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                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

(Mark One)

[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 For the fiscal year ended July 31, 2002

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

                For the transition period from ______ to _______

                       Commission File Number:  000-29475

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

                       Nevada                         88-0491630
            (State or other jurisdiction           (I.R.S. Employer
          of incorporation or organization)       Identification No.)


      700 - 101 Convention Centre Drive, Las Vegas, NV        89109
          (Address of principal executive offices)          (Zip Code)


                  (Issuer's telephone number):  1-866-404-3311

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

         Securities registered under Section 12(g) of the Exchange Act:
                    COMMON STOCK, PAR VALUE $0.001 PER SHARE
                                (Title of Class)

================================================================================

         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not 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. [ ]

         The registrant did not report any revenues for the fiscal year ended
July 31, 2002.

         The aggregate market value of the voting stock held by non-affiliates
on July 31, 2002 was $ 2,480,000. The number of shares outstanding of the
Registrant's only class of common stock was 15,500,000 on July 31, 2002.

                  DOCUMENTS INCORPORATED BY REFERENCE.  None.



                               TABLE OF CONTENTS

                                                                           PAGE
PART I

Item 1.       Description of Business                                         2
Item 2.       Description of Property                                        19
Item 3.       Legal Proceedings                                              19
Item 4.       Submission of Matters to a Vote of Security Holders            20

PART II

Item 5.       Market for Common Equity and Related Shareholder Matters       20
Item 6.       Management's Discussion and Analysis or Plan of Operation      22
Item 7.       Financial Statements                                           23
Item 8.       Changes in and Disagreements With Accountants on Accounting
                and Financial Disclosure                                     26

PART III

Item 9.       Directors, Executive Officers, Promoters and Control Persons;
                Compliance with Section 16(a) of the Exchange Act            27
Item 10.      Executive Compensation                                         30
Item 11.      Security Ownership of Certain Beneficial Owners and Management 31
Item 12.      Certain Relationships and Related Transactions                 33
Item 13.      Exhibits and Reports on Form 8-K                               34

Signatures                                                                   35

Certifications                                                               36
==============================================================================

This Annual Report on Form 10-KSB contains express or implied forward-looking
statements.  Additional written or oral forward-looking statements may be made
by the Company from time to time in filings with the Securities and Exchange
Commission ("SEC"), in its press releases, periodic conference calls or
otherwise.  The words "believes," "expects," "anticipates," "intends,"
"forecasts," "projects," "plans," "estimates" and similar expressions identify
forward-looking statements.  Such statements reflect the Company's current views
with respect to future events and financial performance or operations and speak
only as of the date the statements are made.  Such forward-looking statements
involve risks and uncertainties and readers are cautioned not to place undue
reliance on forward-looking statements.  The Company's actual results may differ
materially from such statements.  Factors that cause or contribute to such
differences include, but are not limited to, the Company's limited operating
history, unpredictability of operating results, intense competition in various
aspects of its business, the risks of rapid growth, the Company's dependence on
key personnel, uncertainty of product/service acceptance, changes in laws and
regulations, changes in economic conditions and an inability to obtain
financing, as well as those discussed elsewhere in this Form 10-KSB.  Although
the Company believes that the assumptions underlying its forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized.  The inclusion of such forward-
looking information should not be regarded as a representation by the Company or
any other person that the future events, plans or expectations contemplated by
the Company will be achieved.  The Company undertakes no obligation to publicly
update, review or revise any forward-looking statements to reflect any change in
the Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements is based.

<PAGE>1

                                     PART I


ITEM 1.    DESCRIPTION OF BUSINESS.

Overview

Nature of Business

Malahat Energy Corporation ("Malahat" or the "Company") is a Nevada corporation
that was formed on July 26, 1994. The Company is currently a development stage
enterprise and is engaged in the development of BioFuel systems to convert
organic waste material into an economical, synthesized fuel gas for energy
consumption. The Company completed a reverse merger with a publicly traded
"Shell" company (See Below) in May 2001 and trades on the Over the Counter
Bulletin Board under the symbol "MAHT".

Reorganization of Sarenghetti Enterprise

Effective May 4, 2001, Sarenghetti Enterprises ("SARG") entered into a
reorganization and stock exchange agreement (the "Agreement") with Malahat
Systems Corporation ("MSC"). Pursuant to the terms of the Agreement, all of the
6,765,929 outstanding common shares of MSC were exchanged for shares of SARG on
a 1 to 1 basis or 6,675,929 shares of common stock of SARG. Immediately after
the reorganization SARG had a total of 6,765,929 shares issued and outstanding.
As a result, MSC is a wholly owned subsidiary of SARG. Subsequent to May 4,
2002, the Company completed a reverse merger (See Below).

Reverse Merger

On May 4, 2001, Granada Mineral products, Inc. ("GMP") entered into an agreement
and plan of reorganization and merger (the "plan" or "merger") with SARG.
Immediately prior to the merger, GMP had 100,000,000 shares authorized and
5,425,000 shares issued and outstanding. Effective May 9, 2002 and pursuant to
the merger, all of the 6,765,929 outstanding common shares of SARG were
exchanged for shares of GMP on a 1 to 1.49 basis or into 10,075,000 shares of
common stock of GMP for a total of 15,500,000 shares of common stock issued and
outstanding.

Immediately after the merger, the officer and director of GMP resigned and the
management of SARG controlled such positions; therefore effecting a change of
control. As a result the Company accounted for the transaction as a reverse
merger whereby SARG was considered the accounting acquirer as it retained
control of GMP after the merger. The company simultaneously changed its name to
Malaht Energy Corporation and changed its fiscal year end from December 31, to
July 31. The results of GMP previously filed in prior years are not included
herein. The related financial statements are the results of operations of SARG.

<PAGE>2

Since GMP's continuing operations were insignificant, a pro forma consolidated
statements of operations are not presented here.

The Company's principal executive offices are located at 700 - 101 Convention
Centre Drive, Las Vegas, NV 89109.  The telephone number of the Company is
1-866-404-3311.

The Company main operations office is located in Delta, British Columbia,
Canada.

Description of Business

Malahat has developed a proprietary BioFuel System that the Company believes can
deliver a reliable, price competitive on-site power source for energy intensive
commercial and industrial operations.  The BioFuel System produces a green,
renewable fuel called SynGas, from biomass wastes, such as wood residues; sugar
cane residuals rice husks or other organic waste materials.

The Company's BioFuel System produces a clean, efficient replacement for fossil
fuels, such as diesel used in electrical generators and natural gas used in
heating boilers.

The BioFuel System can be used to generate thermal or electrical energy.  The
Company's BioFuel System breaks down the complex structures of various biomass
feed stocks by the action of heat.  This process, called pyrolysis, results in
the division of the large molecules and their reformation into a green,
renewable SynGas.  The Company's BioFuel System can therefore produce high-
value energy such as electricity without the need for expensive steam generation
or steam turbine systems.  This SynGas can be used as a replacement fuel in
reciprocating combustion engines, used for the production of electricity, or as
a replacement for natural gas in boiler applications and gas fired dry kilns.

The Company's technology is an environmentally friendly energy solution in the
rapidly expanding alternate energy field. Having completed the research and
development phase on the M500 BioFuel System the Company  is planning   the
distribution of its first commercial model in the near future.  The Company has
identified the greenhouse industry, waste disposal industry and developing
countries as the three areas where the Company believes its BioFuel System will
receive wide acceptance.  The Company also believes that it has developed an
efficient business model using an equipment lease agreement targeted directly at
the greenhouse industry.

In addition to commercialization of its operations, the Company's future
development plans include designing and building larger scale BioFuel Systems
which will produce more electricity or heat energy, and the adaptation of the
BioFuel System to other biomass feed stocks such as municipal solid waste, waste
paper, waste plastics and crude oils.  Additionally, the Company is in the
development stages of a second generation BioFuel System, the M600, which will
produce effectively the same electrical or heat energy as the M500 at
substantially reduced capital cost.

<PAGE>3

The Company believes its BioFuel System will also benefit the agricultural and
forestry sectors. Firstly, it will provide the industry with an efficient method
of disposing of its wood wastes in compliance with government guidelines.
Secondly, it will provide a method of disposal of biomass wastes at a relatively
low capital cost when compared to other technologies. Thirdly, it will provide
them with low cost energy.

The Technology

The Company developed the M500 BioFuel System through several years of prototype
testing.  The M500 is capable of processing about six tons (metric) of waste
wood per day.  It is fed by an automated material handling system capable of
sizing the incoming feedstock.  It has a computerized control system that can be
operated in a manual or fully automatic mode.  In the automatic mode, a
programmable logic control monitors the temperature throughout the system and
continuously adjusts the fuel rate and air mix, and can be monitored from remote
locations.  The M500 produces sufficient fuel to produce up to 240 Kilo Watt
Hours (KWHs) of electrical energy per hour.

The Company's BioFuel System requires organic waste, heat, water and air to
produce BioFuel through a conversion process known as pyrolysis.

Pyrolysis is the thermal degradation of material in the absence of oxygen.

Malahat's patent pending system employs computer-controlled sensors to regulate
the elements with extreme precision, producing a high quality BioFuel.

