laws and  regulations  concerning  occupational
safety and health.  Due to the continued  changes in these laws and regulations,
and the  judicial  construction  of same,  we are  unable  to  predict  with any
reasonable degree of certainty our future costs of complying with these laws and
regulations.  We consider the cost of occupational safety and health a necessary
and manageable part of our business.  We believe we will be able to plan for and
comply with new occupational  safety and health  initiatives  without materially
altering our operating strategies.

         INTERNATIONAL  REGULATION.  The oil  and gas  industry  is  subject  to
various types of regulation throughout the world.  Legislation affecting the oil
and gas industry has been pervasive and is under  constant  review for amendment
or  expansion.  Pursuant to such  legislation,  government  agencies have issued
extensive  rules and  regulations  binding on the oil and gas  industry  and its
individual  members,  some of which carry  substantial  penalties for failure to
comply.  Such  laws and  regulations  have a  significant  impact on oil and gas
drilling and  production  activities,  increase the cost of doing  business and,
consequently,  affect  profitability.  Inasmuch as new legislation affecting the
oil and gas  industry is  commonplace  and  existing  laws and  regulations  are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact  of  complying  with  such  laws  and  regulations.   The  following  are
significant areas of regulation.

         EXPLORATION  AND  PRODUCTION.  Pannonian's  oil and gas concessions and
permits are granted by host  governments  and  administered  by various  foreign
government  agencies.  Such foreign governments require compliance with detailed
regulations  and orders  which  regulate,  among  other  matters,  drilling  and
operations  on areas  covered by  concessions  and permits and  calculation  and
disbursement  of  royalty  payments,   taxes  and  minimum  investments  to  the
government.


                                       5
<PAGE>

         Regulation  includes  requiring  permits  for the  drilling  of  wells;
maintaining   bonding   requirements   in  order  to  drill  or  operate  wells;
implementing  spill  prevention  plans;  submitting  notification  and receiving
permits  relating  to  the  presence,  use  and  release  of  certain  materials
incidental to oil and gas operations;  and regulating the location of wells, the
method of  drilling  and casing  wells,  the use,  transportation,  storage  and
disposal of fluids and materials used in connection with drilling and production
activities,  surface usage and the  restoration  of properties  upon which wells
have been drilled,  the plugging and abandoning of wells and the transporting of
production.  Pannonian's  operations are also subject to regulations,  which may
limit the number of wells or the locations at which Pannonian can drill.

         ENVIRONMENTAL  REGULATIONS.  Various  government  laws and  regulations
concerning  the  discharge of incidental  materials  into the  environment,  the
generation,  storage,  transportation  and disposal of contaminants or otherwise
relating to the protection of public health, natural resources, wildlife and the
environment,  affect  Pannonian's  exploration,   development,   processing  and
production operations and the costs attendant thereto. In general, this consists
of  preparing  Environmental  Impact  Assessments  in order to receive  required
environmental  permits to conduct  drilling  or  construction  activities.  Such
regulations also typically include  requirements to develop  emergency  response
plans,  waste management plans, and spill contingency  plans. In some countries,
the   application  of  worldwide   standards,   such  as  ISO  14000   governing
Environmental   Management   Systems,   are  required  to  be  implemented   for
international oil and gas operations.

EMPLOYEES

         As of February 29, 2004, we had a total of 7 full time employees and no
part-time employees. None of our employees is covered by a collective bargaining
agreement.


ITEM 2.  DESCRIPTION OF PROPERTY.

OIL AND GAS ASSETS

         POWDER RIVER BASIN - WYOMING  (LEITER FIELD).  Effective  September 30,
2002, we entered into a lease  acquisition  and drilling  agreement with Pioneer
Oil, a Montana limited liability company ("Pioneer"),  which entitled us to earn
a 100% working interest and a 78% net revenue interest in leases covering 15,657
acres in the Powder River Basin, near Leiter, Wyoming. The project area is 20 to
30 miles west of the main north-south CBM fairway in Campbell  County,  Wyoming,
and is  approximately  9 miles west of the nearest  established  CBM production.
Most of our acreage is positioned  along roads and  pipelines.  There is 20-inch
gas  transmission  line crossing our leased  property,  and U.S. Highway 14 runs
through the project area and provides year-round access.

         Ten  producible  coal seams have been  identified  throughout the lease
area, which range from 10 feet to 35 feet in thickness and with depths of 600 to
2,100 feet below the  surface.  The  primary  targets  are coal beds in the Fort
Union Formation.  Drilling depths range from 1,700 to 2,100 feet. The Fort Union
Formation is expected to have about 130 feet of aggregate  coal separated into 8
to 10 widely spaced beds. The coals are widespread and have a nearly  continuous
distribution.  The  successful  implementation  of  multi-seam  well  completion
technology  and cost  effective  produced  water  management in accordance  with
existing  established  practices and requirements  will greatly enhance results.
Mud logs from the five existing wells on this property  indicate the presence of
gas in these coal seams.  The mud log gas shows are  consistent  with other Fort
Union  coals  in the  western  portion  of the  Powder  River  Basin.  Based  on
historical  production  from other  similar  areas within this basin,  which are
producing gas from the same Fort Union Formation coals in  approximately  11,000
active wells, we are optimistic  that  economically  recoverable  amounts of gas
will be present  here.  However,  we do not yet have any  production  tests from
these  wells on this  property  that  substantiate  the  amount  of gas,  and we
recognize that analogies drawn from available data from other wells or producing
fields may not be applicable to our drilling prospects.

         Assuming  that we can  reach a new  agreement  with the  landowners  on
suitable  terms,  our goal is to start a  continuous  drilling  program into the
potential  productive  seams and to maintain and develop the Leiter area as long
as it produces marketable quantities of gas. We have determined that the initial
target will be the Pawnee seam.  The thickness of this seam varies from 20 to 30
feet at a depth of 1,800 feet. Other candidates  include the Anderson

                                       6
<PAGE>


Formation with a  thickness  of 20 to 25 feet at a depth of 600 feet  below  the
surface.  These  zones  have been  targeted as they are the least  expensive  to
produce  and  have  manageable  amounts  of  water  and  the  highest  potential
quantities of gas.

         To acquire the leases  covering this  acreage,  we were required to pay
and did pay $100,000 by January 31, 2003. We were required to pay  $1,650,000 by
October 1, 2003,  deposit  the  estimated  costs to drill and  complete 30 pilot
wells into an escrow  account  by  October 1, 2003,  and drill at least 25 pilot
wells by March 1, 2004.  The agreement  also provided for the  acquisition  of a
100%  interest in five  natural  gas wells,  for  $500,000,  by October 1, 2003.
Pioneer  extended the  obligations  due October 1, 2003 to October 31, 2003,  to
allow for negotiation of a new agreement.


         Instead of  negotiating  a new  agreement,  on December  22,  2003,  we
purchased  Pioneer's  position for $1,000,000  cash and 2,000,000  shares of our
common stock, valued at $1.40 per share. By purchasing  Pioneer's  position,  we
are now the lessee under the leases and the owner of the five natural gas wells.
These  wells  were  drilled  in late  2001,  have been  equipped  with  downhole
production  pumps,  and one coal  zone is  partially  dewatered.  We  expect  to
commence production from these five completed wells and several additional wells
during 2004.  We do not have any  estimates as to reserves  attributed  to these
wells.  The leases had required  the  drilling of 60 wells by March 9, 2004.  We
have  reached an agreement in principle to extend this date to October 10, 2004.
We are in the process of reducing this  agreement to writing.  We have agreed to
escrow  $150,000,  which  will  be  returned  to  us if we  meet  this  drilling
requirement by October 10, 2004. If we fail to meet this drilling requirement by
October 10,  2004,  we will forfeit the  $150,000,  but retain the wells we have
drilled. The wells we retain would be subject to a 20% royalty to the landowner.


         During our first fiscal  quarter,  which ended  February  29, 2004,  we
transferred  16 existing  permits from Pioneer to us, drilled five new wells and
set  seven-inch  production  casing in those  wells,  commenced  and set surface
casing in five additional  wells,  and started  drilling below surface casing in
two new  wells.  In  addition,  we have  commenced  location  surveying,  permit
procedures,  and surface agreement  approval for an additional  portion of these
leases.

         Effective  October  1,  2002,  we  entered  into  a  Coal  Bed  Methane
Participation Agreement with Horizon Exploitation,  Inc., a Colorado corporation
("Horizon"),  to provide  funding for the  development of our Pioneer  leasehold
interests  and  establish an area of mutual  interests in the Powder River Basin
located  in  Wyoming  and  Montana  for  future  projects  on the same  terms as
described below.

         Under the terms of the agreement  Horizon may  participate,  subject to
funding,  in the  development  of up to 120 wells and the  purchase  of the five
existing  wells  from  Pioneer.  Horizon's  commitment  to  participate  in  the
development is subject to an initial funding by Horizon of $100,000,  a $500,000
payment for the  purchase  of the five  existing  wells,  and the  placement  of
$1,650,000, plus the estimated amount to drill and complete 30 pilot wells, into
escrow as a partial  payment for a 30-well pilot project on or before  September
15, 2003.  The estimated  AFE cost per well is $150,000.  We earn an initial 15%
carried  interest in all wells drilled and purchased.  We also have an option to
purchase  additional  working  interest  from Horizon at Horizon's  initial well
cost.  After the  completion  of a 30-well  pilot  program,  we can  purchase an
additional 25% working  interest in each of the wells at Horizon's  initial well
and land cost. An additional 25% can be purchased on the same terms from Horizon
within two years after the  completion  of the pilot  program.  These dates were
extended to January 15, 2004.  Since this  agreement has now expired,  we are in
the process of negotiating a new agreement.

         Horizon  Exploitation,  Inc. is a Colorado  corporation and the general
partner  of  two  U.S.  limited  liability  limited   partnerships,   which  are
subsidiaries of a German-based  fund, the Horizon  Exploitation  Fund GmbH & Co.
KG, managed by Horizon  Exploitation Fund Verwaltung GmbH, a German corporation,
in  Basel,  Switzerland.  The  German-based  fund  would  be the  actual  entity
providing the monies needed for drilling. The Colorado corporation only provides
administrative  support for any investments made by the  German-based  fund. The
German-based  fund is in the process of raising its capital.  As of February 29,
2004, it had not yet obtained its desired funding.

         POWDER RIVER BASIN - WYOMING (BUFFALO RUN,  PIPELINE RIDGE,  HORSE HILL
AND DUTCH  CREEK).  In January  2004,  we acquired an  operating  interest in 61
existing  CBM wells and  approximately  12,000  gross acres in the Powder  River
Basin in Wyoming from DAR, LLC, in consideration for 3,000,000 restricted shares
of our common

                                       7
<PAGE>

stock, valued at $1.80 per share,  $163,655,  and $2,600,000 in future payments.
The amount of $1,000,000 is due January 14, 2005 and  $1,600,000 is due June 24,
2005.

         This property is located  approximately 12 miles southeast of Sheridan,
Wyoming,  and is  divided  into  four CBM  development  projects:  Buffalo  Run,
Pipeline  Ridge,  Horse Hill,  and Dutch Creek.  The project area contains up to
eight  separate  coals,  ranging  in depth  from 150  feet to 1,800  feet.  Coal
thickness  ranges from 20 feet to 70 feet,  generally  thinning with depth.  Gas
content  ranges  from 30 to 90 cubic  feet per ton,  generally  increasing  with
depth.  We estimate  that full  development  of this project area is expected to
require up to 280 wells,  with two or three  wells per  location  and up to four
coal zone completions per well.

         The four projects are in the early implementation  stages with 61 wells
already  drilled  to  various  depths.  Of  these,  32 have been  completed  and
approximately half of those exhibit shut-in gas pressures of up to 50 pounds per
square inch at the wellhead.  The remaining  wells have all had  significant gas
shows during  drilling,  but wellhead  surface  pressures are  suppressed  until
dewatering  begins.  None of  these  wells  has been  stimulated  or  placed  on
production  yet.  Contracts for electrical  power supply have been executed with
two utilities,  Powder River Energy and Montana Dakota  Utilities.  Negotiations
for pipeline  access are underway,  and a connecting line will be constructed by
the time the remaining  wells are completed and the field is electrified and the
gathering  infrastructure  is in place. We plan to drill additional  development
wells throughout these project areas commencing spring 2004.

         We propose to  accomplish  water  disposal  without  surface  discharge
through re-injection and off-channel storage ponds.  Injectivity tests have been
performed  to  confirm  that  the  Bar N  Coal  and  shallow  water  sands  will
accommodate  a  significant  volume  of water  injection.  This  method of water
disposal  has been  implemented  in several CBM  projects and is approved by the
regulatory authorities.

         As a result of this  acquisition  we have  approximately  a 65% working
interest in the Buffalo Run project,  which has 19 wells  drilled and  completed
and another 25 wells in various stages of completion, and a 50% working interest
in the Dutch Creek project, which has 13 wells drilled and completed and another
four wells in various stages of completion.


         In March 2004, we acquired the  remaining  35% working  interest in the
Buffalo  Run  project  for  $592,464.  In April  2004,  we expect to acquire the
remaining  50%  working  interest  in the Dutch  Creek  project  for $300,00 and
360,000 restricted shares of our common stock.


         We have agreed to employ  Continental  Industries,  LC, an affiliate of
DAR, LLC, as operator on our Wyoming Powder River Basin leases.  Continental,  a
privately-held  exploration and production company based in Casper, Wyoming, was
among the first CBM participants in the Powder River Basin and has extensive CBM
experience.  Since  1999,  Continental  has  implemented  successfully  five CBM
projects with over 200 wells. Continental was chosen as the contract operator on
these properties  because of its in-depth  knowledge and plans in place to fully
develop these properties.

         In addition,  we have engaged  Continental to conduct operations on our
Leiter Field acreage because of the following factors:

         o  the  proximity  of the Leiter  Field to the  Buffalo  Run,  Pipeline
            Ridge, Horse Hill and Dutch Creek projects;
         o  Continental's  close  relationship  with  the  technical  and  legal
            representatives of the Leiter Field mineral owners; and
         o  Continental's demonstrated capabilities.

         We are  compensating  Continental  under the terms and  provisions of a
contract  operator  agreement with normal industry  standard rates for personnel
and expenses.

         GREEN  RIVER  BASIN  -  WYOMING.  In  June  2003,  we  entered  into  a
non-binding  letter of intent to purchase a  percentage  of working  interest in
57,000  gross acres in the Green River Basin in Wyoming for shares of our common
stock. We are working towards a definitive agreement for this transaction.


                                       8
<PAGE>
         POWDER  RIVER  BASIN - MONTANA.  On August 5, 2003,  we entered  into a
Lease Option and Acquisition Agreement with Quaneco, L.L.C. ("Quaneco"). Quaneco
is a  privately-held  oil and  gas  company  operating  primarily  in the  Rocky
Mountain region.

         Under the terms of the  agreement,  we have an option to  acquire up to
50% of  Quaneco's  working  interests  in certain  oil and gas  leases  covering
approximately  206,000  gross  acres in the Powder  River Basin area of southern
Montana. If the option is fully exercised, we will acquire the working interests
in approximately 53,000 net acres. The primary geologic target associated in the
acreage is natural gas from  shallow  coalbeds  located at depths of 200 feet to
2,500  feet.  The  purchase  price of the  option is  $6,625,000  payable in six
installments  of  varying  amounts.   The  first  two   installments,   totaling
$1,100,000,  were paid.  In  addition,  Quaneco has  credited us with payment of
$600,000  due to be paid under the  agreement  on or before  January  15,  2004,
through its purchase of $600,000 in convertible debentures (discussed below).

         In  addition  to the  purchase  option,  we have  the  right to earn an
undivided  25%  working   interest  in  up  to  128  gas  wells  by  paying  our
proportionate  share of the costs of drilling such wells. The working  interests
so earned by us would belong to us without  regard to whether we exercise all or
none of the purchase option described in the preceding paragraph.

         We determined this to be a fair  transaction for us, based on our study
of the area. Multiple coal seams are present in this prospect area, with a total
coal thickness of approximately  100 feet. There are several surface  structures
and faults in the prospect area that were mapped by the U.S.  Geological  Survey
and the Montana Bureau of Mines. We believe that these  structural  features are
expected to enhance the CBM gas  production.  Data used in defining the prospect
area was taken from these agencies, as well as information from abandoned deeper
oil and gas wells drilled in the area. CBM gas  production has been  established
approximately 6 miles south of the area where  cumulative  production to date is
about 20 billion cubic feet of natural gas.  Leasing costs for similar  acreage,
including initial bonus fees, broker costs,  title work, and some rentals,  vary
between $100 and $200 per acre. This agreement with Quaneco  provides for a cost
of $125 per acre.

         This acreage is divided into two projects:  the Kirby  prospect and the
Castle Rock prospect. We intend to participate in a 16-well pilot program on the
Kirby prospect for our 25% working interest share during 2004. We also intend to
participate in an initial core hole program on the Castle Rock prospect designed
to further  evaluate the primary zones of interest for our 25% working  interest
share.

         EAST TEXAS.  As of November 30, 2003, we have paid-up  leases  covering
approximately 2,780 acres in the vicinity of the Trawick Field,  located in Rusk
and Nacogdoches Counties,  Texas. Leases covering  approximately 1,118 acres are
for a  three-year  term  expiring in late 2005 and early 2006,  while the leases
covering  the  remaining  approximately  1,662  acres are for a  five-year  term
expiring  in 2007.  With the  exception  of two  leases  with an 18.75%  royalty
interest  covering  approximately  79 acres,  and one lease  with a 20%  royalty
interest  covering  approximately  170 acres,  all of the leases  provide  for a
16.67% royalty interest to the mineral owner.

         All of the leases are held by either Harbor  Petroleum,  LLC or Florida
Energy,  Inc. on behalf of Dolphin Energy Corporation and Dolphin is responsible
for payment of all of the acquisition costs and maintenance costs of the leases.
Both Harbor  Petroleum,  LLC and Florida Energy,  Inc. are related parties.  See
"Item 12. Certain Relationships and Related  Transactions."  Dolphin Energy owns
all  of the  working  interests  acquired  under  the  leases,  except  for a 2%
overriding  royalty  interest,  shared  equally by Harbor  Petroleum and Florida
Energy.  However,  with respect to 400  contiguous  acres  designated by Florida
Energy,  Florida Energy shall have a 3.125% overriding  royalty interest instead
of a 1% overriding royalty interest.  In addition,  Dolphin Energy has agreed to
pay Florida  Energy a bonus of $50,000  for  identifying  this lease play.  This
bonus  obligation is evidenced by a promissory  note due March 7, 2004 and bears
interest at the annual rate of 7-1/2%.

         Dolphin  Energy  has  agreed  that  the   geological  and   geophysical
information  acquired by our  operations on this acreage shall belong to Dolphin
as well as Harbor  Petroleum  and Florida  Energy.  Dolphin has also agreed that
Harbor  Petroleum  shall be the  operator for and shall have full control of all
operations  conducted  with respect to this  acreage;  provided,  however,  that
Dolphin or its nominee shall have the right to be named operator if and when the
leases are assigned to Dolphin or its nominee.


                                        9
<PAGE>
         In 2004,  we propose to drill a vertical  wellbore  through the deepest
potential  Travis Peak  sandstone  in the five  specific  prospect  areas we are
targeting.

         JIU  VALLEY  -  ROMANIA.   Pannonian  International  has  a  concession
agreement  covering  21,538 gross acres for a term of 30 years in the Jiu Valley
Coal Basin, Romania. This acreage contains up to 18 coal seams with a cumulative
thickness  up to 52 meters at depths of 985 to 3,280 feet.  The main target seam
averages 22 meters in thickness in the concession  area. The concession from the
Romanian  government was issued October 22, 2002. During the first five years of
the concession,  the concession  holder is required to expend a specified amount
for  exploratory  work. If that  specified  amount is not spent,  the concession
holder must pay that amount to the Romanian  government.  If no payment is made,
the  concession  is  cancelled.   Pannonian's  minimum  exploration  expenditure
commitments are as follows:

                o    $2,000 by October 21, 2003
                o    $2,000 by October 21, 2004
                o    $252,000 by October 21, 2005
                o    $182, 000 by October 21, 2006
                o    $182,000 by October 21, 2007

Pannonian  has  already  spent  in  excess  of  $6,000,  thereby  satisfying its
requirements through October 21, 2004.

         Pannonian  proposes to drill a well in 2004,  as  Pannonian  management
believes  that it has a drill site in close  proximity  to where an earlier well
has blown out methane. This drill site is approximately 1.5 miles from a 20-inch
gas trunk pipeline,  and is  approximately  the same distance from an electrical
generation  plant  that  uses  both  natural  gas and  coal as  fuel.  Pannonian
estimates that it would cost approximately  $475,000 to test and complete a well
as a producing  well. If Pannonian  could drill a successful  producing well, it
could then  attract  the  necessary  capital to drill other  offset  development
wells.

         We  believe  that  the  proximity  to  the  gas  trunk  pipeline  is  a
significant  factor in  analyzing  the  economic  viability of a project in this
area.  We  estimate  the  cost  of  tying-in  to this  pipeline  to  range  from
approximately $168,000 to $863,000,  depending upon whether gas/water separators
and a compressor  would be required.  Since we have not yet drilled any wells on
this property and thus do not have any proved reserves,  we can analyze economic
viability using only conservative CBM production model curves.  Based upon these
conservative CBM production  model curves,  current natural gas/CBM sales prices
in Romania, and existing Romanian currency rates, we estimate that we would need
13 wells to justify a tie-in to the pipeline.

         The property is subject to a royalty interest of  approximately  7-1/2%
to the Romanian government and 2-1/2% to the coal mining company.

         Pannonian has applied for a concession  on an additional  120,000 acres
in Romania and has identified  further European license areas for which it is in
the application process.

         NEUES  BERGLAND - GERMANY.  In December 2003,  the  149,435-acre  Neues
Bergland  Exploration  Permit was granted  for a  three-year  term to  Pannonian
International   (50%)  and  two  co-permitees  (each  with  25%).  Both  of  the
co-permittees are  privately-held  oil and gas companies that are not affiliated
with us.  Under  the  terms of the  permit,  we and our  co-permittees  have the
exclusive right to explore for natural resources within the permit area, subject
to the obtaining the approval from third-party  landowners.  Permit holders must
pay field taxes by May 31 of each year for the previous  calendar  year.  Permit
holders can deduct from field  taxes those  expenditures  incurred by the permit
holder that were necessary to obtain geophysical,  geochemical,  petrological or
reservoir data, such as geophysical work with processing,  drilling  operations,
reprocessing  work, and fracturing with the goal of transforming a non-producing
into a producing reservoir.

         The  permit  requires  the  drilling  of an  initial  exploration  test
borehole  during 2004.  The  estimated  cost of phase one of this work  program,
which  consists  of  building  the  drillsite,  drilling  and  testing the first
exploration  test borehole,  evaluating the borehole with a long-term  flow-test
program,   evaluating  the  test  results,   and   re-evaluating  the  economic,
environmental,  regulatory, and technical issues is $1,500,000. Our current plan
is to proceed with

                                       10
<PAGE>

phase  one  only  if  we  can  obtain  the  necessary funding through a farm-out
arrangement. The costs incurred in connection with phase one would offset all of
the field taxes for 2004.

         The  initial  drill  site is  approximately  two miles from a local gas
distribution  grid (8"  pipeline)  and about 4 miles from a 38", 1000 pounds per
square inch,  international trunk pipeline.  The proximity to these in-place gas
distribution  systems would  provide  excellent  marketing  potential in what is
considered to be one of Europe's best natural gas markets.  A drilling  schedule
for this permit will be announced once we know whether the necessary  funding is
available.

PRODUCTIVE GAS WELLS

         The following  summarizes  our  productive  and shut-in gas wells as of
February 29, 2004.  Productive  wells are producing wells capable of production.
Shut-in  wells are wells that are capable of  production  but are  currently not
producing.  Gross wells are the total number of wells in which we have a working
interest. Net wells are the sum of our fractional working interests owned in the
gross wells.

                                            PRODUCTIVE GAS WELLS
                                          GROSS                  NET
     Producing gas wells                     -                     -
     Shut-in gas wells                      37                    24
                                            --                    --
        Total                               37                    24
                                            ==                    ==
OIL AND GAS ACREAGE

         The following table sets forth the undeveloped and developed  leasehold
acreage,  by area,  held by us as of February  29, 2004.  Undeveloped  acres are
acres on which wells have not been  drilled or  completed  to a point that would
permit the  production  of commercial  quantities of oil and gas,  regardless of
whether or not such acreage contains proved reserves. Developed acres are acres,
which are spaced or assignable to  productive  wells.  Gross acres are the total
number of acres in which we have a working interest.  Net acreage is obtained by
multiplying gross acreage by our working interest  percentage in the properties.
The table  does not  include  acreage  in which we have a  contractual  right to
acquire or to earn through drilling projects,  or any other acreage for which we
have not yet received leasehold assignments.

                         UNDEVELOPED ACRES                 DEVELOPED ACRES
                      GROSS              NET           GROSS              NET
    Wyoming          24,622            20,069          2,960             1,908
    East Texas        2,780             2,780             --                --
    Romania          21,538            21,538             --                --
                     ------            ------          -----             -----
         Total       48,940            44,387          2,960             1,908
                     ======            ======          =====             =====

DRILLING ACTIVITY

         We had no drilling activity during the year ended November 30, 2003.

PRESENT ACTIVITIES

         As of February 29, 2004, we had active  operations only in Wyoming.  We
had 10 gross wells (10 net wells) in process of drilling.  These 10 wells do not
include the five  already  completed  at the Leiter field or the 61 wells in the
Buffalo Run and Dutch Creek projects.

OFFICE SPACE

         Our principal executive offices are located at 1001 Brickell Bay Drive,
Suite 2202, Miami,  Florida,  where we lease  approximately 1,300 square feet of
space on a lease expiring June 30, 2005.

         We opened an office at 1331 - 17th Street, Suite 730, Denver, Colorado,
in January 2004. We lease  approximately 2,580 square feet of office space under
a lease expiring February 28, 2007.

                                       11
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         None.


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

         None.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Our  common  stock has been  trading on the  over-the-counter  bulletin
board  ("OTCBB")  under the symbol "GAXI" since  December 10, 2001.  The trading
symbol often  appears as "GAXI.OB" in quotation  requests on the  Internet.  The
following  table  sets forth the range of high and low bid  quotations  for each
fiscal  quarter  for  the  last  two  fiscal  years.  These  quotations  reflect
inter-dealer  prices without retail mark-up,  mark-down,  or commissions and may
not necessarily represent actual transactions.

         FISCAL QUARTER ENDING                          HIGH BID       LOW BID

         February 28, 2002.......................       $   --         $  --
         May 31, 2002............................       $   1.00       $  0.56
         August 31, 2002.........................       $   1.25       $  0.55
         November 30, 2002.......................       $   1.51       $  0.78
         February 28, 2003.......................       $   1.47       $  1.03
         May 31, 2003............................       $   1.25       $  0.87
         August 31, 2003.........................       $   0.90       $  0.63
         November 30, 2003.......................       $   2.57       $  0.60
         February 29, 2004.......................       $   3.78       $  1.95

         On March 23, 2004, the closing price for the common stock was $2.70.

         As of March 22,  2004,  there  were 192  record  holders  of our common
stock.  Since our inception,  no cash dividends have been declared on our common
stock.

         We engaged in a private placement of secured convertible debentures and
warrants in September  2003.  The offering was  completed in early October 2003,
resulting in gross  proceeds of $5,640,000  ($5,040,000  in cash and $600,000 in
oil and gas properties). The debentures pay interest at 7% per annum, mature two
years from the date of issuance, are secured by all of our assets (subject to an
agreement to subordinate in favor of a senior bank lender),  and are convertible
into shares of our common  stock based on a price of $0.59 per share.  Investors
received  five-year  warrants to purchase  up to  2,867,797  shares at $0.71 per
share and 2,867,797 shares at $0.83 per share. We relied upon the exemption from
registration  contained in Rule 506 of Regulation D under the  Securities Act of
1933,  since all of the 15 purchasers  were accredited  investors.  We paid cash
commissions of $387,800 and issued five-year  warrants to the placement  agents,
entitling  them to  purchase up to 230,847  shares of common  stock at $0.59 per
share.


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

OVERVIEW

         Management believes the completion of its fiscal quarter ended February
29, 2004 marks the completion of its first phase of its business plan. The goals
of the first phase were to obtain  promising oil and gas properties and


                                       12
<PAGE>



adequate funding to pay for  those  properties and commence exploratory drilling
operations.  To  accomplish  those  goals,  we  needed  to  build  our corporate
infrastructure  and make the investing public aware of our presence. We believed
that by so doing,  we could raise the  capital  we  needed from  the sale of our
securities  and use shares of our common stock to pay for property acquisitions.
We also negotiated an agreement with a  drilling  fund as an alternate source of
funding. While this agreement expired in January 2004, we believe that  we  will
enter  into a new agreement with the  drilling  fund  on substantially  the same
terms as the original agreement.


         The discussion that follows describes our results of operations,  which
were primarily the  expenditure of funds to build corporate  infrastructure  and
investor awareness of our company.  While we incurred an accumulated  deficit of
$5,156,007 through February 29, 2004, our financing activities have provided net
cash of  $21,283,297.  At February 29, 2004,  undeveloped oil and gas properties
were $14,861,307.  We used cash of $3,313,813,  stock valued at $8,200,000,  and
debt of $3,646,000 to acquire such properties.

         At February 29, 2004,  we have cash of  $12,681,995,  most of which has
been  allocated  for  drilling  projects.  Our goal for the second  phase of our
business plan is to determine the potential of our  properties.  By so doing, we
can  develop  a plan to  secure  additional  funding  for  what we hope  will be
development drilling projects.


         We have budgeted  funds to complete 100 wells on our Powder River Basin
leases by the end of 2004. Our goal is to have 60 wells on production by the end
of 2004,  and an  additional  40  wells  coming  on  production  in early  2005.
Accordingly,  in the short-term,  management will focus on achieving these goals
within the parameters of the budget.  This means  maintaining  close supervision
over drilling operations,  which commenced in February 2004. To accomplish this,
management must make sure that proper reporting  procedures  and  controls  have
been implemented.  For the long-term management will use the drilling results to
determine  the  best  courses  of  action  to  take  with  respect   to   future
acquisitions,  growth,  and  capitalization  of  the  company.  Management  will
evaluate the effectiveness of the criteria and factors it  has  used  in  making
acquisition and  growth decisions.   Management's determinations will be subject
generally  to federal and state policies regarding  the  development  of  energy
resources, which can change from time to time.



STATUS OF OIL AND GAS PROPERTIES

         POWDER RIVER BASIN - WYOMING.  Effective September 30, 2002, we entered
into a lease  acquisition  and  drilling  agreement  with Pioneer Oil, a Montana
limited liability company ("Pioneer"),  which entitled us to earn a 100% working
interest and a 78% net revenue  interest in leases  covering 15,657 acres in the
Powder River Basin,  near Leiter,  Wyoming.  To acquire the leases covering this
acreage,  we were  required to pay and did pay $100,000 by January 31, 2003.  We
were required to pay $1,650,000 by October 1, 2003,  deposit the estimated costs
to drill and complete 30 pilot wells into an escrow  account by October 1, 2003,
and drill at least 25 pilot wells by March 1, 2004.  The agreement also provided
for the acquisition of a 100% interest in five natural gas wells,  for $500,000,
by October 1, 2003.  Pioneer  extended  the  obligations  due October 1, 2003 to
October 31, 2003, to allow for negotiation of a new agreement.


         Instead of  negotiating  a new  agreement,  on December  22,  2003,  we
purchased  Pioneer's  position for $1,000,000  cash and 2,000,000  shares of our
common stock, valued at $1.40 per share. By purchasing  Pioneer's  position,  we
are now the lessee under the leases and the owner of the five natural gas wells.
These  wells  were  drilled  in late  2001,  have been  equipped  with  downhole
production  pumps,  and one coal  zone is  partially  dewatered.  We  expect  to
commence production from these five completed wells and several additional wells
during 2004.  We do not have any  estimates as to reserves  attributed  to these
wells.  The leases had required  the  drilling of 60 wells by March 9, 2004.  We
have  reached an agreement in principle to extend this date to October 10, 2004.
We are in the process of reducing this  agreement to writing.  We have agreed to
escrow  $150,000,  which  will  be  returned  to  us if we  meet  this  drilling
requirement by October 10, 2004. If we fail to meet this drilling requirement by
October 10,  2004,  we will forfeit the  $150,000,  but retain the wells we have
drilled. The wells we retain would be subject to a 20% royalty to the landowner.


         During our first fiscal  quarter,  which ended  February  29, 2004,  we
transferred  16 existing  permits from Pioneer to us, drilled five new wells and
set  seven-inch  production  casing in those  wells,  commenced  and set surface
casing in five additional new wells,  and



                                       13
<PAGE>


started  drilling  below surface casing in two new wells.  In addition,  we have
commenced location surveying,  permit procedures, and surface agreement approval
for an additional portion of these leases.

         Effective  October  1,  2002,  we  entered  into  a  Coal  Bed  Methane
Participation Agreement with Horizon Exploitation,  Inc., a Colorado corporation
("Horizon"),  to provide  funding for the  development of our Pioneer  leasehold
interests  and  establish an area of mutual  interests in the Powder River Basin
located  in  Wyoming  and  Montana  for  future  projects  on the same  terms as
described below.

         Under the terms of the agreement,  Horizon may participate,  subject to
funding,  in the  development  of up to 120 wells and the  purchase  of the five
existing  wells  from  Pioneer.  Horizon's  commitment  to  participate  in  the
development is subject to an initial funding by Horizon of $100,000,  a $500,000
payment for the  purchase  of the five  existing  wells,  and the  placement  of
$1,650,000, plus the estimated amount to drill and complete 30 pilot wells, into
escrow as a partial  payment for a 30-well pilot project on or before  September
15, 2003. The estimated AFE cost per well is $150,000. These dates were extended
to January 15, 2004. Since this agreement has now expired, we are in the process
of  negotiating a new  agreement.  As of the date of this report,  we understand
that Horizon has not obtained its funding.

         We had an option to  acquire  additional  leases  in  Sheridan  County,
Wyoming,  by paying $396,000 by January 15, 2004. We paid $36,000 in August 2002
and payments of $5,000 in each of October,  November,  and December 2003 for the
option.  We did not  exercise  the option and  expensed the $51,000 paid for the
option, $46,000 of which was expensed during the year ended November 30, 2003.

         In January 2004,  we acquired an operating  interest in 61 existing CBM
wells and approximately  12,000 gross acres in the Powder River Basin in Wyoming
from DAR, LLC, in consideration  for 3,000,000  restricted  shares of our common
stock, valued at $1.80 per share,  $163,655,  and $2,600,000 in future payments.
The amount of $1,000,000 is due January 14, 2005 and  $1,600,000 is due June 24,
2005. We have agreed to employ Continental Industries,  LC, an affiliate of DAR,
LLC, as operator on our Wyoming Powder River Basin leases.

         As a result of this  acquisition  we have  approximately  a 65% working
interest in the Buffalo Run project,  which has 19 wells  drilled and  completed
and another 25 wells in various stages of completion, and a 50% working interest
in the Dutch Creek project, which has 13 wells drilled and completed and another
four wells in various stages of completion.


         In March 2004, we acquired the  remaining  35% working  interest in the
Buffalo  Run  project  for  $592,464.  In April  2004,  we expect to acquire the
remaining  50%  working  interest in the Dutch Creek  project for  $300,000  and
360,000 restricted shares of our common stock.


         POWDER  RIVER  BASIN - MONTANA.  On August 5, 2003,  we entered  into a
Lease Option and Acquisition Agreement with Quaneco, L.L.C. ("Quaneco"). Quaneco
is a  privately-held  oil and  gas  company  operating  primarily  in the  Rocky
Mountain region.

         Under the terms of the  agreement,  we have an option to  acquire up to
50% of  Quaneco's  working  interests  in certain  oil and gas  leases  covering
approximately  206,000 gross acres in the Powder River Basin area of Montana. If
the  option  is fully  exercised,  we will  acquire  the  working  interests  in
approximately  53,000 net acres. The primary  geologic target  associated in the
acreage is natural gas from  shallow  coal beds located at depths of 200 feet to
2,500  feet.  The  purchase  price of the  option is  $6,625,000  payable in six
installments  of  varying  amounts.   The  first  two   installments,   totaling
$1,100,000,  were paid.  In  addition,  Quaneco has  credited us with payment of
$600,000  under the  agreement  through its purchase of $600,000 in  convertible
debentures (discussed below).

         In  addition  to the  purchase  option,  we have  the  right to earn an
undivided  25%  working   interest  in  up  to  128  gas  wells  by  paying  our
proportionate  share of the costs of drilling such wells. The working  interests
so earned by us would belong to us without  regard to whether we exercise all or
none of the purchase option described in the preceding paragraph.



                                       14
<PAGE>
         JIU  VALLEY  -  ROMANIA.  Effective  June 2,  2003,  we  completed  the
acquisition of Pannonian International, Ltd., a Colorado corporation, solely for
1,951,241 shares of our common stock, thereby acquiring  Pannonian's  concession
agreement covering 21,538 gross acres in the Jiu Valley Coal Basin in Romania.

         NEUES  BERGLAND -  GERMANY.  Effective  December  12,  2003,  Pannonian
International and two non-affiliated  private oil and gas companies were granted
an exploration permit covering 149,435 acres.

FINANCIAL STATEMENT PRESENTATION

         Effective  November  13,  2002 an  arrangement  was  completed  between
Dolphin  Energy  Corporation,   a  Nevada  corporation,   and  us,  whereby  the
shareholders  of  Dolphin  Energy  exchanged  all of  their  common  shares  for
20,997,058 shares of Galaxy's common stock.

         Following the  acquisition  the former  shareholders  of Dolphin Energy
held a majority  of our total  issued and  outstanding  common  shares;  Dolphin
Energy was thereby deemed to be the acquiror.  Accordingly,  the transaction has
been accounted for as a reverse  takeover using the purchase  method whereby the
assets and  liabilities of Galaxy have been recorded at their fair market values
and operating  results have been included in our financial  statements  from the
effective date of purchase.  The fair value of the net assets  acquired is equal
to their book values.