The Company's BioFuel System breaks down the complex structures of various
biomass feed stocks by the action of heat.  This results in the division of
large molecules and their reformation into a green, renewable SynGas. Compared
with other available gasification technology, the Company's Biofuel System
achieves a greater breakdown making the gas suitable for use in a reciprocating
combustion engine.  The result is that the BioFuel System can produce high-value
energy such as electricity without the need for expensive steam generation or
steam turbine systems.  Also, the gas can be utilized as an economical, green
replacement for natural gas in greenhouse operations and gas fired dry kilns.

The Company has achieved a design breakthrough in a BioFuel System unit that is
simple and easy to operate.  As a result, the Company believes its BioFuel
Systems are competitive with conventional energy systems in a wide range of
situations.

<PAGE>4

The Company has research and development plans for an M3000 System as well as a
turbine system.  The M3000 System will have essentially the same material
handling and control system as the M500 but it should be capable of processing
up to 36 tons (metric) of wood waste per day and producing up to 1.5 Mega-Watt
Hours (MWH) of electricity per hour.  Customers who have a requirement to
process more wood waste can implement multiple units connected together.  All
models can be installed in a multiple unit system.  In order to develop the
technology for a steam turbine system, while not vastly different than supplying
fuel to reciprocating engines, it will require changes to the control systems.
Such development will be driven by the growing interest in small turbine engines
due to their efficiency over reciprocating engines. The Company also planning
the development stages for an M600 BioFuel System that is anticipated to produce
the equivalent output of the M500 at substantially reduced capital costs.

Environmental Considerations

The BioFuel System produces a clean, permanent BioFuel, which consumes wood
chips, and other organic wastes that usually become landfill.  Millions of tons
of wood waste become landfill each year in North America.  Malahat's BioFuel
Systems can use these mountains of wood waste and can convert them into a
renewable energy resource.

Reducing landfills decreases the amount of methane gas and carbon dioxide (CO2)
emitted into the atmosphere.

The use of the SynGas from the BioFuel System also reduces the level of
greenhouse gas emissions due to the absence of sulphur-containing compounds.
There are no atmospheric emissions from the BioFuel System as the gas is fed
directly into boilers or into the intake manifold of a reciprocating engine.

Burning fossil fuels release large amounts of carbon dioxide into the
atmosphere.  The company's technology is a CO2 neutral power solution. BioFuel
combustion does not add more carbon dioxide to the atmosphere than would occur
through the natural decomposition of the organic waste.

Malahat may earn valuable carbon credits in the developing carbon credit trading
market.

<PAGE>5

Fossil fuels, such as diesel, generate sulphur dioxide, nitrous oxide and other
hazardous toxics.  The company's syngas burns clean.  It can replace diesel and
natural gas in some industrial applications.

Competition

The Company's BioFuel System provides an attractive option for situations
requiring the production of both thermal energy and electric power.  The
Company's product produces an extremely clean synthetic fuel that requires
virtually no filtering (tars and impurities are eliminated).  The fuel is
suitable for use in either reciprocating engines to generate power or in boilers
for the production of thermal energy.  Most importantly, the manufacturing and
engineering costs associated with deploying the system are comparatively low as
to  the operating costs of the System.

Through the company's discussions with Natural Resources Canada, input from a
Danish gasifier manufacturer focused on producing thermal energy, and
observations made during a major renewable energy conference in New Delhi, the
Company has concluded that most competitors produce gasifiers for contexts
within thermal applications involving boilers to heat water, or power generation
using steam and gas turbine engines (the high capital cost of these is a
significant disadvantage for small applications).  In India, gasifiers have been
coupled with low cost and low quality reciprocating engines. However, these
gasifiers produce a "dirty" fuel that requires extensive filtering and is
unsuitable for engines manufactured and utilized in highly industrialized
countries.

There are many advanced thermal conversion technologies (including gasification)
being developed for biomass and biomass wastes.  However, at this stage very few
are fully commercial or even commercially available.  In general, most of these
technologies, particularly those for large-scale applications, are at a point of
transition from R&D to commercialization.  In order for advanced thermal
technologies to achieve market acceptance, vendors will need to offer proven,
reliable and fully integrated waste disposal or biomass conversion solutions
that take full advantage of the technology.

In the Company's analysis the market for gasification systems was segmented
according to fuel type and scale of facility.  Many of the Company's competitors
offer very large solutions.  The Company's target market segments for its
current technology are located in specific markets for very small and small
systems using biomass as the fuel source. The Company has identified several
companies worldwide that are developing , to one degree or another, very small,
and small and medium   -scale gasification systems to serve many of the target
market segments of interest to Malahat.  In addition, the Company has identified
several other emerging technology companies with small-scale gas cleaning and
conditioning technologies in the demonstrator and pilot stages.  As these
companies combine technologies they  can potentially be a competitor in the
company's niche markets in the future.Known competitors are detailed below,
although they are not known to be presently competing for the Company's target
customer base.

<PAGE>6

BG Systems is located in Baltimore MD and classed as fully commercial because
the system it is producing and marketing was developed by Ankur Scientific
Energy in India.  Since 1989, Ankur has completed over 400 installations in
India, most producing electricity for water pumping.  About 25% of these plants
produce heat and power for industrial clients using modules ranging in size from
40KW to 500 kW.  The Company believes that the Indian units are quite primitive
in terms of fuel, feed,  automation, and gas cleaning technology, thus requiring
residual clean-up.

Primenergy, a subsidiary of PRM Energy of Hotsprings AK, is the most well-
established and successful competitor. Primenergy concentrates on the provision
of gasifiers to the food and agricultural industries for use in drying and
energy production applications.  It has 5 installations in the U.S., 1 in Italy,
1 in Costa Rica, and 8 in Malaysia.  It specializes in fuels like rice hulls
that can cause slagging problems.  Primenergy can supply capacities ranging from
800 Kilo Watt (KWH) to 5MWH.  Their largest installation uses three KC-18 units
to produce a total of 15MW of power.  At this time it is believed to be a
thermal application only.

Waterwide, based in New Zealand, put its first units into service in the early
1980's specifically for foodstuff drying.  Waterwide claims that its 'close
coupled gasifier' is the only heater (including gas, oil and other fueled types)
that can 'directly fire' many foodstuffs without causing contamination or off
flavoring.  Waterwide also supplies gasifiers for use in lumber kiln, sludge
drying and Municipal Solid Waste (MSW)-to-energy applications. In recent years,
Waterwide has made technological advances that broaden the range and quality of
feedstock its units can process, generate higher efficiencies and provide a
smokeless operation.  It is the Company's understanding that this is a near
incinerator application as opposed to being a true gasification system.

In 1993, Analog Volund developed a full-scale up-draft gasification system that
supplies district heat to a community of 560 homes in Denmark.  The gas is
burned in a low NOx gas burner built into a 4 MW hot water boiler. The heat
efficiency is 105% (net calorific value) based on wood chips with 50% moisture
content.  Early in 2000, the plant was upgraded to a CHP plant. Two gas engines
were installed with a total electric output of 1.3 MW (soon to be raised to 1.5
MW). The thermal output from the engines is 2.1 MW and an additional 2 MW of
heat can be produced from the gas boiler.  This company has only one unit in
operation.

<PAGE>7

Brightstar of Houston, TX is now owned by Energy Developments Ltd (EDL) of
Australia.  EDL is an independent power producer with 282MW of power generation
facilities in the U.K., Australia, the U.S. and Taiwan.  EDL has developed an
integrated materials recovery and energy production system that uses the
Brightstar gasifier for the thermal conversion step.  The Brightstar unit
utilizes a two-stage pyrolysis/steam reforming process to produce a gas with a
high proportion of H2 and CO having a calorific value of 11.2 to 14.9 MJ/Nm3.
The syngas is virtually free of particulates.  Tar and char are collected and
removed for disposal as a dry residue.  The gasifier design is modular and
allows feed rates from 1 to 20 tonnes per hour.  Brightstar's original target
markets included wood panel plants, and pulp and paper mills. The system is now
being integrated into EDL's MSW processing installations in Australia, the U.K.
and Europe.  The first commercial MSW plant in the U.K., commissioned in 2000,
has a capacity of 50,000 tons per annum (tpa) and produces just over 5MW.

Current plans are to expand this plant to three times that size.  With the
financial backing of EDL and its own excellent technology, Brightstar may be
formidable competition, although in very large applications only.

The Company has not encountered competition from these companies in its
negotiations with potential customers in its target markets.  The Company has
identified that its customers are keen to reduce their existing energy costs,
predominantly natural gas.  The Company through its negotiations with its
potential customers has not become aware of direct competition from companies
developing gasification or biomass conversion technologies and has no reason to
believe that these technologies will provide substantial competition in the
future that will prohibit the Company from executing its business plan.

Proprietary Rights

The Company's success and ability to compete are dependent, in part, upon its
ability to develop and maintain the proprietary aspects of its technology and
operate without infringing on the proprietary rights of others.  The Company has
a US and a Canadian patent application pending.  The Canadian patent was filed
on October 20, 2000; the US patent was filed on October 18, 2001.  The Company
has continued to file with the patent offices and is still moving forward with
the patents.  There can be no assurance that the Company will be successful in
having a patent issued in the United States or in Canada.

<PAGE>8

In addition, the Company relies on a combination of copyright and trade secret
laws, confidentiality procedures and contractual provisions to protect its
intellectual property and proprietary rights. There can be no assurance,
however, that the Company will be able to protect such rights.