RESULTS OF OPERATIONS

         In light of the reverse  acquisition  transaction  described above, our
date of inception for accounting  purposes is that of Dolphin  Energy,  June 18,
2002.  We are  considered a development  stage  company since we an  exploration
stage oil and gas company and have not earned any production  revenue,  or found
proved resources on any of our properties.

         YEAR ENDED  NOVEMBER 30, 2003 COMPARED TO PERIOD FROM  INCEPTION  (JUNE
18,  2002) TO NOVEMBER  30,  2002.  For the year ended  November  30,  2003,  we
incurred  operating  expenses  of  $2,579,595,   primarily  for  legal  expenses
($381,166),  investor relations ($374,275),  interest expense ($368,649), travel
and  entertainment  ($321,463),  management fees to Resource Venture  Management
($320,000),  and payroll  salaries and taxes  ($258,686).  These  expenses  were
incurred in the effort to acquire the oil and gas properties described above and
secure the funding necessary to carry out the acquisitions. Included in investor
relations expenses were amounts incurred with public relations firms for website
development and hosting,  writing and  disseminating  press releases and company
profile  pieces,  and  responding  to investor  and  shareholder  inquiries.  In
addition,  we expensed  $65,769 as a result of our  decision  not to exercise an
option to acquire  additional  leases in Wyoming  and  Pannonian's  decision  to
abandon a property in Australia.

         For the period  from  inception  to  November  30,  2002,  we  incurred
operating  expenses of  $1,140,066,  primarily for contract  services - Resource
Venture Management  ($692,500),  consulting fees and payroll  ($125,265),  legal
fees ($103,314), and travel and entertainment ($102,479).

         Accordingly,   our  accumulated   deficit  at  November  30,  2003  was
$3,719,661.

         We expect operating expenses to increase from current levels due to our
anticipated activities.  With the acquisition of Pannonian International and the
commencement  of drilling  activities  in the Powder River  Basin,  we opened an
office in Denver in addition to our offices in Miami.

LIQUIDITY AND CAPITAL RESOURCES

         AS OF NOVEMBER 30, 2003. At November 30, 2003,  we had working  capital
of  $1,756,776,  as compared to a deficiency of $1,012,916 at November 30, 2002.
The increase in working capital was due to the receipt in offering proceeds from
the debenture offering described below.

         From December 1, 2002 through November 30, 2003, we raised net proceeds
of $6,151,278  through the sale of our common stock and convertible  debentures.
These  proceeds  were  used for  ongoing  operations  and to pay  accrued  trade
payables.



                                       15
<PAGE>

         We also  negotiated  with some of our  creditors to convert  their debt
into equity.  During the fiscal year ended November 30, 2003,  Resource  Venture
Management,  a related party, agreed to convert its $233,204 of debt outstanding
at November 30,  2002,  plus  management  fees for three months in the amount of
$90,000 incurred during fiscal 2003, to 323,204  restricted shares of our common
stock.  Another party converted  $10,000 of accounts payable to 10,000 shares of
common stock.

         To address  the cash  requirements  for the Quaneco  agreement  and our
working capital needs, we engaged in a private  offering of secured  convertible
debentures  and warrants in September  2003. The offering was completed in early
October 2003, resulting in gross proceeds of $5,640,000, $600,000 of which was a
credit against our property payment obligations.  The debenture pays interest at
7% per annum, matures two years from the date of issuance,  is secured by all of
our assets  (subject to an  agreement to  subordinate  in favor of a senior bank
lender),  and is convertible into shares of our common stock based on a price of
$0.59 per  share.  Investors  received  five-year  warrants  to  purchase  up to
2,867,797  shares at $0.71 per share and 2,867,797 shares at $0.83 per share. We
have filed a  registration  statement we were  obligated  to file,  covering the
shares  underlying  the  debenture and  warrants.  We  anticipate  that upon the
effectiveness  of  the  registration  statement,  some  of the  warrants  may be
exercised  because the exercise prices of the warrants are  significantly  lower
than the current market price of our common stock.

         Since inception,  we have funded our activities through the sale of our
debt and equity securities,  raising net proceeds of $850,500 through the period
ended  November 30,  2002,  and net  proceeds of  $6,151,278  for the year ended
November  30,  2003.  For the year  ended  November  30,  2003,  we used cash of
$2,128,993  for our  operating  activities  and  $1,824,085  for  our  investing
activities,   which  consisted  primarily  of  additions  to  our  oil  and  gas
properties.

         We  completed a private  placement  of  2,503,571  shares of our common
stock and  warrants to purchase  500,715  common  shares on December  18,  2003,
resulting in gross proceeds of $3,505,000.  The warrants are  exercisable  for a
four-year period at a price of $2.71 per share. We granted  registration  rights
to the purchasers in this private placement.

         We completed a second  private  placement  of  6,637,671  shares of our
common stock and  warrants to purchase  1,327,535  common  shares on January 15,
2004,  resulting in gross proceeds of $11,947,800.  The warrants are exercisable
for a five-year  period at a price of $4.05 per share.  We granted  registration
rights to the purchasers in this private placement as well.

PLAN OF OPERATION

         As of February 29, 2004, our obligations and commitments to make future
payments are as follows:

<TABLE>
<CAPTION>
                                                                Through                   Through
        CONTRACTUAL OBLIGATIONS 1<F1>:                     NOVEMBER 30, 2004         NOVEMBER 30, 2005
        ------------------------                           -----------------         -----------------
        <S>                                                  <C>                        <C>
        Quaneco purchase option                              $    3,268,750             $    1,656,250
        Note payment to DAR, LLC                                          0                  2,600,000
        Convertible debentures 2<F2>                                248,850                  5,016,500
        Miami office lease                                           45,490                     26,738
        Denver office lease                                          36,230                     50,540
                                                             --------------             --------------
        Total                                                $    3,599,320             $    9,350,028
                                                             ==============             ==============

<FN>
<F1>
1    Does not include obligations under promissory notes to related parties.
<F2>
2    The payment obligation for the debentures will be reduced to the extent the
     debentures are converted into shares of our common stock.


                                       16
<PAGE>

         In  addition  to the  above  obligations,  we  have  budgeted  for  the
         following:

     1)  $9,950,000  for Wyoming  operations  to  complete  existing  wells,  to
         construct necessary production  facilities and infrastructure  required
         to  commence  gas  production  and  sales,  and to drill  and  complete
         additional development wells;

     2)  $800,000 for Montana operational  expenditures to include participation
         in a core hole program,  a 16-well pilot program,  and related  project
         permitting costs; and

     3)  $800,000  for a proposed  vertical  wellbore  to test the first of five
         prospect areas on our East Texas leases.
</FN>
</TABLE>

         The above budget allocations may change,  depending upon the results of
these initial programs.

         We do not plan to engage in all of these drilling  activities unless we
have secured more funding in an amount sufficient to cover these commitments. We
are pursuing several financing alternatives that involve the sale of debt and/or
equity  securities.  We cannot  assure you that we will be  successful  in these
efforts.  If we fail to  raise  amounts  sufficient  to  cover  the  obligations
relating to the purchase of property interests,  we will forfeit amounts already
paid. If we fail to pay interest on the debentures on a timely basis, our assets
will be subject to foreclosure.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         Our discussion  and analysis of our financial  condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting  principles  generally accepted
in the United States of America.  The preparation of these financial  statements
requires us to make estimates and judgments that affect the reported  amounts of
assets,   liabilities,   revenues  and  expenses,  and  related  disclosures  of
contingent  assets  and  liabilities.  On an  ongoing  basis,  we  evaluate  our
estimates,  including those related to impairment of long-lived  assets. We base
our estimates on historical  experience and on various other assumptions that we
believe to be reasonable under the circumstances,  the results of which form the
basis for making  judgments  about the carrying value of assets and  liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different  assumptions or conditions;  however, we believe
that  our  estimates,   including  those  for  the  above-described  items,  are
reasonable.

OIL AND GAS PROPERTIES

         We  follow  the  full  cost  method  of  accounting  for  oil  and  gas
operations.  Under this method,  all costs  related to the  exploration  for and
development  of oil and gas reserves  are  capitalized  on a  country-by-country
basis.  Costs  include  lease  acquisition  costs,  geological  and  geophysical
expenses,  overhead  directly related to exploration and development  activities
and costs of drilling both productive and  non-productive  wells.  Proceeds from
the sale of properties are applied against  capitalized costs,  without any gain
or loss being recognized,  unless such a sale would significantly alter the rate
of depletion and depreciation.

         Depletion of exploration  and  development  costs and  depreciation  of
production equipment is provided using the unit-of-production  method based upon
estimated  proven oil and gas  reserves.  The costs of  significant  unevaluated
properties  are excluded  from costs  subject to  depletion.  For  depletion and
depreciation  purposes,  relative volumes of oil and gas production and reserves
are converted at the equivalent conversion based upon relative energy content.

         In applying the full cost method, we perform a ceiling test whereby the
carrying  value  of oil and gas  properties  and  production  equipment,  net of
recorded future income taxes and the accumulated  provision for site restoration
and abandonment  costs,  is compared  annually to an estimate of future net cash
flow from the production of proven  reserves.  Costs related to undeveloped  oil
and gas  properties  are excluded from the ceiling  tests.  Discounted  net cash
flow,  utilizing a 10% discount rate, is estimated  using year end prices,  less
estimated future general and administrative expenses, financing costs and income
taxes.  Should this comparison  indicate an excess carrying value, the excess is
charged against earnings. At November 30, 2003 and 2002, there were no reserves.
Costs of oil and gas properties are considered  unevaluated at November 30, 2003
and 2002.


                                       17
<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

         Our  long-lived  assets  include  property  and  equipment.  We  assess
impairment of long-lived  assets  whenever  changes or events  indicate that the
carrying value may not be recoverable. In performing our assessment we must make
assumptions regarding estimated future cash flows and other factors to determine
the fair value of the respective assets. If these estimates change in the future
we may be required to record impairment charges against these respective assets.

STOCK BASED COMPENSATION

         Options that we may grant to employees  under our stock option plan are
accounted for by using the intrinsic method under APB Opinion 25, Accounting for
Stock Issued to Employees  (APB 25). In October 1995,  the Financial  Accounting
Standards  Board (FASB) issued  Statement  No.123,  Accounting  for  Stock-Based
Compensation  (SFAS123),  which  defines a fair value based method of accounting
for stock options.  The accounting standards prescribed by SFAS 123 are optional
and the Company has  continued to account for stock  options under the intrinsic
value method specified in APB 25.

RECENT ACCOUNTING PRONOUNCEMENTS

         In December 2002, the FASB approved  Statement of Financial  Accounting
Standards No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
Disclosure - an amendment of FASB  Statement  No. 123" (SFAS No. 148).  SFAS No.
148 amends Statement of Financial  Accounting Standards No. 123, "Accounting for
Stock-Based  Compensation"  (SFAS No.  123) to  provide  alternative  methods of
transition  for a voluntary  change to the fair value based method of accounting
for  stock-based  employee  compensation.  In addition,  SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and  interim  financial  statements  about the method of  accounting  for
stock-based employee  compensation and the effect of the method used on reported
results.  SFAS No. 148 is effective  for financial  statements  for fiscal years
ending  after  December 15,  2002.  We will  continue to account for stock based
compensation  using  the  methods  detailed  in  the  stock-based   compensation
accounting policy.

         In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of Statement
133 on  Derivative  Instruments  and  Hedging  Activities"  to amend and clarify
financial accounting and reporting for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging activities.
The  changes  in  this  statement   require  that   contracts  with   comparable
characteristics be accounted for similarly to achieve more consistent  reporting
of  contracts  as either  derivative  or  hybrid  instruments.  SFAS No.  149 is
effective for contracts entered into or modified after June 30, 2003 and will be
applied  prospectively.  We do not believe that adoption of this  Statement will
have a material impact on the financial statements.

         In May 2003,  the FASB  issued SFAS No.  150,  "Accounting  for Certain
Financial  Instruments with  Characteristics  of both Liabilities and Equity" to
classify certain financial instruments as liabilities in statements of financial
position. The financial instruments are mandatorily redeemable shares, which the
issuing  company is obligated to buy back in exchange for cash or other  assets,
put options and forward purchase  contracts,  instruments that do or may require
the issuer to buy back some of its shares in exchange for cash or other  assets,
and obligations that can be settled with shares,  the monetary value of which is
fixed,  tied solely or  predominantly  to a variable such as a market index,  or
varies inversely with the value of the issuers' shares.  Most of the guidance in
Statement  150 is  effective  for  all  financial  instruments  entered  into or
modified  after May 31, 2003, and otherwise is effective at the beginning of the
first  interim  period  beginning  after June 15,  2003.  We do not believe that
adoption  of  this  Statement  will  have a  material  impact  on the  financial
statements.

ITEM 7.  FINANCIAL STATEMENTS.

         See pages beginning with page F-1.



                                       18
<PAGE>
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         On November 15, 2002,  our  directors  approved the election of Wheeler
Wasoff,  P.C.  to audit the  financial  statements  for the  fiscal  year  ended
November  30,  2002.  Also  on  November  15,  2002,  we  dismissed  the  former
accountants, Andersen Andersen & Strong, L.C. Our board of directors recommended
Wheeler Wasoff,  P.C. because that firm was the existing  certifying  accountant
for Dolphin Energy Corporation, which was the accounting survivor of the reverse
acquisition  described  above.  During the two most recent  fiscal years and the
subsequent interim period, neither we nor anyone on our behalf consulted Wheeler
Wasoff,  P.C.  regarding the application of accounting  principles to a specific
completed or contemplated  transaction,  or the type of audit opinion that might
be rendered on our financial statements. We did not receive, and Wheeler Wasoff,
P.C. did not provide, any written or oral advice that was an important factor in
reaching a decision as to an accounting,  auditing or financial  reporting issue
prior to its engagement by us.

         Andersen Andersen & Strong,  L.C. had audited our financial  statements
for the fiscal year ended November 30, 2001.  The report of Andersen  Andersen &
Strong, L.C. did not contain an adverse opinion or disclaimer of opinion and was
not modified as to uncertainty, audit scope, or accounting principles, except as
follows:

         The audit report of Andersen  Andersen & Strong,  L.C. on our financial
statements  as of and for the fiscal year ended  November  30, 2001  contained a
separate paragraph  stating:  "The accompanying  financial  statements have been
prepared assuming that the Company will continue as a going concern. The Company
is in the  exploration  stage and will need  additional  working capital for its
planned activity,  which raises  substantial doubt about its ability to continue
as a going concern.  Management's plans in regard to these matters are described
in Note 5. These financial  statements do not include any adjustments that might
result from the outcome of this uncertainty."

         During the two most  recent  fiscal  years and the  subsequent  interim
period  through  November 15, 2002,  there were no  disagreements  with Andersen
Andersen & Strong,  L.C. on any matter of  accounting  principles  or practices,
financial  statement  disclosure,  or auditing scope or procedure  which, if not
resolved to the  satisfaction of Andersen  Andersen & Strong,  L.C.,  would have
caused  it to make  reference  to the  subject  matter  of the  disagreement  in
connection with its report.


ITEM 8A. CONTROLS AND PROCEDURES.

         As required by SEC rules,  we have evaluated the  effectiveness  of the
design and operation of our disclosure controls and procedures at the end of the
period  covered  by this  report.  This  evaluation  was  carried  out under the
supervision  and  with  the  participation  of  our  management,  including  our
principal  executive  officer and  principal  financial  officer.  Based on this
evaluation,  these  officers have concluded that the design and operation of our
disclosure  controls and procedures are effective.  There were no changes in our
internal  control  over  financial  reporting  or in  other  factors  that  have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

         Disclosure   controls  and   procedures  are  our  controls  and  other
procedures that are designed to ensure that information required to be disclosed
by us in the reports  that we file or submit under the Exchange Act is recorded,
processed,  summarized  and reported,  within the time periods  specified in the
SEC's rules and forms.  Disclosure  controls  and  procedures  include,  without
limitation, controls and procedures designed to ensure that information required
to be  disclosed  by us in the reports  that we file under the  Exchange  Act is
accumulated and communicated to our management,  including  principal  executive
officer  and  principal  financial  officer,  as  appropriate,  to allow  timely
decisions regarding required disclosure.



                                       19
<PAGE>

                                    PART III

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

         Our executive officers and directors are:

<TABLE>
<CAPTION>
         NAME                            AGE     POSITION
<S>                                       <C>    <C>
         Marc E. Bruner                   31     President and Director
         Carmen Lotito                    59     Chief Financial Officer, Treasurer and Director
         Cecil D. Gritz                   60     Chief Operating Officer and Director
         Gerri Baratz                     54     Secretary
         Dr. James M. Edwards             58     Director
         Robert Thomas Fetters, Jr.       64     Director
         Thomas W. Rollins                72     Director
         Chris D. Wright                  45     Director (Resigned as of April 8, 2004)
</TABLE>

         Our  shareholders  elect  our  directors  annually  and  our  board  of
directors appoints our officers  annually.  Vacancies in our board are filled by
the  board  itself.  Set  forth  below  are  brief  descriptions  of the  recent
employment and business experience of our executive officers and directors.

MARC E. BRUNER, PRESIDENT AND DIRECTOR

         Marc E. Bruner became our  President and director upon the  acquisition
of Dolphin Energy in November 2002. He has served as president of Dolphin Energy
since June 2002.  From September 1999 to June 2002],  he worked as an investment
banker and analyst for Resource  Venture  Management  AG, a  Swiss-based  energy
sector  consulting  firm.  From January 1999 to September  1999,  Mr. Bruner did
miscellaneous  consulting work He was a senior account executive for J.B. Oxford
& Co., a national  securities  firm,  from February 1997 to January 1999; and an
account  executive for GKN Securities,  Boca Raton,  Florida,  from June 1996 to
November 1996. Mr. Bruner holds a B.S.  degree in accounting from the University
of Notre Dame. Mr. Bruner devotes all of his working time to the business of the
company.

CARMEN LOTITO, CHIEF FINANCIAL OFFICER, TREASURER AND DIRECTOR

         Carmen  Lotito  became  our  Chief  Financial  Officer,  Treasurer  and
director upon the  acquisition of Dolphin Energy in November 2002. He has been a
director  and the  chairman of the audit and  compensation  committees  of Gasco
Energy,  Inc., a  publicly-traded  natural gas and  petroleum  exploitation  and
development company based in Englewood, Colorado, since April 2001. He served as
vice president,  chief financial officer and director of Coriko  Corporation,  a
private business  development  company,  from November 2000 to August 2002. From
July 1998 to October  1999,  Mr.  Lotito  served as  director of  marketing  and
business development for Impact Web Development,  Salt Lake City, Utah. Prior to
joining Coriko, Mr. Lotito was self-employed as a financial consultant. In 1988,
Mr. Lotito joined ConAgra, Inc., in San Antonio, Texas as a brand manager, where
he  developed  product  lines,  which  grossed $50 million  over a period of two
years. In 1966, Mr. Lotito joined the firm of Pannell,  Kerr Forester & Co. as a
senior accountant in management and audit services for the company's Los Angeles
and San Diego,  California  offices.  Mr. Lotito holds a BS degree in Accounting
from the University of Southern California. Mr. Lotito is the stepfather of Marc
E.  Bruner.  Mr.  Lotito  devotes all of his working time to the business of the
company.