The Company requires employee and third-party non-disclosure and confidentiality
agreements.  It seeks to protect its technology, process, software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.  It cannot be certain that others will not
develop technologies that are similar or superior to its technology or design
around the copyrights and trade secrets it owns.  Despite these precautions, it
may be possible for unauthorized parties to copy portions of the Company's
products, reverse engineer, or obtain and use information that is regarded as
proprietary. Cost of Compliance with Environmental Regulations

The Company currently has no costs associated with compliance with environmental
regulations.  However, there can be no assurance that the Company will not incur
such costs in the future. Employees

The Company is in the process of hiring additional staff.  As of July 31, 2002,
there were  five full-time employees and three part-time employees, of whom 2
were employed in sales and marketing, 4 in engineering, development and
operations, and 2 in management and finance.  None of its employees are
represented by a union.  The Company has not experienced any work stoppages and
consider its relations with its employees to be good.  The Company intends to
increase the number of employees as required to support its business plan and
growth.  The Company believes that additional staffing will be necessary to
execute the business initiatives scheduled for thecoming year.

Risk Factors

There are a number of uncertainties and risk factors that may bear on the
ability of the Company to achieve its business goals and reduce the possibility
of successfully fulfilling its plans. The risks and uncertainties described
below are not the only ones facing the Company. If any of the following risks
actually occur, its business, financial condition or results of operations could
be materially adversely affected.  In that case, the trading price of the common
stock could decline, and you may lose all or part of your investment in its
common stock.

<PAGE>9

The Company has a limited operating history.  The Company has not yet generated
significant revenue from its business operations.  As a new operating entity,
the Company faces risks and uncertainties relating to its ability to
successfully implement its strategy.  Some of these include:

        - ability to develop and sustain revenue growth;
        - managing expanding operations;
        - competition;
        - attracting, retaining and motivating qualified personnel;
        - maintaining and developing new, strategic relationships; and
        - ability to anticipate and adapt to the changing energy market and any
           changes in government regulation.

The Company has incurred losses and expects losses may continue.  The company
has incurred operating losses since its inception and expect to continue to
incur losses in the foreseeable future.  As July 31, 2001, it had an accumulated
deficit of $2,222,958. To date, the Company has not produced any revenue;
operations have been funded through government grants and private equity.  The
Company needs to generate significant revenue to achieve profitability and
cannot be assured that it will realize sufficient revenue to achieve
profitability.  The Company also expects to incur significant research and
development, product development, sales and marketing and administrative
expenses and, as a result, expects to continue to incur losses for the
foreseeable future.

The Company may not be able to obtain sufficient funds to grow its business and
any financing may be on terms adverse to the interests of the Company's
shareholders.  The Company may need financing to continue to grow its business.
If financing is not available when required or is not available on acceptable
terms, the Company may be unable to fund its expansion, successfully promote its
business, take advantage of business opportunities or respond to competitive
pressures, any of which could have a material adverse effect on the Company's
ongoing business.  If the Company is able to raise funds, and it does so by
issuing equity securities, holders of the Common Stock may experience
significant dilution of their ownership interest and holders of these securities
may have rights senior to those of the current holders of the Common Stock.  If
the Company obtains financing by issuing debt securities, the terms of these
securities could restrict or prevent the Company from paying dividends and could
limit its flexibility in making business decisions.  Because the Company expects
to generate losses for the foreseeable future, it does not expect that income
from its operations will be sufficient to meet its capital needs.  The Company
expects to raise funds in the future in order to fund its anticipated growth,
more aggressive marketing programs or the acquisition of complementary
businesses, technologies and services.  Obtaining financing will be subject to a
number of factors including: market and economic conditions; the Company's
financial condition and operating performance; and investor sentiment.  These
factors may make the timing, amount, terms and conditions of additional
financing unattractive for the Company.

<PAGE>10

The Company cannot be certain that its technology and products will achieve
market acceptance or whether it will be able to achieve significant revenue. The
company is therefore very limited in its ability to predict future revenue.  The
combination of the company's limited operating experience, the uncertain market
acceptance for its products, and other factors that are beyond its control make
it difficult for the company to accurately forecast its revenue on a quarterly
and annual basis.

The Company's business includes research and development, engineering,
modification and introduction of the M500 unit and new products and may include
entry into new business segments.  Such initial entry into any new segment has
no historical proven data or prior business records.

Company's Products

The Company may not be able to successfully introduce new or enhanced products
and services.  The failure of any new or enhanced products and services to
achieve market acceptance and generate revenue could result in a material
adverse effect on the Company's revenues.  The Company expects to introduce
enhanced products and services in order to generate additional revenues, attract
and retain more employers and respond to competition.  Any new or enhanced
product or service introduced that is not favorably received could damage the
Company's reputation and the perception of its service mark and brand.

The Company has a limited product line and is dependent on the successful
commercialization of its M500 Biofuel System or any successors (for example the
M600 BioFuel System under development).  It may also be necessary to develop in
a timely manner new and enhanced products that achieve market acceptance.  The
Company has only one principle product that has passed significant testing and
trials and is ready for installation at customer sites.  In order to experience
future revenue targets the successful implementation and customer acceptance of
its M500 BioFuel System is essential.  Even if the Company is able to develop
and commercially introduce new technology, products or enhancements, they may
not achieve market acceptance.

Improvements may also be made to the existing alternatives to the Company's
products that could render the company's technology less desirable or obsolete.

Customers may defer orders in anticipation of new products from the Company or
other providers of alternate energy systems.

<PAGE>11

The timing of orders from its customers and the possibility that these customers
may change their order requirements with little or no advance notice to the
company.

Potential customers of the Company's technology may have invested substantial
resources in their existing power systems and, as a result, may be reluctant or
slow to adopt a new approach.  Moreover, the Company's technology is an
alternative to existing fossil fuel sources of energy and may never be accepted
by the Company's customers or may be made obsolete by other advances in energy
technology.

Alternative energy as a new, viable source of energy

There is uncertainty regarding the ongoing need for on site power generation as
well as the uncertainty regarding the adoption of the Company's current and
future products, including its recently introduced M500 BioFuel System which it
expects to be commercially introduced by the end of 2002; and the rate of growth
of the markets for its products.

The Company's business is dependent on a market for on-site biomass power
technology, and if this market does not expand as it anticipates, or if
alternatives to its products are successful, its business will suffer.  The
market for biomass power technology is rapidly evolving and it is difficult to
predict its potential size or future growth rate.

Biomass Feedstock Supply

The Company's technology and business model depend on the availability of
sufficient biomass feedstock.  The Company's research suggests that the
availability of feedstock and the logistics of transportation of sufficient
feedstock to customers' premises at an acceptable cost can be achieved for the
present and foreseeable future.  However, any major increase in the costs of
supplying feedstock can adversely affect the viability of the Company's business
model.  As biomass to energy technology becomes more established and the
Company's competitors prove to be successful in commercializing their technology
there is a risk that biomass feedstock such as wood chips could become
commoditized increasing the costs of supply and delivery thereby affecting the
profitability of the Company's operations.

<PAGE>12

Technology and Intellectual Property

The M500 BioFuel System incorporate    the Company's proprietary technology, and
the Company is dependent on its intellectual property for the success of its
business.  Without control over its intellectual property the Company may be
unable to compete, if its technology and secrets fall into the hands of
competitors.  The Company has filed for patent protection in both the United
States and Canada.

The Company intends to use all efforts to maintain the integrity of its
intellectual property, however, unauthorized parties may attempt to copy or
otherwise obtain and use its technology.  Monitoring unauthorized use of the
Company's BioFuel Systems may be difficult, especially as the system is placed
on customers' premises, and it cannot be certain that the steps it has taken
will prevent unauthorized use of its technology.  The Company may also be unable
to defend its intellectual property rights in foreign countries where applicable
laws may not protect its proprietary rights as fully as in the United States. In
addition, the measures the Company undertake may not be sufficient to adequately
protect its proprietary technology and may not preclude competitors from
independently developing products with functionality or features similar to
those of the company's technology.

Failure to adequately protect the Company's intellectual property rights could
permit others to appropriate its proprietary technology.  The unauthorized
reproduction or other misappropriation of the Company's proprietary technology
could enable third parties to benefit from its technology and brand without
paying the Company.  If this were to occur, the Company's revenues could be
materially adversely affected, and the value of the Company's mark and brand
could be diminished.  The steps the Company has taken to protect its proprietary
rights may not be adequate to deter misappropriation of proprietary information.
The Company may not be able to detect unauthorized use of its proprietary
information or take appropriate steps to enforce its intellectual property
rights.  The laws of other countries in which the Company may market its
services in the future are uncertain and may afford little or no effective
protection of the Company's intellectual property.  If the Company resorts to
legal proceedings to enforce its intellectual property rights, the proceedings
could be burdensome and expensive.  The proceedings also could involve a high
degree of risk.

Defending against intellectual property infringement claims could be time
consuming and expensive, and the Company may be liable for infringing on the
intellectual property rights of others.  If the Company is not successful in
defending against these claims, the Company could be subject to significant
damages and the disruption of its business.  Successful intellectual property
infringement claims against the Company could result in monetary liability or a
material disruption in the conduct of its business.  The Company cannot be
certain that its products, services, content and brand do not or will not
infringe valid patents, copyrights or other intellectual property rights held by
third parties.  The Company expects that infringement claims in its markets will
increase in number as more participants enter the markets.  The Company may be
subject to legal proceedings and claims from time to time relating to the
intellectual property of others in the ordinary course of its business. The
Company may incur substantial expenses in defending against these third party
infringement claims, regardless of their merit.

<PAGE>13

Sales, Marketing and Distribution

The Company is dependent on certain distribution channels for marketing its
BioFuel Systems to the greenhouse industry and therefore management of its
distribution relationships is essential to the company's future success in
delivery of its technology to this industry.  The future growth of the company's
business will depend in part on its ability to create new relationships with
partners for the commercialization of its technology in other industries, to
identify and develop additional channels for the distribution its technology and
to manage these relationships.  The company will also look to identify and
develop relationships with additional partners that could serve as distributors
for its technology.

The Company has developed a business model to compete for customers business at
a discount to their existing energy pricing arrangements.  Competition could
lead to a decrease in its prices as well as a reduction in sales, lower margins
and decreased market share.  These and other competitive pressures could prevent
it from competing successfully against current or future competitors and could
materially harm its business.

Raw Materials and Suppliers

For the most part, the Company's products are custom designed and manufactured
with certain components that can be bought "off the shelf," and are not intended
to be produced for inventory.  The Company's products are either obtained from
local sources or manufactured.  Generally, lead-time for delivery of materials
or components ordered will be delivered on time, or that the manufacture of the
component parts will be completed on time, and if that is not the case, the
manufacture of the Company's BioFuel Systems can be delayed.

Manufacturing

The Company has little experience manufacturing its  BioFuel Systems, having
only built pre-commercial prototypes to date, and the Company is dependent on
outsourcing this function to third party manufacturers.  While the Company has
effectively managed this process for individual units the Company has no
experience in replicating its technology in larger quantities.  In addition, the
Company has yet to sign a manufacturing agreement and may have difficulty in
procuring production of its BioFuel Systems at resonable costs.  To be
financially successful, it will have to manufacture its  BioFuel Systems in
commercial quantities at acceptable costs while also preserving the quality
levels and integrity achieved in manufacturing the  BioFuel Systems in limited
number.  This may present technological and engineering difficulties for the
product manufacturer that could adversely affect the results of the Company's
business.  There can be no assurance that it will be successful in executing a
satisfactory manufacturing agreement.

<PAGE>14

The Company may not be successful in concluding a manufacturing capability in
time to meet its  BioFuel Systems commercialization schedule or to satisfy the
requirements of its customers.

The Company has intentionally chosen to use only a limited number of
manufacturers to produce components for its technologies.  In the opinion of
management, the Company can have access to a readily available supply of raw
materials and components for all of its anticipated products from various
sources and does not anticipate any major difficulties in obtaining such raw
materials or components necessary for its business.

Competition

The Company is not aware of any market ready direct competition, however, the
Company is aware that there are other companies throughout the world developing
or attempting to develop gasification processes, pyrolysis and conversion of
energy.  Such companies may be developing products and technologies similar in
nature to the the Company's BioFuel Systems, and the Company competes indirectly
with companies that are developing other types of energy technologies.  The
Company is aware that many of its current and potential competitors have longer
operating histories, significantly greater resources, broader name recognition
and stronger financial assets.  As a result, these competitors may have greater
credibility with its existing and potential customers.  They also may be able to
adopt more aggressive pricing policies and devote greater resources to the
development, promotion and sale of their products than it can to the Company's,
which would allow them to respond more quickly than it to new or emerging
technologies or changes in customer requirements.

Employees

The Company has also expanded its staff and may continue to expand its staff and
facilities thereby increasing its expense levels in anticipation of future gains
in revenue.  If revenue does not develop as anticipated, the company will incur
losses.

If the company is to realize full commercialization of its BioFuel Systems
there will be significant expansion the size of its staff as well as its
physical facilities and the scope of its operations.  The Company may experience
difficulty in managing the expansion of its operations to achieve its sales
goals.  The Company's prospects and financial condition could be harmed if it
encounters difficulties in effectively managing the budgeting, forecasting and
other process control issues presented by such a rapid expansion.

<PAGE>15

The Company's business and growth will suffer if it is unable to hire and retain
highly skilled personnel.  If the Company is unable to hire and retain highly
skilled personnel, its growth may be restricted, the quality of its products and
services reduced and its revenues may be reduced or grow at a slower rate than
expected.  The Company's future success depends, in large part, on its ability
to attract, train, motivate and retain highly skilled employees.  Competition
for highly skilled employees is intense.  The Company may be unable to retain
its skilled employees or attract, assimilate and retain other highly skilled
employees in the future.  The Company has, from time to time, in the past,
experienced, and it may experience in the future, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications.

The Company may not be able to effectively manage its expanding operations. To
execute its business plan and strategy, the Company must continue to grow
significantly.  If the Company is not able to expand its operations in an
efficient manner, its expenses could grow disproportionately to revenues or its
revenues could decline or grow at a slower rate than expected, either of which
could have a material adverse effect on its business, results of operations and
financial condition. The Company expects that the number of its employees will
double in the next fiscal year and may continue to increase for the foreseeable
future. The Company's growth is expected to result in increased responsibility
for both existing and new management personnel.  Such growth has placed, and
anticipated future growth combined with the requirements the Company faces as a
public company will continue to place, a significant strain on the Company's
management, operations, systems and resources.  The Company expects that it will
need to continue to improve its financial and managerial controls and reporting
systems and procedures, and will need to continue to expand, train and manage
its workforce.  The Company's success depends to a significant extent on the
ability of its executive officers and other members of management to operate
effectively both independently and as a group.  The Company will also need to
continue to expand and maintain close coordination among its products, services
and technology, finance and administration and sales and marketing
organizations. There can be no assurance that if the Company continues to grow,
management will be effective in attracting and retaining additional qualified
personnel, expanding its physical facilities, integrating acquired businesses,
if any, or otherwise managing growth.  There can be no assurance the Company's
information systems, procedures or controls will be adequate to support its
operations or that management will be able to achieve the rapid execution
necessary to successfully offer its products and services and implement the
business plan and strategy.  The Company's future performance may also depend on
its effective integration of acquired businesses, if any.  Any such integration,
even if successful, may take a significant period of time and expense, and may
place a significant strain on the Company's resources.  If the Company is not
able to manage existing or anticipated growth, its business, results of
operations and financial condition will be materially adversely affected.

<PAGE>16

The loss of any of key management and technical personnel or consultants could
negatively impact the Company's business.  The Company has greatly benefitted
from the experience and dedication of its management personnel including Ben
Dulley, Jake Neufeld, Bruce Ramsay and with further assistance of engineering
and technical expertise and consultancy provided by Dr. David Wiles and Hans
Gostmann. The loss or departure of any of the Company's key employees could
materially adversely affect its ability to implement its business plan and could
lower its revenues or cause revenues to grow at a slower rate than expected.
The Company's future success depends to a significant extent on the continued
service and coordination of the Company's management team.  In addition, certain
members of the management team have joined within the last few months.  In
addition, if one or more key employees join a competitor or form a competing
company, though the Company has non-competition arrangements with each of its
key employees, the Company may lose existing or potential customers, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.  Though the Company maintains confidentiality
agreements with its employees, if the Company were to lose a key employee, there
can be no assurance that the Company would be able to prevent the unauthorized
disclosure or use of its procedures, practices, new product development or
customer lists.

Effect of Governmental and Environmental Protection Regulations and Permits

The Company may be subject to material federal, state, provincial or municipal
regulations, laws and permits for the installation and operation of its M500
units.  The Company believes that it will be able to comply in all material
aspects with all such laws and regulations to the extent that they be deemed
applicable to the Company's products with minimal resources expected to be
required by the company in so complying.

<PAGE>17

Other Risks

The Company's stock price may experience extreme price and volume fluctuations.
The market price of the Company's Common Stock has fluctuated in the past and is
likely to continue to be volatile and subject to wide fluctuations.  The stock
market in general and the market prices of shares in energy companies have been
extremely volatile and have experienced fluctuations that have often been
unrelated or disproportionate to the operating performance of such companies.
The market price of the Company's Common Stock may be subject to wide
fluctuations in response to many factors, some of which are largely beyond the
Company's control.  These factors include:

        o quarterly variations in results of operations;
        o adverse business developments;
        o changes in financial estimates by securities analysts;
        o investor perception of the Company and online recruiting and staffing
           services in general;
        o announcements by competitors of new products and services; and
        o general economic conditions both in the United States and in foreign
           countries.

Since the Company's stock price is volatile, the Company may become subject to
securities litigation, which is expensive and could result in a diversion of
resources.  Litigation brought against the Company could result in substantial
costs to the Company in defending against the lawsuit and a diversion of
management's attention.  Securities class action litigation has often been
brought against companies that experience volatility in the market price of
their securities.  Since the Company's stock price is volatile, the Company
could be subject to securities litigation and incur higher expenses than
expected, which could have a material adverse effect on its business and results
of operations.

Future sales of the Company's Common Stock may negatively affect its stock
price.  The market price of the Company's Common Stock could decline as a result
of sales of a large number of shares of Common Stock in the market or as a
result of sales by existing shareholders, or the perception that these sales
could occur.  These sales might make it more difficult for the Company to sell
equity securities in the future at a time and at a price that the Company deems
appropriate.  The certain shares of the Company's Common Stock currently
outstanding are or will become eligible for sale without registration pursuant
to Rule 144 under the Securities Act, subject to certain conditions of Rule 144.