CECIL D. GRITZ, CHIEF OPERATING OFFICER AND DIRECTOR

         Cecil D. Gritz became a director upon the acquisition of Dolphin Energy
in November 2002 and became our chief operating  officer in October 2003. He has
worked in the oil and gas  industry  for more than  three  decades  and holds an
advanced  degree in  petroleum  engineering  and is a graduate  of the  Colorado
School of Mines. Mr. Gritz worked as an engineer in various capacities for Shell
Oil Company from June 1966 to August 1973.  After leaving Shell Oil Company,  he
worked as a drilling and production  manager,  president of a drilling  company,
and  petroleum  engineer  for  companies  in Denver,  Colorado.  He was the vice
president of  engineering  and  operations for Vista  Resources,  Inc.,  Denver,
Colorado,  from July 1977 to September  1982,  and the  drilling and  production


                                       20
<PAGE>

manager for Trend Exploration Limited,  Denver, Colorado, from September 1982 to
September 1986. As an in-house full-time  consultant,  he provided services as a
petroleum  engineer  and  project  manager  for David  Schlachter  Oil & Gas, an
independent oil and gas company based in Dallas,  Texas,  from September 1986 to
March 1988.  He was vice  president of  operations  for Dantex Oil & Gas,  Inc.,
Dallas,  Texas, from March 1988 to August 1993. Mr. Gritz has been a manager and
consulting  petroleum  engineer for Harbor  Petroleum,  LLC in Granbury,  Texas,
since  August  1993.  He is a 50%  owner  of that  company.  Mr.  Gritz  devotes
approximately  90% of his working time to the  business of the  company,  as the
other 50% owner of Harbor Petroleum handles Harbor's only outside client.

GERRI BARATZ, SECRETARY

         Gerri Baratz became our Secretary in January 2004.  She joined  Dolphin
Energy Corporation as an administrative  assistant in August 2003. From February
1992 to September  2002,  she served as an  administrative  assistant and office
manager for VALIC, a company in Miami, Florida, that provided school,  hospital,
and government  employees with a range of financial services,  including various
savings plans, IRAs, mutual funds, life insurance, long-term care insurance, and
short-term  disability  insurance.  After leaving  VALIC,  Ms. Baratz took a few
months  off.  She then  worked for two  temporary  services  agencies  in Miami,
Florida,  from  December  2002 to August  2003.  Ms.  Baratz  devotes all of her
working time to the business of the company.

DR. JAMES M. EDWARDS, DIRECTOR

         Dr. James M. Edwards became a director upon the  acquisition of Dolphin
Energy in November 2002. He has been actively  involved in international oil and
gas exploration and  exploitation for more than 27 years. He has participated in
oil and gas  discoveries  in Australia,  Columbia,  Equatorial  Guinea,  France,
Norway,  Trinidad,  Thailand,  the United  Kingdom,  and the United States.  Dr.
Edwards  previously  worked as chief  geologist for Triton  Energy  Corporation.
While  with  Triton,   he   participated   in  the  discovery   efforts  of  the
Cusiana/Cupiagua  Field  Complex,  Columbia.  Since June  1991,  he has been the
president of Equinox Energy Corp., an oil and gas consulting  company located in
Dallas, Texas. Dr. Edwards holds advanced degrees in geology, including a Master
of Science from the University of Georgia and a Ph.D. from Rice University.

ROBERT THOMAS FETTERS, JR., DIRECTOR

         Robert  Thomas  Fetters,  Jr. became a director in March 2004. He began
his career in the oil and gas industry in 1966 when he joined  Exxon,  USA (then
known as Humble Oil and  Refining).  He served in various  capacities  including
exploration,  production,  and research  management and as exploration  planning
manager.  Internationally,  he  held  positions  as  chief  geologist  for  Esso
Production  Malaysia and exploration  manager for Esso  Australia.  In 1983, Mr.
Fetters joined Consolidated Natural Gas, serving as the president and CEO of its
subsidiary,  CNG Producing Company, from 1984 to 1989. From 1990 to 1995, he was
the president of  exploration  and  production  for the  Exploration  Company of
Louisiana, and from 1995 to 1997, he was the senior vice president of operations
for National Energy Group in Dallas, Texas. In 1997, Mr. Fetters co-founded Beta
Oil and Gas, Inc., based in Houston,  Texas, and served as its managing director
of  exploration  to September  2002. He continued to act as a consultant to Beta
Oil and Gas after  leaving his position to December  2002.  In January  2003, he
co-found Delta Resources,  LLC, Houston, Texas, which was formed specifically to
utilize  leading edge  technology  in oil and gas  exploration.  He continues to
serve as  Delta's  CEO and a  director.  In  January  2003,  he also  co-founded
Alliance Oil & Gas Company,  LLC, Houston,  Texas, which is principally involved
in oil and gas acquisitions.  He continues to serve as Alliance's chairman and a
director.  Since  January  2004,  Mr.  Fetters  has served as the  president  of
Waveland Energy Partners, LLC, of Irvine, California. He holds both a bachelor's
and master's degree in geology from the University of Tennessee.

THOMAS W. ROLLINS, DIRECTOR

         Thomas W.  Rollins  became a director  in March  2004.  He has been the
chief executive officer of Rollins Resources, his natural gas and oil consulting
firm in Houston, Texas, since 1985. He has also been a director of Remington Oil
and Gas Corporation,  a publicly-traded  company headquartered in Dallas, Texas,
since  July  1996  and a  member  of the  executive  committee  of its  board of
directors.  Mr. Rollins previously held executive positions and/or directorships
with Shell Oil Company, Pennzoil Company, Florida Gas Transmission Company, Pogo
Producing  Company,  Magma  Copper  Company,  and  Felmont Oil  Corporation.  In
1953 he  received his degree in



                                       21
<PAGE>

geological  engineering  and is a  distinguished  graduate  medallist  from  the
Colorado  School  of  Mines.  He is a  member  of the  American  Association  of
Petroleum Geologists and the American Petroleum Institute.

CHRIS D. WRIGHT

         Chris Wright became a director upon the  acquisition  of Dolphin Energy
in November  2002.  Mr.  Wright has over 20 years of  experience  in finance and
administrative  management  in both private and public  companies.  In 1995,  he
founded  Velvet  Exploration  Ltd.,  an oil and gas  company  based in  Calgary,
Alberta,  Canada,  which later traded on the Toronto Stock Exchange.  Mr. Wright
served  as the  chairman  of  Velvet  Exploration  until  it was sold to El Paso
Corporation in June 2001 for Cdn.$432  million.  Since 1997, Mr. Wright has been
the president and CEO of First Merit Group Ltd., a private  venture  capital and
investment firm based in Vancouver,  British Columbia, Canada. He currently sits
as a director of a group of private and public companies.  Mr. Wright received a
law degree from the University of Victoria in 1986 and a bachelor's  degree from
the University of Alberta in 1981. Mr. Wright devotes approximately 25 hours per
month to the business of the company.

         Mr. Wright resigned  on  April 8, 2004, in order to assure that certain
legal proceedings in his background would not impair our ability to proceed with
a proposed  listing of our common  stock on a stock  exchange.  On December  20,
2002,  Mr.  Wright  consented  to an order by the  British  Columbia  Securities
Commission  finding  violations  of insider  trading and acting  contrary to the
public interest. He was ordered to cease trading in any securities,  acting as a
director or officer of any British  Columbia  resident  issuers  (except for his
private holding  companies),  and engaging in any investor relations  activities
for a four-year  period ending December 20, 206. In addition,  Mr. Wright agreed
to pay  $107,937.50 in profits made from the  violations  and $34,000,  of which
$4,000 represented costs of the investigation.

ADVISORY COMMITTEE

         We   established   an   Advisory   Committee   to  obtain   advice  and
recommendations  from persons with  significant  experience in capitalizing  and
operating  unconventional  natural gas exploration  and  development  companies.
These  persons did not want and do not have any  authority to make  decisions on
our behalf or to bind us.  However,  they have  committed to provide  consulting
services to us as requested in the following areas: identification of properties
for acquisition,  negotiation of deal terms,  assistance in making presentations
about our  operations,  and  assistance in structuring  financing  arrangements.
While  members of the  Advisory  Committee  have full access to our  proprietary
information  that is relevant to  particular  tasks  assigned to them,  they are
obligated to maintain the  confidentiality of that information.  Currently,  the
Advisory   Committee  meets  informally  with  our  officers  through  telephone
conference  calls or in person on average at least once a week, and our officers
also speak with each member of the  committee at least twice a week for input on
various  projects.  Members of the Advisory  Committee also participate at times
during meetings of our board of directors when requested by the board and attend
only those portions of the meeting  relevant to assigned  tasks.  We pay each of
our Advisory Committee members according to  individually-negotiated  consulting
agreements.  There is no set rate of  compensation or benefits for service as an
Advisory Committee member.


         Marc A. Bruner  serves as Chairman of our  Advisory  Committee.  He has
served as the  Chairman  of the Board of  Directors  of Gasco  Energy,  Inc.,  a
publicly-held oil and gas exploration company, since February 2001. From January
1996 to January  1999,  Mr.  Bruner was founding  Chairman of the Board of Ultra
Petroleum,  a Toronto Stock Exchange and American Stock Exchange  listed natural
gas company.  Ultra's business is focused on tight sand development in the Green
River Basin of Wyoming.  In late 1997,  Mr. Bruner  co-founded  Pennaco  Energy,
Inc.,  a coal bed methane  company  that had land  holdings in the Powder  River
Basin.  Pennaco was acquired in March 2001 by Marathon Oil Company. In 1996, Mr.
Bruner co-founded RIS Resources International, a natural gas company, and served
as a director  until late 1997.  Marc A. Bruner is the father of Marc E. Bruner.
Mr. Bruner currently devotes  approximately 20 hours per week to the business of
the company.  We pay for his services  through a consulting  agreement  with his
company, Resource Venture Management.


         Brian Hughes  joined our Advisory  Committee in March 2004.  He started
his career in the oil and gas  industry in 1985,  as a  production  engineer for
Shell Oil Company.  While employed by Shell through 1988, he was responsible for
hydraulic  fracturing  operations for Shell's  operated units in West Texas. Mr.
Hughes then worked as a consultant  from 1989 to 1996.  During that  period,  he
planned  and  supervised  exploration  and  production


                                       22
<PAGE>
operations  in the Rocky  Mountains and West Texas,  including  coal bed methane
exploration programs in the Sand Wash Basin, Piceance Basin, and San Juan Basin.
His  research  into tight gas sand and coal bed  methane  plays  resulted in his
involvement  with Ultra Petroleum and RIS Resources  International  from 1996 to
1998,  where he served as vice  president  exploration  and production for those
companies.   Mr.  Hughes  briefly  served  as  vice  president  exploration  and
production  for Pennaco  Energy,  Inc. in 1998. Mr. Hughes has been a consultant
since  1998,  focusing  on coal bed methane  opportunities  in the Powder  River
Basin,  Forest  City Basin,  Arkoma  Basin,  Uinta  Basin,  Green  River  Basin,
Bellingham  Basin,  Vancouver  Island,  Hat Creek,  Western  Alberta,  Southeast
Alberta,  Alaska,  and  Zimbabwe.  Mr.  Hughes has been the  manager of Crusader
Resources, LLC, since that entity's inception in May 2002. Crusader Resources is
wholly-owned  by Mr. Hughes and is engaged in providing  oil and gas  contractor
services, as well as making oil and gas investments.

CONFLICTS OF INTEREST

         Members of our management are associated with other firms involved in a
range  of  business  activities.  Consequently,  there  are  potential  inherent
conflicts of interest in their acting as officers and  directors of our company.
While the officers and directors are engaged in other  business  activities,  we
anticipate that such  activities  will not interfere in any significant  fashion
with the affairs of our business.

         Our  officers  and  directors  are  now and  may in the  future  become
shareholders,  officers or directors of other companies, which may be formed for
the  purpose of  engaging in  business  activities  similar to us.  Accordingly,
additional  direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover,  additional
conflicts of interest may arise with respect to opportunities  which come to the
attention of such  individuals in the  performance of their duties or otherwise.
Currently,  we do not have a right of first refusal  pertaining to opportunities
that come to their attention and may relate to our business operations.

         Our  officers  and  directors  are, so long as they are our officers or
directors, subject to the restriction that all opportunities contemplated by our
plan of operation  which come to their  attention,  either in the performance of
their duties or in any other manner, will be considered opportunities of, and be
made available to us and the companies that they are affiliated with on an equal
basis. A breach of this  requirement will be a breach of the fiduciary duties of
the officer or  director.  If we or the  companies  with which the  officers and
directors are affiliated both desire to take advantage of an  opportunity,  then
said officers and directors  would abstain from  negotiating and voting upon the
opportunity.  However,  all directors may still  individually  take advantage of
opportunities  if we should decline to do so. Except as set forth above, we have
not  adopted  any  other  conflict  of  interest  policy  with  respect  to such
transactions.

         Our  audit,  compensation,  and  executive  committees  of our board of
directors are comprised as follows:
           o   Audit Committee - Chris Wright and James Edwards
           o   Compensation  Committee - Carmen Lotito, James Edwards, and Chris
               Wright
           o   Executive  Committee  -  Marc  Bruner,  Chris  Wright,  and James
               Edwards

CODE OF ETHICS

         We have not yet adopted a code of ethics that applies to our  principal
executive officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, since we have been focusing
our efforts on obtaining financing for the company. We expect to adopt a code by
the end of the current fiscal year.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  our
officers,  directors,  and  persons  who  beneficially  own more than 10% of our
common  stock to file  reports  of  securities  ownership  and  changes  in such
ownership  with  the  Securities  and  Exchange  Commission  ("SEC").  Officers,
directors  and greater  than 10%  beneficial  owners are also  required by rules
promulgated by the SEC to furnish us with copies of all Section 16(a) forms they
file.



                                       23
<PAGE>
         Based solely upon a review of the copies of such forms furnished to us,
or written representations that no Form 5 filings were required, we believe that
during the fiscal year ended November 30, 2003,  there was  compliance  with all
Section 16(a) filing  requirements  applicable  to our  officers,  directors and
greater than 10% beneficial owners except as follows:

--------------------------------------------------------------------------------
REPORTING PERSON             DATE REPORT DUE              DATE REPORT FILED
--------------------------------------------------------------------------------
Marc A. Bruner             Form 4 due 03/04/03                07/15/03
--------------------------------------------------------------------------------
James M. Edwards           Form 4 due 05/19/03                09/22/03
--------------------------------------------------------------------------------
Chris D. Wright            Form 4 due 05/19/03                08/22/03
--------------------------------------------------------------------------------
Thomas G. Fails            Form 4 due 06/04/03                06/25/03
--------------------------------------------------------------------------------
Marc A. Bruner             Form 4 due 06/04/03                07/15/03
--------------------------------------------------------------------------------
Marc A. Bruner             Form 4 due 09/26/03                10/14/03
--------------------------------------------------------------------------------


ITEM 10. EXECUTIVE COMPENSATION.

         The following table sets forth  information  about the  remuneration of
our chief executive officers for the last three completed fiscal years.

<TABLE>
                           SUMMARY COMPENSATION TABLE
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                                           LONG TERM COMPENSATION
                                ANNUAL COMPENSATION                         AWARDS             PAYOUTS
                                                        OTHER      RESTRICTED    SECURITIES
    NAME AND                                            ANNUAL       STOCK       UNDERLYING      LTIP      ALL OTHER
    PRINCIPAL                                          COMPENSA-    AWARD(S)      OPTIONS/      PAYOUTS    COMPENSA-
    POSITION        YEAR    SALARY ($)    BONUS ($)     TION($)       ($)         SARS (#)        ($)       TION($)
---------------------------------------------------------------------------------------------------------------------
<S>                 <C>       <C>            <C>          <C>          <C>          <C>          <C>          <C>
 Marc E. Bruner     2003      $72,000        -0-          -0-          -0-          -0-          -0-          -0-
  President (1)<F1> 2002      $47,000        -0-          -0-          -0-          -0-          -0-          -0-
---------------------------------------------------------------------------------------------------------------------
   Gregory C.       2002        -0-          -0-          -0-          -0-          -0-          -0-          -0-
     Burnett        2001        -0-          -0-          -0-          -0-          -0-          -0-          -0-
  President (2)<F2>
---------------------------------------------------------------------------------------------------------------------
--------------------
<FN>
(1)<F1>    Mr. Bruner has been the President from November 13, 2002.  The salary
           shown above includes consulting fees paid to Mr. Bruner.
(2)<F2>    Mr. Burnett  was the President from December 17, 1999 to November 13,
           2002.
</FN>
</TABLE>

         During the last  fiscal  year,  there were no grants of stock  options,
stock  appreciation  rights,  benefits under long-term  incentive plans or other
forms of compensation involving our officers.

         We  reimburse  our  officers  and  directors  for  reasonable  expenses
incurred  during the course of their  performance.  Beginning  April 1, 2003, we
began paying our outside directors, James Edwards and Chris Wright, a stipend of
$1,500 per month. We also granted each of them options to purchase 60,000 shares
at $1.00 per share,  exercisable through May 15, 2013.  One-third of the options
vests each year beginning May 15, 2004.

STOCK OPTION PLAN

         Our  stockholders  adopted a 2003 Stock Option Plan in May 2003,  under
which options to purchase up to 3,500,000 shares of common stock may be granted.
The plan  provides for the granting of incentive  stock options to our employees
and non-statutory options to our employees,  advisors and consultants. Our board
of  directors  or the  compensation  committee  of the  board,  if one should be
established, administers the plan. The maximum aggregate number of common shares
underlying  all  options  to be  granted to any one person may not exceed 60% of
authorized options.

         The board or committee determines the exercise price for each option at
the time the option is granted. The exercise price for shares under an incentive
stock  option may not be less than 100% of the fair  market  value of the common
stock on the date such  option is granted.  The fair  market  value price is the
closing  price  per  share on the date  the  option  is  granted.  The  board or
committee  also  determines  when options become  exercisable.  The plan permits
payment  to be made by cash,  check,  broker  assisted  same day  sales,  and by
delivery  of other  shares of our



                                       24
<PAGE>

stock which  optionees  have owned for six (6) months or more as of the exercise
date.  The term of an option may be no more than ten (10) years from the date of
grant. No option may be exercised after the expiration of its term.

         Unless  otherwise  expressly  provided  in any  option  agreement,  the
unexercised  portion of any option  granted to an optionee  shall  automatically
terminate one year after the date on which the optionee's  employment or service
is  terminated  for  any  reason,  other  than by  reason  of  cause,  voluntary
termination of employment or service by the optionee,  or the optionee's  death.
Options  shall  terminate  immediately  upon the  termination  of an  optionee's
employment for cause or 30 days after the voluntary termination of employment or
service by the optionee. If an optionee's employment or consulting  relationship
terminates  as a result of his or her  death,  then all  options he or she could
have exercised at the date of death,  or would have been able to exercise within
the following year if the employment or consulting  relationship  had continued,
may be exercised  within the one year period  following the optionee's  death by
his or her estate or by the person who acquired the exercise right by bequest or
inheritance.