<PAGE>18

The Company's officers, directors and existing stockholders, whose interests may
differ from other shareholders, will have the ability to exercise significant
control over the Company.  The Company's executive officers and directors and
entities affiliated with them will, in the aggregate, beneficially own a
majority of the Company's Common Stock.  These shareholders will be able to
exercise significant influence over all matters requiring approval by the
Company's shareholders, including the election of directors and the approval of
significant corporate transactions, including a change of control of the
Company.  The interests of these shareholders may differ from the interests of
the Company's other shareholders.

Going Concern

The Company's Independent Certified Public Accountants have stated in their
report included in this Form 10-KSB, that the Company is in the development
stage, has incurred operating losses since inception, has a working capital
deficit and a significant stockholder deficit.  These conditions, amoung others,
provide substantial doubt about the Company's ability to continue as a going
concern.

ITEM 2.    DESCRIPTION OF PROPERTY

The Company's principal operating offices are located in approximately 10,800
square feet of space in Delta, British Columbia, Canada.  It occupies these
premises under a sublease on a month-to-month basis.  The monthly rental on this
space is $1,400 per month.

The Company considers its facilities to be sufficient for current and
anticipated near-term operations.  Within the next twelve months, it believes
that it may need to lease an additional 1,000 square ft of additional office
space to accommodate anticipated long-term expansion plans.

ITEM 3.    LEGAL PROCEEDINGS

The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination or
breach of contract actions incidental to the operations of its business.

As of July 31, 2002, the Company is not a party to any material pending legal
proceedings.

<PAGE>19

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

No matters were submitted to a vote of security holders during the fourth
quarter of the year ending July 31, 2002.

With the completion of the fiscal year ended July 31,2002, the Company plans to
hold an Annual Meeting of  shareholders prior to the end of January, 2003.



                                    PART II

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock is quoted on the National Association of Securities
Dealers, Inc. OTC Bulletin Board under the symbol "MAHT" and is not listed for
trading on any exchange.  The OTC Bulletin Board, which is separate and distinct
from the Nasdaq Stock Market, is a quotation service for subscribing members and
is regulated by the Securities and Exchange Commission and the National
Association of Securities Dealers, Inc., or NASD. OTC Bulletin Board securities
are traded by a community of market makers that enter quotes and trade reports
through a closed computer network.

The Company's common stock began trading on the OTC Bulletin Board on May 30,
2001.  Prior to this date, the predecessor pre-merge public entity Granada
Mineral Products Inc. trades under the symbol "GDMN".  Set forth below are the
high and low closing bid prices for its common stock by quarter, from August 1,
2001 through July 31, 2002, as reported by a member firm of the NASD that
effects transactions in stocks quoted on the OTC Bulletin Board and acts as one
of the market makers for its common stock. The quotations listed below reflect
interdealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.

          ----------------------------------------------------------
            Fiscal               Period                 Bid Prices
             Year                                     High     Low
          ----------------------------------------------------------
          2001         May 9, 2001 - July 31, 2001    $2.08    $1.36
          2002
          ----------------------------------------------------------
                 August 1, 2001 - October 31, 2001    $2.10    $1.25

               November 1, 2001 - January 31, 2002    $1.15    $0.42

               February 1, 2002 - April 30, 2002      $0.73    $0.30

                    May 1, 2002 - July 31, 2002       $0.30    $0.06
          ----------------------------------------------------------

<PAGE>20

Number of Shareholders

As of July 31, 2002, the Company had 15,500,000 shares of its common stock
outstanding, held of record by approximately 95 shareholders, and the high and
low closing bid prices of its common stock on the OTC Bulletin Board were $2.10
and $0.06, respectively.  Within the holders of record of its common stock are
depositories, such as Cede & Co., that hold shares of stock for brokerage firms
which, in turn, hold shares of stock for beneficial owners.

Dividend Policy

The Company has never declared or paid any cash dividends on its common stock
and do not expect to declare or pay any cash dividend in the foreseeable future.
It currently intends to retain all future earnings, if any, to fund the
development and growth of the Company.  Any future payment of dividends, if any,
will be at the discretion of the board of directors and will depend upon its
future earnings, capital requirements, financial condition, general business
conditions and other factors deemed relevant by its board of directors.

Penny Stock

Until the Company's shares qualify for inclusion in the Nasdaq system, the
public trading, if any, of the Company's Common Stock will be on the OTC
Bulletin Board.  As a result, an investor may find it more difficult to dispose
of, or to obtain accurate quotations as to the price, of the Common Stock
offered.  The Company's Common Stock is subject to the provisions of Section
15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), commonly referred to as the "penny stock rule." Section 15(g)
sets forth certain requirements for transactions in penny stocks, and Rule 15g-9
(d) (1) incorporates the definition of "penny stock" that is found in Rule
3a51-1 of the Exchange Act.  The SEC generally defines "penny stock" to be any
equity security that has a market price less than $5.00 per share, subject to
certain exceptions.  If the Company's Common Stock is deemed to be a penny
stock, trading in the shares will be subject to additional sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors. "Accredited investors" are
persons with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse.  For transactions covered by these
rules, broker-dealers must make a special suitability determination for the
purchase of such security and must have the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the first
transaction, of a risk disclosure document, prepared by the SEC, relating to the
penny stock market. A broker-dealer also must disclose the commissions payable
to both the broker- dealer and the registered representative, and current
quotations for the securities.  Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in an account and
information on the limited market in penny stocks.  Consequently, these rules
may restrict the ability of broker-dealers to trade and/or maintain a market in
the Company's Common Stock and may affect the ability of the Company's
shareholders to sell their shares.

Recent Sales Of Unregistered Securities During the fiscal year ended July 31,
2002, there were no issuances and sales of the Company's securities that were
not registered under the Securities Act of 1933, as amended (the "Securities
Act")

<PAGE>21

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITIONS AND
PLAN OF OPERATIONS

IN ADDITION, THE COMPANY INCORPORATES HEREIN BY REFERENCE THAT SECTION OF PART
I, ITEM 1, ENTITLED "RISK FACTORS."

The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes to financial statements included
elsewhere in this Annual Report on Form 10-KSB.  This report and the financial
statements and notes to financial statements contain forward-looking
statements, which generally include the plans and objectives of management for
future operations, including plans and objectives relating to its future
economic performance and its current beliefs regarding revenues it might earn
if it were successful in implementing its business strategies.  The forward-
looking statements and associated risks may include, relate to or be qualified
by other important factors, including, without limitation:

         o   market acceptance of new product or service introductions by the
              Company or its competitors;
         o   the financial health of its clients;
         o   the overall state of the energy industry; and
         o   economic conditions generally.

Organization - Reverse Merger Treatment

Nature of Business

Malahat Energy Corporation ("Malahat" or the "Company") is a Nevada corporation
that was formed on July 26, 1994. The Company is currently a development stage
enterprise and is engaged in the development of BioFuel systems to convert
organic waste material into an economical, synthesized fuel gas for energy
consumption. The Company completed a reverse merger with a publicly traded
"Shell" company (See Below) in May 2001 and trades on the Over the Counter
Bulletin Board under the symbol "MAHT".

Reorganization of Sarenghetti Enterprise

Effective May 4, 2001, Sarenghetti Enterprises ("SARG") entered into a
reorganization and stock exchange agreement (the "Agreement") with Malahat
Systems Corporation ("MSC"). Pursuant to the terms of the Agreement, all of the
6,765,929 outstanding common shares of MSC were exchanged for shares of SARG on
a 1 to 1 basis or 6,675,929 shares of common stock of SARG. Immediately after
the reorganization SARG had a total of 6,765,929 shares issued and outstanding.
As a result, MSC is a wholly owned subsidiary of SARG. Subsequent to May 4,
2002, the Company completed a reverse merger (See Below).

<PAGE>22

Reverse Merger

On May 4, 2001, Granada Mineral products, Inc. ("GMP") entered into an agreement
and plan of reorganization and merger (the "plan" or "merger") with SARG.
Immediately prior to the merger, GMP had 100,000,000 shares authorized and
5,425,000 shares issued and outstanding. Effective May 9, 2002 and pursuant to
the merger, all of the 6,765,929 outstanding common shares of SARG were
exchanged for shares of GMP on a 1 to 1.49 basis or into 10,075,000 shares of
common stock of GMP for a total of 15,500,000 shares of common stock issued and
outstanding.

Immediately after the merger, the officer and director of GMP resigned and the
management of SARG controlled such positions; therefore effecting a change of
control. As a result the Company accounted for the transaction as a reverse
merger whereby SARG was considered the accounting acquirer as it retained
control of GMP after the merger. The company simultaneously changed its name to
Malaht Energy Corporation and changed its fiscal year end from December 31, to
July 31. The results of GMP previously filed in prior years are not included
herein. The related financial statements are the results of operations of SARG.

Since GMP's continuing operations were insignificant, a pro forma consolidated
statements of operations are not presented here.

Overview

The Company develops and manufactures thermal gas reformers capable of
economically producing a green renewable fuel gas from biomass wastes. Through 7
years of prototype testing, engineering and modification, the company has
advanced in its research and development phase and has developed a unit for
commercialization known as the M500 BioFuel System, with proprietary technology
which converts biomass wastes into a synthesized gas, SynGas.

Through a process called pyrolysis, the  Company's BioFuel Systems break the
complex structures of various biomass feed stocks, such as wood and agricultural
waste, by the action of heat.  This results in the division of large molecules
and their reformation into a green, renewable fuel gas which can produce a high
value energy such as electricity, without the need for an expensive steam
generator or steam turbine systems, or alternatively, the gas can be utilized as
a supplement or replacement for natural gas, in such applications as greenhouse
boilers and gas fired dry kilns.

<PAGE>23

A BioFuel System can have wide ranging applications for any industry with a need
for cheap, on-site environmentally friendly, flexible and reliable energy.  The
initial focus by the company has been in the greenhouse industry wherein the
company has received wide interest and has recently concluded its first
commercial unit designated for use by a greenhouse grower in the Fraser Valley,
British Columbia.

Plan of Operation

The Company's first BioFuel System was beta tested at a greenhouse growing
operation in the Fraser Valley, British Columbia, Canada.  When operating the
unit functioned as designed, but there was maintenance issues typical of a first
commercial installation.  The unit has since been removed to address these
issues.The Company has developed a lease model to ease the purchase of its
BioFuel Systems such that each manufactured M500 unit is owned by the company as
a capital asset and the M500 unit is leased to a customer for a fixed term of 2
or 3 years, with an initial installation fee and a monthly lease payment for the
use of the M500 unit. The monthly lease payment levied is based on a
predetermined valuation of the capability and capacity of the M500 unit to
produce SynGas for energy at a 90% efficiency ratio through the year, which is
prorated over 12 months.  The M500 produces sufficient fuel to produce up to 240
KWHs of electrical energy per hour and is capable of processing six tons
(metric) of waste wood per day. Each M500 is capable of powering 2 acres of
greenhouse or an equivalent of 180 homes.

The Company's primary focus is to perfect the BioFuel System and thereby be in a
position to accept more orders.

The Company has been negotiating with a major engineering company and some of
the major tea plantations in Sri Lanka to produce energy for the plantations
using the tea plant waste to fuel the M500.  In that vein, the Company perceives
a global need for onsite low cost green power especially in countries or remote
locations where there is no energy grid system.  The Company intends to pursue
its strategy to consider licensing and securing industrial partners to
manufacture the M500 units in countries outside of North America, to effectively
expand its reach. In addition to commercialization of its operations, the
Company's future research and development plans include designing and building
larger scale BioFuel Systems which will produce more electricity or heat and the
adaptation of the BioFuel System to other biomass feed stocks such as municipal
solid waste, waste paper and crude oils.  As well, the Company is in the
development stages of the M600, a BioFuel Systems that will produce the
equivielnt outputof the M500, but at substantially reduced capital costs.

<PAGE>24

Liquidity and Capital Resources

Included in Accounts Payable and Accrued Expenses is approximately $350,000 in
accrued salary expense.  It is the Company's intention to convert this debt to
equity With the current cash on hand and anticipated revenue from the future
delivery of BioFuel Systems, the Company anticipates that it will require
additional funding for its operations  during the 2003 fiscal year. The Company
is considering financing options such as a bank leasing program of theBioFuel
Systems, manufacturer's financing, equity or bond financing.  Given the market
condition and other factors, there can be no assuarance  that the Company will
be successful in securing additional financing.  If adequate funds are not
available on acceptable terms when required, the company may delay, scale-back
or eliminate the manufacturing, research or development and reduce the
commitment of the BioFuel Systems units for lease.

The Company has never declared or paid cash dividends on its common shares. The
Company currently intends to retain its earnings, if any, to provide funds for
the operation and expansion of its business and does not anticipate declaring or
paying any cash dividends in the foreseeable future.  The declaration of
dividends, if any, in the future, would be subject to the discretion of the
Board of Directors, which may consider such factors as the company's earnings,
financial condition, capital needs and other relevant factors.

Results of Operations

As the Company is in the research and development stage, for the years ended
July 31, 2001 and 2002, the Company had no revenue.  For the year ended 2001,
the Company had expended $67,605 on research and development.  For the year
ended 2002, the Company had expended $54,497 on research and development
including grant income of approximately $185,000.

Interest expense decreased significantly over 2001 primarily due to the discount
on the conversion of debt to common stock.

Overall capital expenditures were approximatel $10,000 primarily used for the
purchase of equipment relating to research and development.

The Company's total assets were $146,813, a significant decrease over 2001. This
decrease is primarily attributable to an decrease in cash of $234,563, an
increase in investment tax credit refundable of $11,694, an increase in the
Biofuel system of $53,958 and an increase in property and equipment of $5,645.

The Company's operating loss was $565,853, a decrease of $261,151 over 2001.
This decrease is primarily attributable to decreases in interest of $235,645,
decreases in research and development of $13,108, and decreases in professional
fees of $11,049, decrease in general office expenses of $12,596 and increases in
travel of $11,247.

The loss per common share decreased from $0.09 in 2001 to $0.04 in 2002.

Going Concern

The Company's Independent Certified Public Accountants have stated in their
report included in this Form 10-KSB, that the Company is in the development
stage, has incurred operating losses since inception, has a working capital
deficit and a significant stockholder deficit.  These conditions, amoung others,
provide substantial doubt about the Company's ability to continue as a going
concern.

Capital Expenditures

No capital expenditures are planned for the next 12 months

Inflation

The Company has not been affected by inflation due to minimal inflation rates in
Canada and the USA.

<PAGE>25


ITEM 7.    FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                            Page

Reports of Independent Auditors               F-1 - F-2

Balance Sheet                                 F-3

Statements of Operations                      F-4

Statements of Stockholders' (Deficit)         F-5

Statements of Cash Flows                      F-6

Notes to Financial Statements                 F-7 - F-21



                          INDEPENDENT AUDITORS' REPORT


                   To the Board of Directors and Stockholders
                   Malahat Energy Corporation and Subsidiary
               (Formerly Known As Granada Mineral Products, Inc.)
                         (A Development Stage Company)

We   have  audited  the  accompanying consolidated balance  sheet  of    Malahat
Energy   Corporation  and   Subsidiary   (the "Company"),  a  Development  Stage
Company,  as   of  July  31, 2002,  and the related consolidated  statements  of
operations and comprehensive loss, stockholders' deficit and cash flows for  the
year  then  ended.  These  financial statements are the  responsibility  of  the
Company's management.    Our responsibility  is to express an opinion  on  these
financial statements based on our audit.

We conducted our audit in accordance with 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
consolidated financial  statements are free of material misstatement.  An  audit
includes  examining,  on  a  test  basis,   evidence supporting  the amounts and
disclosures  in the  consolidated financial  statements. An audit also  includes
assessing   the  accounting   principles  used and  significant   estimates   by
management,    as   well   as  evaluating  the   overall   financial   statement
presentation.  We  believe that our audit provides a reasonable  basis  for  our
opinion.

In    our  opinion,  the  consolidated  financial  statements referred  to above
present  fairly, in all material respects, the  financial  position  of  Malahat
Energy   Corporation  and Subsidiary as of July 31, 2002, and  the  consolidated
results  of  their operations and their cash flows for the year ended July   31,
2002,   in   conformity with accounting  principles generally  accepted  in  the
United States of America.

The  accompanying consolidated financial statements have been prepared  assuming
that  the  Company  will  continue as a  going  concern.    As  shown   in   the
accompanying consolidated financial  statements, the Company is  a   development
stage company, which  has  experienced significant losses  since inception  with
no  significant  revenues.   As   discussed in  Note  1  to   the   consolidated
financial   statements,  a  significant  amount of additional  capital  will  be
necessary to advance the development of the Company's products to the point   at
which they may become commercially viable. These conditions, among others, raise
substantial  doubt  about  the Company's   ability  to  continue   as  a   going
concern.  Management's plans  regarding  these  matters are  also  described  in
Note   1.  The  accompanying   consolidated financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ Squar, Milner, Reehl & Williamson, LLP

November 1, 2002 Newport Beach, California

<PAGE>F-1

                          INDEPENDENT AUDITORS' REPORT

Malahat  Energy  Corporation  (Formerly  Granada  Mineral  Products,  Inc.)   (A
Development Stage Company)

We   have audited the accompanying consolidated balance sheet of Malahat  Energy
Corporation   (a  development stage company) as  of  July   31,  2001,  and  the
related  consolidated statements of operations, stockholders' equity,  and  cash
flows  for    the   years  ended  July  31,  2001.  These  financial  statements
are the responsibility    of   the   Company's management.    Our responsibility
is to express an opinion on these financial statements based on our audit.

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

In   our opinion, the financial statements referred to  above present fairly, in
all   material  respects, the financial position  of  Malahat Energy Corporation
as  of July 31, 2001, and the results of its operations, and its cash flows  for
the  years  ended  July  31,  2001,  in conformity  with  accounting  principles
generally  accepted  in  the  United  States  of America.

The   accompanying  financial statements have  been  prepared assuming that  the
Company   will  continue as a going concern.  As discussed  in  Note  2  to  the
financial   statements,  the  Company  has  suffered   significant  losses  from
operations.  This factor raises substantial doubt  about  the Company's  ability
to  continue as a going concern. Management's plans in regard to this matter are
also discussed in Note . The financial statements do not include any adjustments
that  might result from  the  outcome  of  this uncertainty.