         Options granted under the plan are not transferable  other than by will
or the  laws of  descent  and  distribution  and  may be  exercised  during  the
optionee's  lifetime only by the  optionee,  except that a  non-statutory  stock
option  may be  transferred  to a family  member or trust for the  benefit  of a
family member if the board's or committee's prior written consent is obtained.

         We have the right to redeem  any  shares  issued to any  optionee  upon
exercise of the option granted under the plan  immediately  upon the termination
of optionee's  employment or service arising from  disability,  the death of the
optionee,  the voluntary  termination of employment or services of the optionee,
or the  termination  of  employment  or services of the optionee for cause.  The
redemption price is the fair market value of the shares on the date of the event
of redemption.

         In the event  that our  stock  changes  by  reason of any stock  split,
dividend,  combination,  reclassification or other similar change in our capital
structure effected without the receipt of consideration, appropriate adjustments
shall be made in the  number  and class of shares of stock  subject to the plan,
the number and class of shares of stock subject to any option  outstanding under
the plan,  and the  exercise  price for shares  subject to any such  outstanding
option.

         In the event of a merger in which our shareholders  immediately  before
the merger own 50% or more of the issued and outstanding  shares of stock of the
resulting  entity after the merger,  then existing  options shall  automatically
convert into options to receive stock of the resulting entity.  Unless otherwise
expressly  provided in any option, the board or committee in its sole discretion
may  cancel,  effective  upon  the date of the  consummation  of any  change  of
control, any option that remains unexercised on such date.

         The board may amend, alter, suspend, or terminate the plan, or any part
thereof,  at any time and for any reason.  However,  we must obtain  shareholder
approval for any amendment to the plan to the extent  necessary and desirable to
comply with  applicable  laws. No such action by the board or  shareholders  may
alter or impair any option previously granted under the plan without the written
consent of the  optionee.  The plan shall remain in effect until  terminated  by
action of the board or operation of law.

         As of  November  30,  2003,  options to  purchase  120,000  shares were
outstanding at an average exercise price of $1.00 per share and 3,380,000 shares
were available for future grant.


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

         The following table provides certain information as to the officers and
directors  individually  and as a group,  and the holders of more than 5% of the
our common stock, as of February 29, 2004:


                                       25
<PAGE>

<TABLE>
<CAPTION>
                                                        AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1)<F1>            BENEFICIAL OWNERSHIP          PERCENT OF CLASS (2)<F2>
<S>                                                       <C>                                 <C>
Marc A. Bruner                                            12,628,354 (3)(4)<F3><F4>           32.3%
29 Blauenweg
Metzerlen, Switzerland 4116

Resource Venture Management                                5,222,729 (4)<F4>                  13.6%
29 Blauenweg
Metzerlen, Switzerland 4116

Bruner Group, LLP                                          4,500,000 (4)<F4>                  11.7%
1775 Sherman Street #1375
Denver, Colorado 80203

RAB Capital Limited (5)                                    5,423,730 (6)<F6>                   9.8%
No. 1 Adam Street
London W2CN 6LE
United Kingdom

DL Family Partnership                                      3,000,000                           6.0%
P.O. Box 656
Casper, Wyoming 82602

Marc E. Bruner                                             1,500,000 (4)<F4>                   3.9%

Carmen Lotito                                              1,000,000 (4)<F4>                   2.6%

Dr. James Edwards                                               0                               --

Cecil D. Gritz                                                  0                               --

Robert Thomas Fetters, Jr.                                      0                               --

Thomas W. Rollins                                               0                               --

Chris D. Wright                                                 0                               --

Gerri Baratz                                                    0                               --

All officers and directors as a group  (8 persons)         2,500,000                           5.0%

------------------
<FN>
(1)<F1>  To our  knowledge,  except as set forth in the  footnotes to this table
         and subject to applicable community property laws, each person named in
         the table has sole  voting and  investment  power  with  respect to the
         shares set forth opposite such person's name.

(2)<F2>  This table is based on 49,683,932 shares of Common Stock outstanding as
         of February 29, 2004. If a person listed on this table has the right to
         obtain  additional  shares of Common  Stock within sixty (60) days from
         February 29, 2004, the  additional  shares are deemed to be outstanding
         for the  purpose of  computing  the  percentage  of class owned by such
         person,  but are not  deemed  to be  outstanding  for  the  purpose  of
         computing the percentage of any other person.

(3)<F3>  Included in Mr.  Bruner's share ownership are shares owned of record by
         Resource  Venture  Management  and Bruner  Group,  LLP. Mr. Bruner is a
         control person of both these  entities.  Also included in Mr.  Bruner's
         share  ownership  are 542,373  shares  issuable  upon  conversion  of a
         convertible debenture and exercise of warrants.


                                       26

<PAGE>
(4)<F4>  This shareholder has signed a lock-up agreement restricting the sale or
         transfer of one-half of the shares owned until  September  24, 2004 and
         the remaining half until March 24, 2005.

(5)<F5>  This  shareholder  has filed a statement  disclosing  shared voting and
         dispositive  power  as  part  of a  group  that  includes  RAB  Special
         Situations LP, William Philip Richards, and Michael Alen-Buckley of the
         same address and RAB European  High Yield Fund Limited and RAB Partners
         Limited of Walker House, Mary Street George Town, Grand Cayman.

(6)<F6>  Consists of 3,389,830  shares of common stock issuable upon  conversion
         of  convertible  debentures in the principal  amount of $2,000,000  and
         2,033,900 shares of common stock issuable upon exercise of warrants.
</FN>
</TABLE>


CHANGES IN CONTROL

         There are no agreements known to management that may result in a change
of control of our company.

EQUITY COMPENSATION PLANS

         At November 30, 2003, our equity compensation plans were as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                NUMBER OF SECURITIES TO BE    WEIGHTED AVERAGE EXERCISE
                                  ISSUED UPON EXERCISE OF       PRICE OF OUTSTANDING         NUMBER OF SECURITIES
                                   OUTSTANDING OPTIONS,         OPTIONS, WARRANTS AND       REMAINING AVAILABLE FOR
        PLAN CATEGORY               WARRANTS AND RIGHTS                RIGHTS                   FUTURE ISSUANCE
-------------------------------------------------------------------------------------------------------------------
<S>                                       <C>                           <C>                        <C>
  Equity compensation plans               120,000                       $1.00                      3,380,000
 approved by security holders
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans not               --                           --                           --
 approved by security holders
-------------------------------------------------------------------------------------------------------------------
            Total                         120,000                       $1.00                      3,380,000
-------------------------------------------------------------------------------------------------------------------
</TABLE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         Other than as disclosed below, none of our present directors,  officers
or principal shareholders,  nor any family member of the foregoing,  nor, to the
best of our information and belief, any of our former directors, senior officers
or  principal  shareholders,  nor any family  member of such  former  directors,
officers or principal shareholders,  has or had any material interest, direct or
indirect,  in  any  transaction,  or  in  any  proposed  transaction  which  has
materially affected or will materially affect us.


         MARC A.  BRUNER/RESOURCE  VENTURE MANAGEMENT.  Marc A. Bruner is one of
our  principal  shareholders,  one of the  founders of Dolphin  Energy,  and the
father of Marc E. Bruner, who serves as our president and a director. We utilize
the services of Marc A. Bruner as a consultant and pay for his services  through
his company,  Resource Venture Management.  The nature of his ongoing consulting
services  is such  that we  have  identified  him as  Chairman  of our  Advisory
Committee.  During the fiscal year ended  November  30,  2002,  we agreed to pay
Resource Venture  Management a total of $692,500 for monthly  management fees of
$162,000 through November 30, 2002, for finding oil and gas projects ($300,000),
and for reimbursement of costs and expenses ($230,500). We paid $259,296 in cash
and $200,000 by issuing  4,000,000 shares of our common stock,  leaving $233,204
due at November 30, 2002.  At February 28,  2003,  Resource  Venture  Management
agreed to convert its outstanding  debt of $233,204,  into 233,204 shares of our
common stock, valued at $1.00 per share.


         We have  agreed to enter  into a  consulting  agreement  with  Resource
Venture  Management  to provide  future  consulting  services for a fee of up to
$30,000 per month. Beginning October 1, 2003, we and Resource Venture



                                       27

<PAGE>
Management  agreed  to a reduced  fee of  $10,000  per  month.  Such  consulting
services include service as Chairman of the Advisory Committee.  During the year
ended  November 30, 2003,  consulting  fees of $320,000 were  incurred.  We paid
Resource Venture  Management part of its consulting fees through the issuance of
90,000 shares of common stock valued at $1.00 per share. We subsequently  agreed
to pay Resource Venture  Management  additional  consulting fees and expenses of
$77,500 during the year ended November 30, 2003, of which $42,500 is included in
accounts payable at November 30, 2003. Resource Venture Management currently has
only one employee, Marc A. Bruner.

         At November 30, 2003,  we also owed Marc A. Bruner  $39,500 for amounts
advanced to Pannonian  International  prior to its  acquisition  by us. Upon our
acquisition of Pannonian, we assumed this obligation.


         CRUSADER  RESOURCES,  LLC/MARC A. BRUNER.  Our  agreement  with Horizon
Exploitation,   Inc.,  which  expired  January  15,  2004,  identified  Crusader
Resources, LLC, as the contract operator for the drilling of any wells under the
agreement.  Crusader  Resources,  LLC is a Colorado limited liability company of
which Brian  Hughes and Marc A. Bruner were the only  members at the time of the
agreement.  Mr. Bruner has since sold his interest in Crusader Resources, LLC to
Brian Hughes, who is also the manager of Crusader Resources.



         The agreement  stated that a contract  operatorship  well fee of $5,000
was to be paid to the  Crusader  Resources  as contract  operator.  To date,  no
amounts have been paid to Crusader Resources, LLC, as no wells have been drilled
under the agreement.  Further,  the contract  operating  agreement with Crusader
stated that all wells on the subject  leases were to be drilled on a competitive
contract basis at the usual rates prevailing in the area. Since we have retained
Continental  Industries  as  operator  with  respect to our Powder  River  Basin
acreage in Wyoming,  it is anticipated  that our new agreement with Horizon will
identify  Continental  Industries  instead of Crusader Resources as the contract
operator.


         Crusader  Resources,  based in Denver,  Colorado  and  organized in May
2002, was recommended to Horizon  Exploitation because of the extensive drilling
experience  of Brian  Hughes in the Powder  River  Basin  area.  While  Crusader
Resources has no clients and has not served as a contract  operator,  Mr. Hughes
has drilled  over 1,500 wells in that area.  We have  retained  Brian  Hughes to
serve as a member of our Advisory Committee, but have not completed a consulting
agreement  with him. For the fiscal year ended  November 30, 2003, we reimbursed
Brian Hughes $25,000 for expenses incurred on our behalf.

         PANNONIAN INTERNATIONAL, LTD./THOMAS G. FAILS. On November 15, 2002, we
executed a letter of intent to acquire Pannonian International, Ltd., a Colorado
corporation,  solely for shares of our common stock.  Thomas G. Fails became one
of our directors on November 13, 2002 and resigned  March 2, 2004.  Mr. Fails is
the  president and a director of Pannonian  International,  Ltd. At November 30,
2002, Pannonian International owed us $25,000 for advances made in contemplation
of the  acquisition  transaction.  We  completed  the  acquisition  of Pannonian
International on June 2, 2003, by issuing 1,951,241 shares.

         At November 30, 2003, we, through Pannonian International,  owed Thomas
G. Fails and his company  $139,843  for  amounts  paid by him for the benefit of
Pannonian  International and/or advanced to Pannonian.  Pannonian  International
shares office space with Mr. Fails and is charged a  proportionate  share of the
office rent and other expenses.

         HARBOR  PETROLEUM,  LLC AND FLORIDA ENERGY,  INC. From May 2002 through
the present,  Dolphin Energy has advanced funds to Harbor Petroleum, LLC for the
purposes  of  acquiring  oil,  gas and  mineral  interest  leases  in  Rusk  and
Nacogdoches Counties,  Texas. Harbor Petroleum is 50%-owned and managed by Cecil
Gritz,  our chief operating  officer and one of our directors.  During the years
ended November 30, 2003 and 2002, we incurred total costs with Harbor  Petroleum
of $344,294 and $355,817,  respectively. Of those amounts, $254,084 in 2003, and
$266,617 in 2002 were for  reimbursement  of costs incurred by Harbor to acquire
oil and  gas  leases,  and  $90,210  in 2003  and  $89,200  in 2002  represented
consulting fees and expenses from Harbor.

         As of November 30, 2003, leases covering  approximately 2,780 acres had
been acquired.  While the leases are in the names of Harbor Petroleum or Florida
Energy,  Inc., such leases are held on behalf of Dolphin Energy.  Florida Energy
is owned and controlled by Stephen E. Bruner, the brother of Marc A. Bruner, our
controlling shareholder, and the uncle of Marc E. Bruner, our president.

                                       28

<PAGE>

         An agreement  dated March 6, 2003 confirms that Dolphin is  responsible
for payment of all of the acquisition costs and maintenance costs of the leases.
Dolphin  Energy owns all of the  working  interests  acquired  under the leases,
except for a 2% overriding royalty interest,  shared equally by Harbor Petroleum
and Florida Energy.  However, with respect to 400 contiguous acres designated by
Florida Energy,  Florida Energy shall have a 3.125% overriding  royalty interest
instead of a 1% overriding  royalty  interest.  In addition,  Dolphin Energy has
agreed to pay Florida Energy a bonus of $50,000 for identifying this lease play.
This bonus  obligation  is evidenced by a promissory  note due March 7, 2004 and
bears  interest at the annual rate of 7-1/2%.  Accrued  interest at November 30,
2003 on this note was $2,742.

         FUTURE TRANSACTIONS. All future affiliated transactions will be made or
entered  into on terms that are no less  favorable  to us than those that can be
obtained  from any  unaffiliated  third  party.  A majority of the  independent,
disinterested  members of our board of directors will approve future  affiliated
transactions.

         We believe that of the transactions  described above have been on terms
as favorable to us as could have been obtained from  unaffiliated  third parties
as a result of arm's length negotiations.


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

--------------------------------------------------------------------------------
 REGULATION S-B
     NUMBER                             EXHIBIT
--------------------------------------------------------------------------------
       2.1         Agreement and Plan of Reorganization dated as of November 1,
                   2002 by and among Galaxy Investments, Inc., Dolphin
                   Acquisition Corporation and Dolphin Energy Corporation (1)
--------------------------------------------------------------------------------
       2.2         Share Exchange Agreement by and between Galaxy Investments,
                   Inc. and Pannonian International, Ltd. (2)
--------------------------------------------------------------------------------
       3.1         Articles of Incorporation (3)
--------------------------------------------------------------------------------
       3.2         Articles of Amendment to Articles of Incorporation (4)
--------------------------------------------------------------------------------
       3.3         Bylaws (3)
--------------------------------------------------------------------------------
      10.1         Escrow Instructions and Agreement dated as of August 28, 2002
                   (5)
--------------------------------------------------------------------------------
      10.2         Lease Acquisition and Drilling Agreement dated as of
                   September 30, 2002, as amended (5)
--------------------------------------------------------------------------------
      10.3         Coal Bed Methane Participation Agreement dated as of October
                   1, 2002, as amended (5)
--------------------------------------------------------------------------------
      10.4         Letter agreement among Dolphin Energy Corporation, Harbor
                   Petroleum, LLC and Florida Energy, Inc. dated March 6, 2003
                   (5)
--------------------------------------------------------------------------------
      10.5         2003 Stock Option Plan (4)
--------------------------------------------------------------------------------
      10.6         Third Extension Agreement between Pioneer Oil LLC and Dolphin
                   Energy Corporation dated April 28, 2003 (4)
--------------------------------------------------------------------------------
      10.7         Addendum to Coal Bed Methane Participation Agreement dated as
                   of May 23, 2003 (4)
--------------------------------------------------------------------------------
      10.8         Lease Option and Acquisition Agreement between Dolphin Energy
                   Corporation and Quaneco, L.L.C. (6)
--------------------------------------------------------------------------------
      10.9         Amendment to Lease Option and Acquisition Agreement between
                   Dolphin Energy Corporation and Quaneco, L.L.C. dated
                   September 2, 2003 (7)
--------------------------------------------------------------------------------

                                       29
<PAGE>

--------------------------------------------------------------------------------
 REGULATION S-B
     NUMBER                             EXHIBIT
--------------------------------------------------------------------------------
      10.10        Fourth Extension Agreement between Pioneer Oil LLC and
                   Dolphin Energy Corporation dated April 28, 2003 (7)
--------------------------------------------------------------------------------
      10.11        Form of Securities Purchase Agreement dated as of September
                   24, 2003 between Galaxy Energy Corporation and the Purchaser
                   named therein (8)
--------------------------------------------------------------------------------
      10.12        Form of 7% Secured Convertible Debenture due September 24,
                   2005 (8)
--------------------------------------------------------------------------------
      10.13        Form of Common Stock Purchase Warrant Exercisable at $0.71
                   per Share (8)
--------------------------------------------------------------------------------
      10.14        Form of Common Stock Purchase Warrant Exercisable at $0.83
                   per Share (8)
--------------------------------------------------------------------------------
      10.15        Letter amending Lease Option and Acquisition Agreement
                   between Dolphin Energy Corporation and Quaneco, L.L.C. dated
                   September 22, 2003 (9)
--------------------------------------------------------------------------------
      10.16        Fifth Extension Agreement between Pioneer Oil LLC and Dolphin
                   Energy Corporation dated September 30, 2003 (9)
--------------------------------------------------------------------------------
      10.17        Third Amendment to Coal Bed Methane Participation Agreement
                   dated as of October 1, 2003 (9)
--------------------------------------------------------------------------------
      10.18        Option Agreement between Tom Horn, LLC and Dolphin Energy
                   Corporation dated October 10, 2003 (9)
--------------------------------------------------------------------------------
      10.19        Sixth Extension Agreement between Pioneer Oil LLC and Dolphin
                   Energy Corporation dated October 16, 2003 (9)
--------------------------------------------------------------------------------
      10.20        Form of Securities Purchase Agreement dated as of December
                   18, 2003 between Galaxy Energy Corporation and the purchaser
                   named therein (11)
--------------------------------------------------------------------------------
      10.21        Form of Common Stock Purchase Warrant Exercisable at $2.71
                   per Share (11)
--------------------------------------------------------------------------------
      10.22        Sale and Escrow Agreement dated December 22, 2003 between
                   Pioneer Oil, LLC and Dolphin Energy Corporation (12)
--------------------------------------------------------------------------------
      10.23        Share Acquisition Agreement between Pioneer Oil, LLC and
                   Galaxy Energy Corporation dated December 22, 2003 (12)
--------------------------------------------------------------------------------
      10.24        Registration Rights Agreement dated as of December 22, 2003
                   between Pioneer Oil, LLC and Galaxy Energy Corporation (12)
--------------------------------------------------------------------------------
      10.25        Purchase and Sale Agreement by and between Continental
                   Industries, LC and DAR, LLC and Galaxy Energy Corporation
                   dated January 14, 2004 (13)
--------------------------------------------------------------------------------
      10.26        Form of Securities Purchase Agreement dated as of January 15,
                   2004 between Galaxy Energy Corporation and the Purchaser
                   named therein (14)
--------------------------------------------------------------------------------
      10.27        Form of Common Stock Purchase Warrant Exercisable at $4.05
                   per Share (14)
--------------------------------------------------------------------------------
      16.1         Letter from Andersen Andersen & Strong, L.C. (10)
--------------------------------------------------------------------------------
       21          Subsidiaries of the registrant (4)
--------------------------------------------------------------------------------

      31.1         Rule 13a-14(a) Certification of Chief Executive Officer

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



                                       30
<PAGE>
--------------------------------------------------------------------------------
 REGULATION S-B
     NUMBER                             EXHIBIT
--------------------------------------------------------------------------------

      31.2         Rule 13a-14(a) Certification of Chief Financial Officer

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

      32.1         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                   Chief Executive Officer

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

      32.2         Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                   Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
                   Chief Financial Officer

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

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

(1)      Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated  November  13, 2002,  filed  December 6, 2002,
         file number 0-32237.
(2)      Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated May 7, 2003,  filed May 13, 2003,  file number
         0-32237.
(3)      Incorporated   by  reference  to  the  exhibits  to  the   registrant's
         registration statement on Form 10-SB, file number 0-32237.
(4)      Incorporated by reference to the exhibits to the registrant's quarterly
         report on Form 10-QSB for the quarter  ended May 31, 2003,  file number
         0-32237.
(5)      Incorporated  by reference to the exhibits to the  registrant's  annual
         report on Form 10-KSB for the fiscal year ended November 30, 2002, file
         number 0-32237.
(6)      Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated August 5, 2003,  filed  August 18, 2003,  file
         number 0-32237.
(7)      Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated  September 2, 2003,  filed  September 8, 2003,
         file number 0-32237.
(8)      Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated October 7, 2003,  filed October 8, 2003,  file
         number 0-32237.