Stark Winter Schenkein & Co., LLP Denver, Colorado November 12, 2001

<PAGE>F-2

                           MALAHAT ENERGY CORPORATION
                                 AND SUBSIDIARY
               (Formerly Known As Granada Mineral Products, Inc.)
                         (A Development Stage Company)

                       CONSOLIDATED FINANCIAL STATEMENTS

                             July 31, 2002 and 2001



                           MALAHAT ENERGY CORPORATION
                                 AND SUBSIDIARY
               (Formerly Known As Granada Mineral Products, Inc.)
                         (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEET
                                 July 31, 2002



                                     ASSETS

          Current Assets
          Cash                                                $       666
            Recoverable tax credits                                68,923
                                                                ---------
                 Total Current Assets                              69,589

          BioFuel System                                           53,958
          Property and Equipment, net                              23,266
                                                                ---------
                                                              $   146,813

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

          Current Liabilities
          Accounts payable and accrued                        $   447,805
          liabilities
            Due to related party                                    7,246
                                                                ---------
                 Total Current Liabilities                        455,051
                                                                ---------

          Commitments and Contingencies

          Stockholders' Deficit
          Common stock, $0.001 par value;
           100,000,000 shares authorized;
           15,500,000 shares issued and
           outstanding                                             15,500
          Additional paid-in capital                            1,895,773
          Common stock subscribed                                  10,000
          Accumulated other comprehensive income (loss)            (6,553)

          Deficit accumulated during development stage         (2,222,958)
                                                                ---------
                                                                 (308,238)
                                                                ---------

                                                               $  146,813
                                                                =========

          See Independent Auditors' reports and accompanying notes to the
          consolidated financial statements.

<PAGE>F-3

                           MALAHAT ENERGY CORPORATION
                                 AND SUBSIDIARY
               (Formerly Known As Granada Mineral Products, Inc.)
                         (A Development Stage Company)
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                             AND COMPREHENSIVE LOSS
           For the Years Ended July 31, 2002 and 2001 And The Period
                                      From
                July 26, 1994 (Inception) Through July 31, 2002

<table>
<caption>

                                   <c>            <c>           <c>

                                                                    July 26,
                                                                      1994
                                                                   (Inception)
                                                                     Through
                                                                     July 31,
                                            2002        2001           2002
                                       ----------    ---------      ---------
REVENUE                              $          -   $        -   $      6,259

OPERATING EXPENSES
Research and development                   54,497       67,605        480,962
  Interest                                             235,645        235,645
  General and administrative              511,356      523,754      1,512,610
                                       ----------    ---------      ---------
                                          565,853      827,004      2,229,217
                                       ----------    ---------      ---------

NET LOSS                                 (565,853)    (827,004)    (2,222,958)
                                       ----------    ---------      ---------

FOREIGN   CURRENCY  TRANSLATION
ADJUSTMENTS                               (10,167)       5,329         (6,553)
                                          -------    ---------      ---------
COMPREHENSIVE LOSS                   $   (576,020)  $ (821,675)  $ (2,229,511)
                                       ==========    =========      =========
BASIC AND DILUTED NET LOSS
AVAILABLE TO SHAREHOLDERS PER
COMMON SHARE                         $      (0.04)  $    (0.09)
                                       ==========    =========      =========
BASIC AND DILUTED WEIGHTED
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                     15,500,000    9,295,817
                                       ==========    =========      =========

See Independent Auditors' Reports and accompanying notes to the consolidated
financial statements.

</table>

<PAGE>F-4

                           MALAHAT ENERGY CORPORATION
                                 AND SUBSIDIARY
               (Formerly Known As Granada Mineral Products, Inc.)
                         (A Development Stage Company)
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
      For the Period From July 26, 1994 (Inception) Through July 31, 2002

<table>
<caption>

                  <c>            <c>         <c>              <c>               <c>             <c>                 <c>


                                                                                                    Deficit
                                                                                   Accumulated     Accumulated
                                                                    Stock             Other         During
                         Common Stock          Additional          Subscribed     Comprehensive    Development
                     Shares          Amount    Paid-in Capital                     Income (Loss)     Stage                Total


Inception           $         -   $        -     $            -    $          -    $           -    $          -    $         -

Shares issued to
founders for
cash at
$0.00001 per
share                  2,919,009         142                  -               -                -               -            142

Net loss                       -           -                  -               -                -         (87,983)       (87,983)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     2,919,009         142                  -               -                -         (87,983)       (87,983)
1995
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Capital                        -           -             12,811               -                -               -         12,811
contribution

Shares issued for      1,886,838       1,887            227,709               -                -               -        229,596
services and
conversion of
loans at $0.17
per share

Shares redeemed       (1,184,562)     (1,185)           (26,318)              -                -               -        (27,503)

Reclass paid in                -       2,777             (2,777)              -                -               -              -
capital

Net loss                       -           -                  -               -                -        (122,049)      (122,049)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     3,621,286       3,621            211,425               -                -        (210,032)         5,014
1996
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Shares issued for      1,588,841       1,589            185,772               -                -               -        187,361
services at
$0.17 per share

Net loss                       -           -                  -               -                -        (213,522)      (213,522)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     5,210,127       5,210            397,197               -                -        (423,554)       (21,147)
1997
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Shares issued for        618,995         619             72,293               -                -               -         72,912
services at
$0.17 per share

Shares issued for        383,110         383             51,760               -                -               -         52,143
cash at $0.17
per share

Net loss                       -           -                  -               -                -        (121,961)      (121,961)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     6,212,232       6,212            521,250               -                -        (545,515)       (18,053)
1998
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Shares issued for         72,071          72              7,947               -                -               -          8,019
services at
$0.17 per share

Net loss                       -           -                  -               -                -        (122,352)      (122,352)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     6,284,303       6,284            529,197               -                -        (667,867)      (132,386)
1999

Capital
contribution                   -           -              3,399               -                -               -          3,399

Shares issued for        719,046         719             81,324               -                -               -         82,043
services at
$0.17 per share

Shares issued for         74,454          74             25,415               -                -               -         25,489
interest at
$0.51 per share

Currency                       -           -                  -               -           (1,715)              -         (1,715)
translation
adjustment
                               -           -                  -               -                -        (162,234)      (162,234)
Net loss
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,     7,077,803       7,077            639,335               -           (1,715)       (830,101)      (185,404)
2000
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Shares issued for      1,034,910       1,035            253,060               -                -               -        254,095
conversion of
debt at $0.24
per share

Discount on
conversion of                  -           -            207,000               -                -               -        207,000
debt to common
stock

Shares issued for        992,453         993            326,336               -                -               -        327,329
services and
interest at
$0.44 per share

Shares issued for        969,834         970            277,167               -                -               -        278,137
cash at $0.44
per share

Shares issued          5,425,000       5,425             (7,125)              -                -               -         (1,700)
pursuant to
recapitalization

Shares issued for        100,000         100            199,900               -                -               -        200,000
cash at $2.00
per share

Shares retired          (100,000)       (100)               100               -                -               -              -

Currency                       -           -                  -               -            5,329               -          5,329
translation
adjustment

Net loss                       -           -                  -               -                -        (827,004)      (827,004)
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------
BALANCE - July 31,    15,500,000      15,500          1,895,773               -            3,614      (1,657,105)       257,782
2001
                    ------------  ----------     --------------    ------------    -------------    ------------    -----------

Common stock                   -           -                  -          10,000                -               -         10,000
subscribed

Currency                       -           -                  -               -          (10,167)              -        (10,167)
translation
  adjustment

Net loss                       -           -                  -               -                -        (565,853)      (565,853)
                    ------------  ----------     --------------    ------------    -------------    ------------     -----------
BALANCE - July 31,  $ 15,500,000  $   15,500     $    1,895,773    $     10,000    $      (6,553)   $ (2,222,958)   $  (308,238)
                    ============  ==========     ==============    ============    =============    ============     ===========

See Independent Auditors' Reports and accompanying notes to the consolidated
financial statements.

</table>

<PAGE>F-5

                 MALAHAT ENERGY CORPORATION
                       AND SUBSIDIARY
     (Formerly Known As Granada Mineral Products, Inc.)
                (A Development Stage Company)
            CONSOLIDATED STATEMENTS OF CASH FLOWS
  For the Years Ended July 31, 2002 and 2001 And The Period
                            From
       July 26, 1994 (Inception) Through July 31, 2002


                                    2002            2001        July 26, 1994
                                                                 (Inception)
                                                                  Through
                                                                  July 31,
                                                                    2002
                                  ----------     ----------     ------------
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss                          $ (565,853)    $ (827,004)    $ (2,222,958)

Adjustments to reconcile net
loss to net cash used in
operating activities:
      Non-cash capital                     -              -           16,210
        contribution
      Issuance of common shares            -        532,629        1,139,749
        for non-cash items
      Depreciation                     4,513          2,125            6,638
Changes in operating assets and
liabilities:
Refundable tax credits               (11,694)       (25,526)         (68,923)
Other assets                               -            736                -
Accounts payable and accrued         402,834         33,743          447,805
liabilities
Due to related party                     (80)             -              (80)
Net cash used in operating          (170,280)      (283,297)        (676,415)
activities                        ----------     ----------     ------------

CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of property and            (10,158)       (19,746)         (29,904)
equipment
Biofuel system manufacturing         (53,958)             -          (53,958)
costs
Net cash used in investing           (64,116)       (19,746)         (83,862)
activities                        ----------     ----------     ------------

CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common shares for
cash                                        -       478,137          530,422
Shares redeemed                             -             -          (27,503)
Proceeds for subscribed stock          10,000             -           10,000
Proceeds from shareholder loans             -             -            7,911
Proceeds from long-term debt                -             -          264,788
Net cash provided by financing         10,000       478,137          785,618
activities                        ----------     ----------     ------------

FOREIGN CURRENCY TRANSLATION          (10,167)        5,329          (19,531)
ADJUSTMENT

NET (DECREASE) INCREASE IN CASH      (234,563)      180,423              666
                                  ----------     ----------     ------------
CASH - beginning of year              235,229        54,806                -
                                  ----------     ----------     ------------
CASH - end of year                $       666    $  235,229     $        666
                                  ===========    ==========     ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION

Cash paid for income taxes        $         -    $        -     $          -
                                  ===========    ==========     ============
Cash paid for interest            $         -    $        -     $          -
                                  ===========    ==========     ============

NON CASH FINANCING AND
  INVESTING ACTIVITIES

Conversion of long term debt     $         -     $  254,095     $    264,788
 to common stock                  ===========    ==========     ============


See Independent Auditor' Reports and accompanying notes to the consolidated
financial statements.