(9)      Incorporated  by reference  to the exhibits to the registrant's initial
         filing of its registration statement on Form SB-2, File No. 333-110053,
         on October 29, 2003.

(10)     Incorporated by reference to the exhibits to the  registrant's  amended
         current report on Form 8-K dated November 13, 2002,  filed December 11,
         2003, file number 0-32237.
(11)     Incorporated by reference to the exhibits to the  registrant's  amended
         current report on Form 8-K dated December 19, 2003,  filed December 23,
         2003, file number 0-32237.
(12)     Incorporated by reference to the exhibits to the  registrant's  current
         report on Form 8-K dated  December 22, 2003,  filed  December 23, 2003,
         file number 0-32237.
(13)     Incorporated by reference to the exhibits to the  registrant's  amended
         current  report on Form 8-K dated  January 14, 2004,  filed January 20,
         2004, file number 0-32237.
(14)     Incorporated by reference to the exhibits to the  registrant's  amended
         current  report on Form 8-K dated  January 15 2004,  filed  January 16,
         2004, file number 0-32237.

         Reports on Form 8-K: A report on Form 8-K dated  September  2, 2003 was
filed  on  September  9,  2003,  reporting,  under  Items  1, 2, 4,  and 5,  the
acquisition  of Dolphin  Energy  Corporation.  Financial  statements  of Dolphin
Energy  Corporation  and pro forma  financial  statements  were  filed  with the
report.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

         For the fiscal years ended  November 30, 2003 and 2002,  our  principal
accountant  is  expected  to bill  approximately  $54,650  and  billed  $14,423,
respectively,  for the audit of our annual  financial  statements  and review of
financial statements included in our Form 10-QSB filings.

                                       31

<PAGE>
AUDIT-RELATED FEES

         There  were no fees  billed  for  services  reasonably  related  to the
performance of the audit or review of our financial  statements outside of those
fees disclosed above under "Audit Fees" for fiscal years 2003 and 2002.

TAX FEES

         For the fiscal years ended  November 30, 2003 and 2002,  our  principal
accountant  is  expected  to  bill  approximately   $3,500  and  billed  $2,500,
respectively, for tax compliance, tax advice, and tax planning services.

ALL OTHER FEES

         For the fiscal year ended November 30, 2003,  our principal  accountant
billed $14,188 in connection  with the review of our  registration  statement on
Form  SB-2,  review of our  current  reports  on Form  8-K,  and a review of our
private  placement  documentation.  For the fiscal year ended November 30, 2002,
our  principal  accountant  billed  $12,587,  primarily  for  the  audit  of the
financial  statements  of Dolphin  Energy  Corporation  as of and for the period
ended  September  30,  2002,  and  for the  preparation  of pro  forma  combined
financial  statements  reflecting  the  acquisition  of  Dolphin  Energy  by the
company.

PRE-APPROVAL POLICIES AND PROCEDURES

         Prior to engaging our accountants to perform a particular service,  our
audit committee  obtains an estimate for the service to be performed.  The audit
committee in  accordance  with  procedures  for the company  approved all of the
services described above.

         There have been no significant  changes  (including  corrective actions
with regard to significant  deficiencies or material weaknesses) in our internal
controls or in other  factors that could  significantly  affect  these  controls
subsequent to the date of the evaluation referenced in the preceding paragraph.



                                       32
<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                         GALAXY ENERGY CORPORATION




Date:  April 8, 2004                     By:    /s/ MARC E. BRUNER
                                            ------------------------------------
                                               Marc E. Bruner, President














                                       33



<PAGE>












                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                        CONSOLIDATED FINANCIAL STATEMENTS













<PAGE>

                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS








 Independent Auditor's Report                                               F-2

 Consolidated Balance Sheets
    November 30, 2003 and 2002                                              F-3

 Consolidated Statements of Operations
    Year ended November 30, 2003, Period from Inception
    (June 18, 2002) to November 30, 2002, and Cumulative
    Amounts from Inception to November 30, 2003                             F-4

 Consolidated Statement of Stockholders' Equity (Deficit)
    Period from Inception (June 18, 2002) to November 30,
    2002, and Year ended November 30, 2003                                  F-5

 Consolidated Statement of Cash Flows
    Year ended November 30, 2003, Period from Inception
    (June 18, 2002) to November 30, 2002, and Cumulative
    Amounts from Inception to November 30, 2003                             F-6

 Notes to Consolidated Financial Statements                          F-8 - F-22













                                      F-1
<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To The Board of Directors and Stockholders
Galaxy Energy Corporation


We have audited the  accompanying  consolidated  balance sheets of Galaxy Energy
Corporation (formerly Galaxy Investments, Inc.) (a development stage company) as
of  November  30,  2003 and 2002,  and the related  consolidated  statements  of
operations,  stockholders'  equity  (deficit)  and cash flows for the year ended
November 30, 2003, for the period from inception (June 18, 2002) to November 30,
2002 and cumulative amounts from inception (June 18, 2002) to November 30, 2003.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of Galaxy  Energy
Corporation  as of November 30, 2003 and 2002, and the results of its operations
and its cash flows for the year ended  November  30,  2003,  for the period from
inception  (June 18,  2002) to November  30, 2002 and  cumulative  amounts  from
inception  (June 18, 2002) to November 30, 2003 in  conformity  with  accounting
principles generally accepted in the United States of America.





                                     /s/ WHEELER WASOFF, P.C.

                                     Wheeler Wasoff, P.C.


Denver, Colorado
February 24, 2004




                                      F-2

<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                           CONSOLIDATED BALANCE SHEETS
                           NOVEMBER 30, 2003 AND 2002

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

CURRENT ASSETS
   Cash                                                               $     2,239,520        $        41,320
   Prepaid and other                                                           54,573                      -
                                                                      ----------------       ----------------
       Total Current Assets                                                 2,294,093                 41,320
                                                                      ----------------       ----------------

UNDEVELOPED OIL AND GAS ASSETS                                              2,799,720                873,797
                                                                      ----------------       ----------------

FURNITURE AND EQUIPMENT, NET                                                    4,527                  3,247
                                                                      ----------------       ----------------

OTHER ASSETS
   Deferred financing costs, net                                              547,133                      -
   Due from Pannonian International Ltd.                                            -                 25,000
   Other                                                                        9,960                 10,975
                                                                      ----------------       ----------------
                                                                              557,093                 35,975
                                                                      ----------------       ----------------

TOTAL ASSETS                                                          $     5,655,433        $       954,339
                                                                      ================       ================

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
   Accounts payable - trade                                           $       194,933        $       425,032
   Accounts payable - related                                                 160,032                233,204
   Current portion of notes payable - related                                 107,632                      -
   Interest payable                                                            74,720                      -
   Property purchase payable                                                        -                396,000
                                                                      ----------------       ----------------
       Total Current Liabilities                                              537,317              1,054,236
                                                                      ----------------       ----------------

CONVERTIBLE DEBENTURES, NET (NOTE 5)                                        2,461,611                      -
                                                                      ----------------       ----------------

NOTES PAYABLE - RELATED                                                        21,946                 50,000
                                                                      ----------------       ----------------
COMMITMENTS AND CONTINGENCIES (NOTES 3, 11 AND 12)

STOCKHOLDERS' EQUITY (DEFICIT)
   Preferred stock, $.001 par value
       Authorized - 25,000,000 shares
       Issued - none
   Common stock, $.001 par value
       Authorized - 100,000,000 shares
       Issued and outstanding - 33,971,503 shares (2003)
       and 30,025,058 shares (2002)                                            33,972                 30,025
   Capital in excess of par value                                           6,320,248                960,144
   (Deficit) accumulated during the development stage                      (3,719,661)            (1,140,066)
                                                                      ----------------       ----------------
       Total Stockholders' Equity (Deficit)                                 2,634,559               (149,897)
                                                                      ----------------       ----------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                  $     5,655,433        $       954,339
                                                                      ================       ================
</TABLE>


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


                                      F-3

<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                              PERIOD FROM         CUMULATIVE FROM
                                                                          INCEPTION (JUNE 18,        INCEPTION
                                                         YEAR ENDED             2002) TO        (JUNE 18, 2002) TO
                                                     NOVEMBER 30, 2003     NOVEMBER 30, 2002     NOVEMBER 30, 2003
<S>                                                  <C>                   <C>                   <C>

REVENUE                                              $             -       $             -       $             -
                                                     ----------------      ----------------      ----------------
COSTS AND EXPENSES
   General and administrative                              2,095,495             1,140,066             3,235,561
   Abandoned oil and gas properties                           65,769                     -                65,769
   Depreciation and amortization                              49,682                     -                49,682
                                                     ----------------      ----------------      ----------------
                                                           2,210,946             1,140,066             3,351,012
                                                     ----------------      ----------------      ----------------

OTHER EXPENSE
   Interest                                                  368,649                     -               368,649
                                                     ----------------      ----------------      ----------------
                                                             368,649                     -               368,649
                                                     ----------------      ----------------      ----------------

NET (LOSS)                                           $    (2,579,595)      $    (1,140,066)      $    (3,719,661)
                                                     ================      ================      ================

NET (LOSS) PER COMMON SHARE -
   BASIC AND DILUTED                                 $         (0.08)      $         (0.04)      $         (0.12)
                                                     ================      ================      ================

WEIGHTED AVERAGE NUMBER OF COMMON
   SHARES OUTSTANDING - BASIC AND DILUTED                 32,391,981            27,837,822            31,036,140
                                                     ================      ================      ================

</TABLE>













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

                                      F-4
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
           PERIOD FROM INCEPTION (JUNE 18, 2002) TO NOVEMBER 30, 2002
                        AND YEAR ENDED NOVEMBER 30, 2003


<TABLE>
<CAPTION>
                                                                                                        (DEFICIT)
                                                                                                       ACCUMULATED
                                                                                    CAPITAL IN         DURING THE
                                                            COMMON STOCK            EXCESS OF          DEVELOPMENT
                                                         SHARES        AMOUNT       PAR VALUE             STAGE
<S>                                                  <C>             <C>           <C>                <C>

BALANCE, JUNE 18, 2002 (INCEPTION)                             -     $       -     $          -       $           -

  Issuance of common stock for
    services at $.05 per share                         4,000,000         4,000          196,000                   -
  Sale of common stock for cash at:
    $.001 per share                                   11,500,000        11,500                -                   -
    $.02 per share                                       500,000           500            9,500                   -
    $.05 per share                                     3,000,000         3,000          147,000                   -
    $.34 per share                                     1,997,058         1,997          677,003                   -
  Recapitalization of shares
    issued prior to merger                             9,028,000         9,028          (69,359)                  -
  Net (loss)                                                   -             -                -          (1,140,066)
                                                     -----------     ---------     -------------      --------------

BALANCE, NOVEMBER 30, 2002                            30,025,058        30,025          960,144          (1,140,066)

  Issuance of common stock for
    cash at $1.00 per share                            1,602,000         1,602        1,600,398                   -
  Costs of offering                                            -             -           (2,170)                  -
  Issuance of common stock for  services at:
    $1.00 per share                                       10,000            10            9,990                   -
    $.91 per share                                        60,000            60           54,540                   -
  Issuance of common stock to related party
    upon conversion of outstanding debt
    at $1.00 per share                                   233,204           233          232,971                   -
  Issuance of common stock to related party
    for services at $1.00 per share                       90,000            90           89,910                   -
  Issuance of common stock to acquire
    Subsidiary                                         1,951,241         1,952         (204,184)                  -
  Discount on convertible debentures due to
    issuance of detachable warrants and
    beneficial conversion feature                              -             -        3,471,071                   -
  Warrants issued to placement agent in
    connection with convertible debenture
    offering                                                   -             -          107,578                   -
  Net (loss)                                                   -             -               -           (2,579,595)
                                                     -----------     ---------     -------------      --------------
BALANCE, NOVEMBER 30, 2003                            33,971,503     $  33,972     $  6,320,248       $  (3,719,661)
                                                     ===========     =========     =============      ==============
</TABLE>


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

                                      F-5
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       PERIOD FROM        CUMULATIVE
                                                                                        INCEPTION         FROM INCEP-
                                                                                        (JUNE 18,       TION (JUNE 18,
                                                                    YEAR ENDED           2002) TO          2002) TO
                                                                   NOVEMBER 30,        NOVEMBER 30,      NOVEMBER 30,
                                                                       2003                2002              2003
<S>                                                              <C>                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net (loss)                                                    $  (2,579,595)      $   (1,140,066)   $   (3,719,661)
   Adjustments to reconcile net (loss) to net
     cash (used) by operating activities
        Stock for services                                              64,600              200,000           264,600
        Stock for services - related                                    90,000                    -            90,000
        Stock for debt-related                                         233,204                    -           233,204
        Amortization of discount on convertible debentures             292,682                    -           292,682
        Amortization of deferred financing costs                        48,997                    -            48,997
        Depreciation expense                                               685                    -               685
        Abandonment of oil and gas properties                           65,769                    -            65,769
        Interest converted to debt                                      11,178                    -            11,178
   Changes in assets and liabilities
        (Decrease) increase in accounts payable - trade               (303,488)             284,344           (19,144)
        (Decrease) increase in accounts payable - related              (73,172)             233,204           160,032
        Increase in interest payable                                    74,720                    -            74,720
        (Increase) in prepaids and other current assets                (54,573)                   -           (54,573)
        Other                                                                -               (9,960)           (9,960)
                                                                 --------------      ---------------   ---------------

Net cash (used) by operating activities                             (2,128,993)            (432,478)       (2,561,471)
                                                                 --------------      ---------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Additions to oil and gas properties                              (1,787,926)            (351,883)       (2,139,809)
   Purchase of furniture and equipment                                  (2,419)              (2,793)           (5,212)
   Advance to affiliate                                                (35,000)             (25,000)          (60,000)
   Cash received upon recapitalization and merger                        1,260                2,974             4,234
                                                                 --------------      ---------------   ---------------

Net cash (used) by investing activities                             (1,824,085)            (376,702)       (2,200,787)
                                                                 --------------      ---------------   ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from sale of common stock                                1,602,000              850,500         2,452,500
   Proceeds from sale of convertible debentures                      5,040,000                    -         5,040,000
   Debt and stock offering costs                                      (490,722)                   -          (490,722)
                                                                 --------------      ---------------   ---------------

Net cash provided by financing activities                            6,151,278              850,500         7,001,778
                                                                 --------------      ---------------   ---------------

NET INCREASE IN CASH                                                 2,198,200               41,320         2,239,520

CASH, BEGINNING OF PERIODS                                              41,320                    -                 -
                                                                 --------------      ---------------   ---------------

CASH, END OF PERIODS                                             $   2,239,520       $       41,320    $    2,239,520
                                                                 ==============      ===============   ===============
</TABLE>




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

                                      F-6
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                       PERIOD FROM        CUMULATIVE
                                                                                        INCEPTION         FROM INCEP-
                                                                                        (JUNE 18,       TION (JUNE 18,
                                                                    YEAR ENDED           2002) TO          2002) TO
                                                                   NOVEMBER 30,        NOVEMBER 30,      NOVEMBER 30,
                                                                       2003                2002              2003
<S>                                                              <C>                 <C>               <C>

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
   Cash paid for interest                                        $        3,617      $           -     $        3,617
                                                                 ===============     =============     ===============
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
   Debt incurred for oil and gas properties                      $      600,000      $     446,000     $    1,046,000
                                                                 ===============     =============     ===============
   Stock issued for services                                     $      154,600      $     200,000     $      354,600
                                                                 ===============     =============     ===============
   Stock issued for debt                                         $      233,204      $           -     $      233,204
                                                                 ===============     =============     ===============
   Warrants issued for financing costs                           $      107,578      $           -     $      107,578
                                                                 ===============     =============     ===============
   Discount on convertible debentures issued                     $    3,471,071      $           -     $    3,471,071
                                                                 ===============     =============     ===============
   Conversion of interest to debt                                $       11,178      $           -     $       11,178
                                                                 ===============     =============     ===============
   Stock issued for subsidiary - related                         $     (202,232)     $           -     $     (202,232)
                                                                 ===============     =============     ===============

</TABLE>














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

                                      F-7
<PAGE>

                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION

         Galaxy Energy  Corporation  (formerly  Galaxy  Investments,  Inc.) (the
         "Company") was incorporated  under the laws of the State of Colorado on
         December 17, 1999, for the purpose of acquiring and developing  mineral
         properties.  On November 13, 2002,  the Company  completed an Agreement
         and  Plan  of  Reorganization  (the  "Agreement")   whereby  it  issued
         20,997,058  shares of its common  stock to acquire all of the shares of
         Dolphin  Energy   Corporation   ("Dolphin"),   a  private   corporation
         incorporated  on June 18, 2002,  under the laws of the State of Nevada.
         The  Company  was a  public  company  and had no  operations  prior  to
         entering into the Agreement.  Dolphin,  an  independent  energy company
         engaged in the  exploration,  development  and acquisition of crude oil
         and natural gas reserves in the western United States,  is considered a
         development   stage  company  as  defined  by  Statement  of  Financial
         Accounting Standards (SFAS) No. 7. Dolphin was an exploration stage oil
         and gas company and had not earned any  production  revenue,  nor found
         proved  resources  on  any  of  its  properties.   Dolphin's  principal
         activities had been raising  capital through the sale of its securities
         and identifying and evaluating potential oil and gas properties.

         As a  result  of  this  transaction,  Dolphin  became  a  wholly  owned
         subsidiary  of the  Company.  Since this  transaction  resulted  in the
         former  shareholders of Dolphin acquiring  control of the Company,  for
         financial reporting purposes the business combination was accounted for
         as an additional  capitalization of the Company (a reverse  acquisition
         with  Dolphin  as the  accounting  acquirer).  In  accounting  for this
         transaction:

             i.  Dolphin was deemed  to be the purchaser and parent  company for
                 financial reporting purposes.  Accordingly, its net assets were
                 included in the  consolidated balance sheet at their historical
                 book value; and
            ii.  Control  of  the  net  assets  and  business of the Company was
                 acquired effective November 13, 2002 for no consideration.

         The fair value of the assets acquired and liabilities  assumed pursuant
         to the transaction with Dolphin are as follows:

            Net cash acquired           $       2,974
            Liabilities assumed               (63,305)
                                        --------------

            Common stock issued         $     (60,331)
                                        ==============

         On June 2, 2003,  the  Company  completed  a Share  Exchange  Agreement
         whereby it issued  1,951,241  shares of its common stock to acquire all
         the shares of Pannonian  International,  Ltd. ("Pannonian"),  a related
         entity.  Pannonian is a private corporation incorporated on January 18,
         2000,  under the laws of the State of Colorado.  The shares issued were
         valued at the predecessor cost of the net assets of Pannonian acquired.
         Pannonian is an independent  energy company engaged in the exploration,
         development  and  acquisition  of crude oil and natural gas reserves in
         Europe and is considered a development stage company as defined by SFAS
         7.  Pannonian has not earned any production  revenue,  nor has it found
         proved  resources on any of its properties.  As a result of the June 2,
         2003  transaction,  Pannonian  became a wholly owned  subsidiary of the
         Company.

                                      F-8
<PAGE>

                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION (CONTINUED)

         The predecessor  cost of the assets  acquired and  liabilities  assumed
         pursuant to the transaction with Pannonian are:

               Net cash acquired                           $ 1, 260
               Undeveloped oil and gas properties            75,680
               Liabilities assumed                         (279,173)
                                                          ----------

               Common stock issued                        $(202,233)
                                                          ==========

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BASIS OF PRESENTATION

         The accompanying  consolidated financial statements include the Company
         for the period from  November 18, 2002 to November  30,  2002,  and its
         wholly owned subsidiary,  Dolphin, for the period from June 18, 2002 to
         November  30,  2002.   For  the  year  ended  November  30,  2003,  the
         consolidated  financial  statements include the Company and Dolphin for
         the  entire  year  and  Pannonian   from  the  effective  date  of  the
         acquisition,  June 2, 2003,  to  November  30,  2003.  All  significant
         intercompany transactions have been eliminated upon consolidation.

         OIL AND GAS PROPERTIES

         The Company utilizes the full cost method of accounting for oil and gas
         activities.  Under  this  method,  subject  to a  limitation  based  on
         estimated  value,  all  costs  associated  with  property  acquisition,
         exploration   and   development,   including   costs  of   unsuccessful
         exploration,  are capitalized  within a cost center. No gain or loss is
         recognized upon the sale or abandonment of undeveloped or producing oil
         and gas properties unless the sale represents a significant  portion of
         oil  and  gas  properties  and  the  gain   significantly   alters  the
         relationship  between capitalized costs and proved oil and gas reserves
         of the cost center. Depreciation, depletion and amortization of oil and
         gas  properties is computed on the units of production  method based on
         proved  reserves.   Amortizable   costs  include  estimates  of  future
         development costs of proved undeveloped reserves.

         Capitalized  costs of oil and gas  properties  may not exceed an amount
         equal to the present value,  discounted at 10%, of the estimated future
         net cash  flows  from  proved oil and gas  reserves  plus the cost,  or
         estimated fair market value, if lower, of unproved  properties.  Should
         capitalized costs exceed this ceiling, an impairment is recognized. The
         present  value of  estimated  future  net cash  flows  is  computed  by
         applying  year end prices of oil and  natural gas to  estimated  future
         production  of  proved  oil  and gas  reserves  as of  year  end,  less
         estimated  future   expenditures  to  be  incurred  in  developing  and
         producing  the proved  reserves and assuming  continuation  of existing
         economic conditions. As of November 30, 2003, the Company has no proved
         reserves or  production.  All oil and gas property costs are considered
         to be unevaluated  and are recorded at the lower of cost or fair market
         value.

                                      F-9

<PAGE>

                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         In June 2001, the Financial  Accounting Standards Board ("FASB") issued
         SFAS 141, "Business  Combinations,"  which requires the purchase method
         of accounting for business  combinations  initiated after June 30, 2001
         and eliminates the pooling-of-interests  method. In July 2001, the FASB
         issued  SFAS  142,  "Goodwill  and  Other  Intangible   Assets,"  which
         discontinues  the practice of amortizing  goodwill and indefinite lived
         intangible  assets  and  initiates  an annual  review  for  impairment.
         Intangible  assets with a determinable  useful life will continue to be
         amortized  over that  period.  The oil and gas  industry  is  currently
         discussing the appropriate balance sheet  classification of oil and gas
         mineral rights held by lease or contract.  The Company classifies these
         assets as a component of oil and gas properties in accordance  with the
         full cost mtethod of accounting  for oil and gas  activities and common
         industry  practice.  There is also a view that these mineral rights are
         intangible assets as defined in SFAS 141, "Business Combinations", and,
         therefore,  should be  classified  separately  on the balance  sheet as
         intangible assets.

         The Company did not change or  reclassify  contractual  mineral  rights
         included in oil and gas  properties  on the balance sheet upon adoption
         of SFAS 141.  The  Company  believes  its  current  accounting  of such
         mineral rights,  as part of oil and gas properties is appropriate under
         the full cost method of  accounting.  However,  if the  accounting  for
         mineral rights held by lease or contract is ultimately  changed so that
         costs  associated  with  mineral  rights  not held  under fee title and
         pursuant to the guidelines of SFAS 141 are required to be classified as
         long  term  intangible  assets,  then  the  reclassified  amount  as of
         November  30,  2003 and  2002  would be  approximately  $2,800,000  and
         $874,000  respectively.  Management  does not believe that the ultimate
         outcome of this issue will have a  significant  impact on the Company's
         cash flows, results of operations or financial condition.

         In 2001,  the FASB issued SFAS 143,  "Accounting  for Asset  Retirement
         Obligations." SFAS 143 addresses financial accounting and reporting for
         obligations  associated  with the  retirement  of  tangible  long-lived
         assets and the associated  asset  retirement  costs.  SFAS 143 requires
         companies to record the present value of  obligations  associated  with
         the retirement of tangible  long-lived assets in the period in which it
         is  incurred.  The  liability  is  capitalized  as part of the  related
         long-lived  asset's  carrying  amount.  Over  time,  accretion  of  the
         liability is  recognized  as an operating  expense and the  capitalized
         cost is depreciated over the expected useful life of the related asset.
         As of November 30, 2003, the Company has no producing oil and gas wells
         and  its  oil  and  gas  properties  are  all  considered  unevaluated.
         Accordingly,  no asset retirement  obligation has been recognized as of
         that date.

         PROPERTY AND EQUIPMENT

         Furniture  and  equipment  is recorded at cost.  Depreciation  is to be
         provided by use of the  straight-line  method over the estimated useful
         lives of the related  assets of three to five years.  Expenditures  for
         replacements,  renewals,  and betterments are capitalized.  Maintenance
         and repairs are charged to operations as incurred.  Long-lived  assets,
         other than oil and gas  properties,  are  evaluated  for  impairment to
         determine if current  circumstances and market conditions  indicate the
         carrying amount may not be recoverable.  The Company has not recognized
         any impairment losses on non oil and gas long-lived assets.

         Depreciation  expense of $685 was recorded for the year ended  November
         30, 2003.


                                      F-10
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         REVENUE RECOGNITION

         The Company will  recognize  oil and gas revenues from its interests in
         producing wells as oil and gas is produced and sold from these wells.

         IMPAIRMENT

         The Company has adopted SFAS 144,  "Accounting  for the  Impairment and
         Disposal of Long-Lived  Assets," which requires that long-lived  assets
         to be held and used be  reviewed  for  impairment  whenever  events  or
         changes in circumstances  indicate that the carrying amount of an asset
         may not be recoverable.  Oil and gas properties accounted for using the
         full cost method of accounting,  a method utilized by the Company,  are
         excluded from this requirement,  but will continue to be subject to the
         ceiling test limitations.

         INCOME TAXES

         The Company has adopted the  provisions  of SFAS 109,  "Accounting  for
         Income   Taxes."  SFAS  109  requires   recognition   of  deferred  tax
         liabilities  and assets for the  expected  future tax  consequences  of
         events  that have been  included  in the  financial  statements  or tax
         returns.  Under this method,  deferred tax  liabilities  and assets are
         determined based on the difference between the financial  statement and
         tax basis of assets and  liabilities  using enacted tax rates in effect
         for the year in which the differences are expected to reverse.

         At November 30, 2003, the Company had a net operating loss carryforward
         of  approximately  $3,200,000 that may be offset against future taxable
         income through 2023. These  carryforwards  are subject to review by the
         Internal Revenue Service.

         The Company has fully reserved the  approximate  $1,100,000 tax benefit
         of this operating loss because the likelihood of realization of the tax
         benefit cannot be determined.  Of the total tax benefit,  approximately
         $738,000 is attributable to 2003.

         Temporary  differences  between the time of reporting certain items for
         financial and tax reporting  purposes consist primarily of amortization
         of discount on convertible debentures.

         USE OF ESTIMATES

         The  preparation of financial  statements in conformity  with 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 reported  amounts of revenues and
         expenses during the reporting period.  Actual results could differ from
         those estimates.

         The oil and gas industry is subject,  by its nature,  to  environmental
         hazards  and  clean-up  costs.  At this  time,  management  knows of no
         substantial costs from environmental  accidents or events for which the
         Company may be currently liable. In addition, the Company's oil and gas
         business makes it vulnerable to changes in wellhead prices of crude oil
         and  natural  gas.  Such prices  have been


                                      F-11
<PAGE>


                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         volatile  in the past and can be expected to be volatile in the future.
         By definition,  proved reserves are based on current oil and gas prices
         and estimated reserves. Price declines reduce the estimated quantity of
         proved  reserves and increase  annual  amortization  expense  (which is
         based on proved reserves).

         (LOSS) PER COMMON SHARE

         Basic  (loss)  per  share is based on the  weighted  average  number of
         common shares outstanding  during the period.  Diluted (loss) per share
         reflects the potential dilution that could occur if securities or other
         contracts to issue common stock were exercised or converted into common
         stock.  At November 30, 2003,  all  outstanding  options,  warrants and
         convertible  debentures  are excluded from the  computation  of diluted
         loss  per  share,   as  the  effect  of  the  assumed   exercises   was
         antidilutive.

         RECLASSIFICATION

         Certain amounts in the 2002 financial statements have been reclassified
         to conform to the 2003 financial statement presentation.

         DEFERRED FINANCING COSTS

         The Company  capitalizes  costs  associated  with the  issuance of debt
         instruments.  These costs are amortized on a  straight-line  basis over
         the term of the  debt  agreements.  Amortization  expense  of  deferred
         financing costs was $48,997 for the year ended November 30, 2003.

         SHARE BASED COMPENSATION

         In October 1995, the FASB issued SFAS 123,  Accounting for  Stock-Based
         Compensation,  effective for fiscal years  beginning after December 15,
         1995.  This  statement  defines a fair value method of  accounting  for
         employee stock options and encourages  entities to adopt that method of
         accounting for its stock compensation  plans. SFAS 123 allows an entity
         to  continue  to measure  compensation  costs for these plans using the
         intrinsic  value based method of accounting as prescribed in Accounting
         Pronouncement  Bulletin Opinion No. 25,  Accounting for Stock Issued to
         Employees  (APB 25). The Company has elected to continue to account for
         its employee stock  compensation  plans as prescribed under APB 25. Had
         compensation cost for the Company's stock-based compensation plans been
         determined  based on the fair value at the grant dates for awards under
         those plans  consistent  with the method  prescribed  in SFAS 123,  the
         Company's  net (loss) and (loss) per share for the year ended  November
         30,  2003 would not have  changed as no options  granted by the Company
         during the year ended  November 30, 2003 were  exercisable  at November
         30, 2003.



                                      F-12
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         CASH EQUIVALENTS

         For purposes of  reporting  cash flows,  the Company  considers as cash
         equivalents  all highly  liquid  investments  with a maturity  of three
         months or less at the time of purchase.  On  occasion,  the Company may
         have cash in banks in excess of federally insured amounts.

         CONCENTRATION OF CREDIT RISK

         Financial  instruments,   which  potentially  subject  the  Company  to
         concentrations  of credit risk,  consist of cash. The Company maintains
         cash accounts at two financial  institutions.  The Company periodically
         evaluates  the  credit  worthiness  of  financial   institutions,   and
         maintains   cash  accounts   only  in  large  high  quality   financial
         institutions.

         FAIR VALUE

         The carrying amount  reported in the balance sheet for cash,  prepaids,
         and accounts payable and accrued  liabilities  approximates  fair value
         because of the  immediate  or  short-term  maturity of these  financial
         instruments.

         Based upon the borrowing rates  currently  available to the Company for
         loans with  similar  terms and  average  maturities,  the fair value of
         long-term debt approximates its carrying value.

         RECENT ACCOUNTING PRONOUNCEMENTS

         In  June  2002,  the  FASB  issued  SFAS  146,  "Accounting  for  Costs
         Associated  with  Exit or  Disposal  Activities."  SFAS  146  addresses
         financial  accounting and reporting for costs  associated  with exit or
         disposal  activities and nullifies Emerging Issues Task Force Issue No.
         94-3, "Liability  Recognition for Certain Employee Termination Benefits
         and Other Costs to Exit an  Activity."  SFAS 146  generally  requires a
         liability for a cost associated with an exit or disposal activity to be
         recognized  and  measured  initially at its fair value in the period in
         which the  liability is incurred.  The  pronouncement  is effective for
         exit or disposal  activities  initiated  after  December 31, 2002.  The
         Company  does not believe the adoption of SFAS 146 will have any impact
         on its financial position or results of operations.

         SFAS 147, "Acquisitions of Certain Financial  Institutions," was issued
         in December 2002 and is not expected to apply to the Company's  current
         or planned activities.

         In  December  2002,  the  FASB  approved  SFAS  148,   "Accounting  for
         Stock-Based  Compensation - Transition and Disclosure - an amendment of
         FASB  Statement  123."  SFAS  148  amends  SFAS  123,  "Accounting  for
         Stock-Based Compensation", to provide alternative methods of transition
         for a voluntary change to the fair value based method of accounting for
         stock-based  employee  compensation.  In addition,  SFAS 148 amends the
         disclosure requirements of SFAS 123 to require prominent disclosures in
         both  annual  and  interim  financial  statements  about the  method of
         accounting for stock-based employee  compensation and the effect of the
         method used on reported  results.  SFAS 148 is effective  for financial
         statements for fiscal years ending after


                                      F-13
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         December 15, 2002. The Company will continue to account for stock based
         compensation using the methods detailed in the stock-based compensation
         accounting policy.

         In April 2003, the FASB approved SFAS 149,  "Amendment of Statement 133
         on  Derivative  Instruments  and Hedging  Activities".  SFAS 149 is not
         expected to apply to the Company's current or planned activities.

         In June 2003,  the FASB  approved  SFAS 150,  "Accounting  for  Certain
         Financial  Instruments  with  Characteristics  of both  Liabilities and
         Equity".  SFAS 150 establishes  standards for how an issuer  classifies
         and measures certain financial instruments with characteristics of both
         liabilities  and equity.  This  Statement  is effective  for  financial
         instruments  entered into or modified after May 31, 2003, and otherwise
         is effective at the  beginning of the first  interim  period  beginning
         after June 15, 2003.  SFAS 150 is not expected to have an effect on the
         Company's financial position.

NOTE 3 - OIL AND GAS PROPERTIES

         WYOMING

         In August 2002, the Company entered into an option agreement to acquire
         undeveloped  oil and gas leases in Wyoming subject to a 15% net profits
         interest.  Under the terms of the option  agreement,  the Company  paid
         $46,000 as of November 30, 2003, an  additional  $5,000 on December 15,
         2003, and was, at the option of the Company,  scheduled to pay $396,000
         by January 15, 2004.  The company has notified the operator it will not
         exercise its option to complete the  transaction  and the investment in
         the  prospect  as of November  30,  2003,  $46,000,  was written off as
         abandoned oil and gas properties.

         In  September  2002,  the Company  entered  into an  agreement  for the
         acquisition of undeveloped  oil and gas leases with Pioneer Oil, LLC, a
         Montana limited  liability  company.  Under the terms of the agreement,
         for an intitial  cash payment of $100,000,  the Company was entitled to
         earn a 100% working  interest and a 78% net revenue interest in oil and
         gas leases covering 15,657 acres in the Powder River Basin near Lieter,
         Wyoming.  The  agreement  required  the  Company to make an  additional
         payment of $1,650,000  and to deposit the  estimated  cost to drill and
         complete 30 pilot wells, into an escrow account.  During the year ended
         November 30, 2003, the Company  negotiated term extensions with Pioneer
         and  made  two  additional   payments  of  $100,000  each  to  Pioneer.
         Subsequent  to  November  30,  2003,  the Company  purchased  Pioneer's
         interest in the subject leases for $1,000,000 cash and 2,000,000 shares
         of common stock. (Note 12).

         Subsequent  to November 30, 2003 the Company  entered into an agreement
         with DAR, LLC, a Wyoming limited liability company,  to acquire certain
         oil  and  gas  leases  in  the  Powder   River  Basin  of  Wyoming  for
         approximately  $2,764,000 in cash and debt  and 3,000,000 shares of the
         Company's common stock. (Note 12).


                                      F-14
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)

         MONTANA

         On  August  5,  2003  the  Company  entered  into a  Lease  Option  and
         Acquisition  Agreement with Quaneco,  L.L.C.  ("Quaneco"),  a privately
         held oil and gas  company  operating  primarily  in the Rocky  Mountain
         region Under the terms of the  agreement,  the Company has an option to
         acquire up to 50% of Quaneco's  working  interest in oil and gas leases
         covering approximately 206,000 gross acres in Montana, and an option to
         earn an undivided 25% interest in up to one hundred  twenty-eight (128)
         drilling locations by paying its proportionate  share of costs to drill
         wells  on  such  locations.   The  purchase  price  of  the  option  is
         $6,625,000.  As of November 30, 2003,  $1,700,000 of the purchase price
         has  been  paid by the  Company,  $1,100,000  in cash and  $600,000  in
         convertible Debentures issued on September 24, 2003. The balance of the
         purchase price is due in installments  as follows:  $1,612,500 on April
         15, 2004; $1,656,250 on September 1, 2004 and $1,656,250 on December 1,
         2004.

         TEXAS

         Under the terms of an agreement  executed March 6, 2003, the Company is
         engaged  in an  ongoing  leasing  program  with  Harbor  Petroleum  LLC
         ("Harbor") and Florida Energy, Inc.  ("Florida") (both related parties)
         for  the  acquisition  of oil,  gas  and  mineral  leases  in Rusk  and
         Nacogdoches  Counties  in the  State of  Texas.  Under the terms of the
         agreement,  Harbor and Florida will each retain a 1% overriding royalty
         interest in the acquired leases,  including those leases acquired as of
         the date of the agreement.

         OTHER

         The Company, through its acquisition of Pannonian, acquired an interest
         in a concession  agreement in the Jui Valley Coal Basin in Romania. The
         terms of the  concession  require the holder to expend a minimum amount
         for exploratory  work on the concession or pay an equivalent  amount to
         the  government  of Romania.  The Company has met the minimum  required
         expenditure for the concession year ending in October 2004.

         Subsequent to November 30, 2003, Pannonian, together with two unrelated
         privately held oil and gas companies, was granted an exploration permit
         to explore  for  natural  resources  within  the  149,435  acres  Neues
         Bergland  permit area in Germany.  The permit has a three-year term and
         requires  the drilling of a test  borehole  during 2004 to maintain the
         permit.

         Effective  October 1, 2002, the Company entered into a Coal Bed Methane
         Participation  Agreement ("CBM  Agreement") with Horizon  Exploitation,
         Inc.   ("Horizon")  which  potentially  provided  for  funding  of  the
         development of certain of the Company's  leasehold interests in Wyoming
         and  established  an AMI (Area of Mutual  Interest) in the Powder River
         Basin located in Wyoming and Montana for future projects. Subsequent to
         November 30, 2003, the CBM Agreement expired, and the Company is in the
         process of negotiating a new agreement with Horizon.


                                      F-15
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - OIL AND GAS PROPERTIES (CONTINUED)

         At November 30, 2003 and 2002,  the Company's  unevaluated  oil and gas
         properties consist of leasehold costs in the following areas:

                                                2003                  2002
              Wyoming                       $230,250              $462,250
              Montana                      1,762,900                     -
              Texas                          739,336               405,818
              Other                           67,234                 5,729
                                          ----------              --------
                                          $2,799,720              $873,797
                                          ==========              ========

NOTE 4 - NOTES PAYABLE - RELATED

         In  connection  with the March 6, 2003  agreement  between the Company,
         Harbor and  Florida,  the  Company  agreed to pay  Florida  $50,000 for
         identifying  prospective  oil and gas leases in Texas,  and  executed a
         promissory note in that amount with interest  payable at 7.5% due March
         7, 2004. The Company  recorded this  obligation as of November 30, 2002
         because the  underlying  agreement was effective  retroactively  to the
         time the leasing program commenced, prior to November 30, 2002. Accrued
         interest  of $2,742 is included  in  interest  payable at November  30,
         2003.

         In connection with the acquisition of Pannonian effective June 2, 2003,
         the Company  assumed notes payable to the President of Pannonian in the
         amount  of  $32,400,  and to a  related  company,  wholly  owned by the
         President of Pannonian, in the amount of $36,000. On November 30, 2003,
         certain of those notes together with accrued  interest were rolled into
         two new notes.

         At November 30, 2003 and 2002, notes payable consists of the following:

                                                              2003         2002
         Payable to Florida Energy,
              Due March 7, 2004, Interest rate - 7.5%      $50,000      $50,000
         Payable to the President of Pannonian
              Due February 5, 2005, Interest rate 10%       39,946            -
         Payable to a company wholly owned by the
         President of Pannonian
              Due August 1, 2004, Interest rate 6.5%        17,132            -
              Due October 5, 2001, Interest rate 15%        10,000            -
              Due November 29, 2001, Interest rate 15%      10,000            -
              Due January 12, 2002, Interest rate 15%        2,500            -
                                                          ---------     -------
                                                           129,578       50,000
         Less current portion                             (107,632)           -
                                                          ---------     -------
         Long term portion                                 $21,946      $50,000
                                                          =========     =======

         Subsequent to November 30, 2003,  notes  payable to the company  wholly
         owned by the  President of  Pannonian  totaling  $22,500,  plus accrued
         interest, were paid by the Company.


                                      F-16
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE  5 - CONVERTIBLE DEBENTURES

         In October 2003,  the Company  completed a private  offering of Secured
         Convertible Debentures and Warrants (the "Debentures").  Gross proceeds
         from  the  offering  were  $5,640,000  ($5,040,000  in cash  (including
         $200,000  to a  founder\shareholder  of the  Company)  and  $600,000 as
         partial  consideration for oil and gas properties).  The debentures pay
         interest at 7% per annum,  mature two years from the date of issue, are
         secured  by  substantially  all the  Company's  assets  (subject  to an
         agreement to  subordinate  in favor of a senior bank  lender),  and are
         convertible  into  shares  of the  Company's  common  stock  based on a
         conversion  price of $0.59 per  share.  Debenture  purchasers  received
         warrants to purchase  2,867,797 shares of the Company's common stock at
         an  exercise  price of $0.71  per  share,  and  2,867,797  shares at an
         exercise  price of $0.83 per  share,  for a period of five  years  (the
         "debenture warrants").

         In  accordance  with  Emerging  Issues Task Force Issue No. 98-5 ("EITF
         98-5"),   "Accounting  for   Convertible   Securities  with  Beneficial
         Conversion Features or Contingently  Adjustable Conversion Ratios", and
         EITF  00-27,  "Application  of Issue No.  98-5 to  Certain  Convertible
         Instruments",   the  Company   recognizes  the  advantageous  value  of
         conversion  rights  attached to  convertible  debt and  warrants.  Such
         rights  give the  debenture  holder the  ability  to convert  debt into
         common  stock and  exercise  warrants at a price per share that is less
         than  the  trading  price to the  public  on the day of  issuance.  The
         beneficial value is calculated as the intrinsic value (the market price
         of the stock at the commitment date in excess of the conversion  price)
         of the beneficial conversion feature of debentures and is recorded as a
         discount  to the  related  debt and an addition to capital in excess of
         par value. The discount is amortized over the outstanding period of the
         related debt using the interest method.

         The fair value of the debenture  warrants was estimated as of the issue
         date  under  the  Black-Scholes   pricing  model,  with  the  following
         assumptions:  common stock based on a market price of $.63 and $.80 per
         share,  zero dividends,  expected  volatility of 46% and 55%, risk free
         interest rate of 3.125% and expected life of five years. The fair value
         of the debenture warrants of $1,823,211,  resulted in a discount to the
         debentures of $1,178,417,  and a beneficial  conversion  feature to the
         debentures of $2,292,654.  The beneficial  conversion  feature reflects
         the fact the market price of the  Company's  common stock  exceeded the
         conversion  price of the debentures as of the  respective  issue dates.
         The resulting  discount  attributable to the debenture warrants and the
         beneficial conversion feature of the debentures  aggregating $3,471,071
         has  been  recorded  as a  discount  to the  debentures  and  is  being
         amortized over the term of the debentures. Amortization of the discount
         of $292,682 is included in interest expense for the year ended November
         30, 2003.

         The placement agents for the debentures  received  warrants to purchase
         230,847  shares of the Company's  common stock at an exercise  price of
         $.59  per  share  for a term of 5 years  from the  date of  grant.  The
         $107,758  fair value of the  warrants  was  estimated at the grant date
         under the  Black-Scholes  pricing model using the same  assumptions set
         forth above, and was recorded as financing costs.


                                      F-17

<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - CONVERTIBLE DEBENTURES (CONTINUED)

         At November 30, 2003, convertible debentures consists of:
              Debentures issued September 24, 2003                $3,100,000
              Debentures issued October 3, 2003                    2,540,000
              Less: Unamortized discount                          (3,178,389)
                                                                  -----------
                                                                  $2,461,611
                                                                  ===========

         The  debentures are due during the fiscal year ended November 30, 2005.
         Subsequent  to  November  30,  2003,  $900,000 of the  debentures  were
         converted to 1,525,424 shares of common stock.

NOTE 6 - STOCKHOLDERS' EQUITY

         During the year ended  November 30, 2003,  the Company issued shares of
         its common stock as follows;
              o   1,602,000 shares for cash at $1.00 per share
              o   10,000 shares for services at $1.00 per share
              o   60,000 shares for services at $.91 per share
              o   233,204 shares to Resource Venture Management (RVM), an entity
                  owned  by  a  founder  of  the  Company,  as  payment  of   an
                  outstanding debt, at $1.00 per share
              o   90,000 shares  to RVM for services rendered, valued at $90,000
                  ($1.00 per share)
              o   1,951,241  shares   to  the  shareholders  of   Pannonian   in
                  accordance with  the Share  Exchange  Agreement to acquire all
                  the outstanding shares of Pannonian (Note 1).

         During the period ended November 30, 2002, the Company issued shares of
         its common stock as follows:

            o   11,500,000 shares  at  inception to  officers/directors/founders
                for cash at $.001 per share
            o   500,000 shares for cash at $.02 per share
            o   4,000,000  shares  to  RVM, for  services  rendered,  valued  at
                $200,000 ($.05 per share)
            o   3,000,000 shares for cash at $.05 per share
            o   1,997,058 shares for cash at $.34 per share

         Effective  November 13, 2002, the Company  completed the acquisition of
         Dolphin  (Note 1). In  conjunction  with the  acquisition,  the Company
         exchanged  20,997,058  shares  of its  common  stock  for  100%  of the
         outstanding  common shares of Dolphin.  The 9,028,000  shares of common
         stock  of the  Company  outstanding  at the  date of  acquisition  were
         recapitalized  at the net asset  value of the  Company  at that date of
         $(60,331).  For financial statement reporting purposes this transaction
         was treated as a reverse acquisition whereby Dolphin was considered the
         surviving  and  reporting  entity.  For  legal  purposes,  the  Company
         remained as the surviving entity;  therefore,  the capital structure of
         the Company was accordingly restated.

         The  value  of all  common  stock  issued  for  non-cash  consideration
         represents  the  non-discounted  trading price of the Company's  common
         stock at the transaction date.


                                      F-18

<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

         WARRANTS

         In connection with the issuance of convertible  debentures in September
         and  October  2003 (Note 5), the  Company  issued  warrants to purchase
         2,867,797  shares of common  stock at $.71 per  share,  and  2,867,797,
         shares  of  common  stock  at  $.83  per  share  to  purchasers  of the
         debentures,  and issued  warrants to purchase  230,847 shares of common
         stock at $.59 per share to placement agents for the issue.

         As of November 30, 2003 warrants issued and outstanding are as follows:
<TABLE>
<CAPTION>
                  Issue              Shares           Exercise        Expiration
                  Date               Exercisable      Price           Date
<S>                                  <C>                <C>           <C>
            September 24, 2003        1,576,270         $.71          September 24, 2008
            September 24, 2003        1,576,270         $.83          September 24, 2008
            September 24, 2003          101,694         $.59          September 24, 2008
            October 3, 2003           1,291,527         $.71          October 3, 2008
            October 3, 2003           1,291,527         $.83          October 3, 2008
            October 3, 2003             129,153         $.59          October 3, 2008
                                      ---------

                                      5,966,441
                                      =========
</TABLE>

         At November 30, 2003 the weighted  average  exercise price for warrants
         outstanding is $.76 and the weighted average remaining contractual life
         is 4.8 years.

NOTE 7 - STOCK OPTION PLAN

         In May 2003,  the  Company  adopted  the 2003  Stock  Option  Plan (the
         "Plan").  Under the Plan,  stock  options may be granted at an exercise
         price not less than the fair market value of the Company's common stock
         at the date of grant. Options may be granted to key employees and other
         persons who  contribute to the success of the Company.  The Company has
         reserved 3,500,000 shares of common stock for the plan. At November 30,
         2003, options to purchase 3,380,000 shares were available to be granted
         pursuant to the stock option plan.

         The status of outstanding  options granted pursuant to the plans are as
         follows:
<TABLE>
<CAPTION>
                                                            Number       Weighted Avg.       Weighted Avg.
                                                          of Shares      Exercise Price       Fair Value
<S>                                                         <C>             <C>                  <C>
        Options Outstanding - November 30, 2002                    -        $    -               $    -

        Granted                                              120,000        $ 1.00               $ 0.52
        Exercised                                                  -             -                    -
                                                            --------        ------               ------

        Options Outstanding - November 30, 2003
             (None exercisable)                              120,000        $ 1.00                $0.52
                                                            ========        ======                =====

</TABLE>

                                      F-19
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - STOCK OPTION PLAN (CONTINUED)

         The  calculated  value of stock  options  granted  under  these  plans,
         following   calculation  methods  prescribed  by  SFAS  123,  uses  the
         Black-Scholes stock option pricing model with the following assumptions
         used:


         Expected option life-years                 10
         Risk-free interest rate                3.625%
         Dividend yield                              0
         Volatility                                39%

NOTE 8 - RELATED PARTY TRANSACTIONS

         The Company incurred  consulting  expenses related to services rendered
         by RVM in the amount of $397,500 for the year ended  November 30, 2003.
         The  Company  paid RVM $ 265,000  in cash and issued  90,000  shares of
         common  stock  valued at $1.00 per  share.  As of  November  30,  2003,
         $42,500  remains  outstanding  and is  included  in  accounts - payable
         related parties.

         During the year ended  November 30, 2003,  the Company  issued  233,204
         shares  of  common  stock  at $1.00  per  share  to RVM to  convert  an
         outstanding debt owed by the Company to RVM at November 30, 2002.

         The Company  incurred  Directors  fees and  expenses  totaling  $27,500
         during the year ended November 30, 2003, of which $3,500 is included in
         accounts payable - related at November 30, 2003.

         During the years ended November 30, 2003 and 2002 the Company  incurred
         total  costs  with  Harbor   Petroleum   of   $344,294   and   $355,817
         respectively.  Of those amounts  $254,084 in 2003, and $266,617 in 2002
         were for  reimbursement  of costs incurred by Harbor to acquire leases,
         and $90,210 in 2003 and $89,200 in 2002 represented consulting fees and
         expenses from Harbor.

         In connection  with the  acquisition of Pannonian,  the Company assumed
         liabilities  due from Pannonian to related parties  including  advances
         from the founder of the Company of $39,500;  notes  payable and accrued
         interest due to the  President of Pannonian of $37,508;  notes  payable
         and accrued  interest to a company  wholly  owned by the  President  of
         Pannonian of $44,400;  and accounts payable to Directors of the Company
         for services rendered and costs advanced of $63,346.

         During the period ended  November  30,  2002,  the Company (i) incurred
         consulting fees for services rendered by its  officers/directors in the
         aggregate amount of $102,000,  of which $38,000 is included in accounts
         payable;  and (ii) agreed to pay RVM an  aggregate  $692,500,  of which
         $233,204 is due as of November 30, 2002, as follows:

            o    $162,000 for monthly management fees through November 30, 2002;
            o    $100,000 for finding oil and gas projects in Wyoming;


                                      F-20
<PAGE>

                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)

            o    $230,500 for reimbursement of costs and expenses;
            o    $200,000 for services rendered paid in common stock (Note 6).

         At November 30, 2002, the Company had advanced  $25,000 to Pannonian in
         contemplation of the merger.

NOTE 9 - SEGMENT REPORTING

         In June 1997, SFAS 131, "Disclosure about Segments of an Enterprise and
         Related  Information," was issued,  which amends the requirements for a
         public enterprise to report financial and descriptive information about
         its reportable  operating segments.  Operating segments,  as defined in
         the pronouncement, are components of an enterprise about which separate
         financial  information is available and that are evaluated regularly by
         the Company in  deciding  how to allocate  resources  and in  assessing
         performance.  The financial  information  is required to be reported on
         the basis that is used  internally for evaluating  segment  performance
         and deciding how to allocate resources to segments.

         The Company has one reportable segment, the exploration and development
         of oil and gas properties.  Substantially  all of the Company's oil and
         gas exploration and  development  activities have been  concentrated in
         the United States, primarily Texas and the Rocky Mountain region.

NOTE 10 - COMPREHENSIVE INCOME

         There are no  adjustments  necessary  to the net (loss) as presented in
         the accompanying statement of operations to derive comprehensive income
         in accordance with SFAS 130, "Reporting Comprehensive Income."

NOTE 11 - COMMITMENTS AND CONTINGENCIES

         a)   The  Company  may  be  subject to various possible  contingencies,
              which are derived  primarily from  interpretations  of federal and
              state  laws  and  regulations affecting  the oil and gas industry.
              Although management believes it has complied with the various laws
              and  regulations,  new rulings and interpretations may require the
              Company to make future adjustments.

         b)   In  October  2002, the  Company  entered  into  a lease for office
              facilities  in Miami,  Florida,  through  June 30, 2005. Under the
              terms  of the lease the Company paid a deposit of $9,960.  Minimum
              payments due under this lease are as follows:

              Year ending November 30,

                  2004     $45,490
                  2005      26,738

              Rent  expense for the  years ended November 30, 2003 and 2002, was
              $50,565, and $3,924, respectively.


                                      F-21
<PAGE>
                            GALAXY ENERGY CORPORATION
                       (FORMERLY GALAXY INVESTMENTS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         c)   In  January  2004,  the  Company  entered  into a lease for office
              facilities in Denver, Colorado, through February 27, 2007. Minimum
              payments due under the  lease are  $36,233,  $50,541,  $53,517 and
              $13,564 for the years ended November 30, 2004, 2005, 2006 and 2007
              respectively.


NOTE 12 - SUBSEQUENT EVENTS

         In December 2003, the Company completed the sale of 2,503,571 shares of
         its common  stock at $1.40 per share and  warrants to purchase  500,715
         common  shares at $2.71 per share in a private  placement  exempt  from
         registration  with the Securities and Exchange  Commission  pursuant to
         Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
         promulgated thereunder. Gross proceeds from the sale were $3,505,000.

         In December 2003, the Company entered into a Sale and Escrow  Agreement
         with Pioneer Oil LLC to acquire all of Pioneer's  interest in those oil
         and gas leases and coalbed methane gas wells  previously  covered under
         the Lease Acquisition and Drilling Agreement dated October 9, 2002. The
         Company paid $1,000,000 in cash and issued  2,000,000  shares of common
         stock, valued at $1.40 per share, to acquire the leases.

         In  December  2003,  45,763  warrants  issued to a  placement  agent in
         connection with the Convertible  Debenture  offering in September 2003,
         were exercised for shares of common stock at $.59 per share.

         In January 2004,  certain  holders of Convertible  Debentures  totaling
         $900,000 converted their debentures to 1,524,424 shares of common stock
         in accordance with the terms of the Convertible Debenture offering.

         In January 2004 the Company  entered into a Purchase and Sale Agreement
         with DAR, LLC, a Wyoming limited  liability  company to acquire certain
         oil and gas leases in the Powder River Basin area of Wyoming. Under the
         terms of the  Agreement,  the Company  paid  $163,655  in cash,  issued
         3,000,000  shares of common  stock,  valued  at $1.80  per  share,  and
         executed a promissory note for $2,600,000,  with interest payable at 6%
         per annum.  The  promissory  note  requires  payments of  $1,000,000 on
         January 15, 2005, and $1,600,000 on June 24, 2005.

         In January 2004, the Company  completed the sale of 6,637,671 shares of
         its common stock at $1.80 per share and warrants to purchase  1,327,555
         common  shares at $4.05 per share in a private  placement  exempt  from
         registration  with the Securities and Exchange  Commission  pursuant to
         Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D
         promulgated thereunder. Gross proceeds from the sale were, $11,947,800.


                                      F-22