<PAGE>F-6

See  accompanying notes to consolidated financial statements for  more
information on non-cash investing  and  financing activities during the year
ended July 31, 2002 and  for  the period from Inception through July 31, 2002.


1.  ORGANIZATION

Nature of Business

Malahat Energy Corporation ("Malahat" or the "Company") is a Nevada corporation
that was formed on July 26, 1994. The Company is currently a development stage
enterprise and is engaged in the development of BioFuel systems to convert
organic waste material into an economical, synthesized fuel gas for energy
consumption. The Company completed a reverse merger with a publicly traded
"Shell" company (See Below) in May 2001 and trades on the Over the Counter
Bulletin Board under the symbol "MAHT".

Reorganization of Sarenghetti Enterprise

Effective May 4, 2001, Sarenghetti Enterprises ("SARG") entered into a
reorganization and stock exchange agreement (the "Agreement") with Malahat
Systems Corporation ("MSC"). Pursuant to the terms of the Agreement, all of the
6,765,929 outstanding common shares of MSC were exchanged for shares of SARG on
a 1 to 1 basis or 6,675,929 shares of common stock of SARG. Immediately after
the reorganization SARG had a total of 6,765,929 shares issued and outstanding.
As a result, MSC is a wholly owned subsidiary of SARG. Subsequent to May 4,
2001, the Company completed a reverse merger (See Below).

Reverse Merger

On May 4, 2001, Granada Mineral products, Inc. ("GMP") entered into an agreement
and plan of reorganization and merger (the "plan" or "merger") with SARG.
Immediately prior to the merger, GMP had 100,000,000 shares authorized and
5,425,000 shares issued and outstanding. Effective May 9, 2001 and pursuant to
the merger, all of the 6,765,929 outstanding common shares of SARG were
exchanged for shares of GMP on a 1 to 1.49 basis or into 10,075,000 shares of
common stock of GMP for a total of 15,500,000 shares of common stock issued and
outstanding.

Immediately after the merger, the sole officer and director of GMP resigned and
the management of SARG controlled such positions; therefore effecting a change
of control. As a result the Company accounted for the transaction as a reverse
merger whereby SARG was considered the accounting acquirer as it retained
control of GMP after the merger. The company simultaneously changed its name to
Malahat Energy Corporation and changed its fiscal year end from December 31 to
July 31. The results of GMP previously filed in prior years are not included
herein. The related financial statements are the results of operations of SARG.

Since GMP's continuing operations were insignificant, a pro forma consolidated
statement of operation is not presented here.

<PAGE>F-7

Development Stage and Going Concern

The Company has been in the development stage since it began operations on July
26, 1994, and has not generated any revenues from operations and there is no
assurance of any future revenues. As of July 31, 2002, the Company had an
accumulated deficit of approximately $2,223,000 and a working capital deficit of
approximately $385,000.

The Company will require substantial additional funding for continuing research
and development, obtaining regulatory approval and for the commercialization of
its product. There can be no assurance that the Company will be able to obtain
sufficient additional funds when needed, or that such funds, if available, will
be obtainable on terms satisfactory to the Company. In addition, the Company's
ability to continue as a going concern must be considered in light of the
problems, expenses and complications frequently encountered by entrance into
established markets and the competitive environment in which the Company
operates.

Management plans to obtain revenues from product sales, but there is no
commitment by any person to purchase any of the proposed products. In the
absence of significant sales and profits, the Company may seek to raise
additional funds to meet its working capital requirements through the additional
issuance of  Company's debt and equity securities. The Company's management is
pursuing further contributions and grants from government agencies and is
pursuing financing for its operations and expansion, including manufacturers'
financing, bank leasing and bond or equity financing. Failure to secure such
financing or to raise additional equity capital may result in the Company
depleting its available funds and not being able to pay its obligations.

These circumstances, among others, raise substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the possible inability of the Company to
continue as a going concern.

<PAGE>F-8

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies presented below is designed to
assist in understanding the Company's consolidated financial statements. Such
consolidated financial statements and accompanying notes are the representations
of Company's management, who is responsible for their integrity and objectivity.
These accounting policies conform to accounting principles generally accepted in
the United States of America ("GAAP") in all material respects, and have been
consistently applied in preparing the accompanying consolidated financial
statements.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned foreign subsidiary. All significant intercompany
transactions and balances have been eliminated in consolidation.

Risks and Uncertainties

The Company has a limited operating history. The Company has not yet generated
significant revenue from its business operations. As a new operating entity, the
Company faces risks and uncertainties relating to its ability to successfully
implement its strategy. Among other things, these risks include the ability to
develop and sustain revenue growth; managing expanding operations; competition;
attracting, retaining and motivating qualified personnel; maintaining and
developing new strategic relationships; and the ability to anticipate and adapt
to the changing energy market and any changes in government regulations. The
Company and its subsidiary have no experience in obtaining regulatory clearance
of these types of products. Therefore, the Company may be subject to the risks
of delays in obtaining or failing to obtain regulatory clearance and other
uncertainties, including financial, operational, technological, regulatory and
other risks associated with an emerging business, including the potential risks
of business failure.

Concentrations

The Company maintains its cash in uninsured accounts and not in bank depository
accounts insured by the Federal Deposit Insurance Corporation (FDIC). The
Company has not experienced any losses in these uninsured accounts.

The Company's research and development activities and most of its assets are
located in Canada.  The Company's operations are subject to various political,
economic, and other risks and uncertainties inherent in such foreign country.

<PAGE>F-9

Use of Estimates

The Company prepares its consolidated financial statements in conformity with
GAAP, which requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Significant estimates made by management include, among others, realizability of
long-lived assets and estimates for deferred income tax valuation allowances.
Actual results could differ from those estimates.

Grants

The Company periodically receives grants from the Canadian government which are
used to fund research and development activities and the acquisition of
equipment. Revenue from grants for the reimbursement of research and development
expenses are offset against research and development expenses in the
accompanying consolidated statements of operations and comprehensive loss when
the related expenses are incurred. Grants related to the acquisition of tangible
property are recorded as a reduction of the properties historical cost. During
the year ended July 31, 2002 and 2001 the Company received grants in the amount
of approximately $185,000 and none, respectively, which the Company has recorded
under the "Research and development" caption in the consolidated statements of
operations and comprehensive loss.

There is no guaranteed commitment from the Canadian government for such grants,
and there can be no assurance that such grants will be available to the Company
in the future.

Financial Instruments

Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures About
Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value. Management believes that the carrying amounts of the Company's financial
instruments, consisting primarily of cash,  receivables and accounts
payable and accrued expenses, approximate their fair value at July 31, 2002, due
to their short-term nature.  The fair value of related party instruments are
not determinable due to their related party nature.

<PAGE>F-10

Foreign Currency Translation

Assets and liabilities of the Company's Canadian operations are translated into
U.S. dollars at period-end exchange rates. Net exchange gains or losses
resulting from such translation are excluded from net earnings but are included
in comprehensive loss and accumulated in a separate component of stockholders'
equity. Such amount was $6,553 at July 31, 2002.  Income and expense are
translated at weighted average exchange rates for the period. For the years
ended July 31, 2002 and 2001, the Company had no foreign exchange transaction
gains or losses.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and
amortization.  Deprecation is provided using the straight-line method over the
estimated useful lives of the related assets. Maintenance and repairs are
expensed as incurred, and betterments are capitalized.  Upon the sale or
retirement of depreciable assets, the accounts are relieved of the related costs
and accumulated depreciation, and any resulting gain or loss is included in
operations.

Impairment of Long-Lived Assets

The Company accounts for the impairment and disposition of long- lived assets in
accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to Be Disposed Of" which requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable. If the cost basis of
a long-lived asset is greater than the projected future undiscounted net cash
flows from such asset (excluding interest), an impairment loss is recognized.
Impairment losses are calculated as the difference between the cost basis of an
asset and its estimated fair value.  Any long- lived assets held for disposal
are reported at the lower of their carrying amounts or fair values less costs to
sell.  As of July 31, 2002, management of the Company believes that no
impairment losses are required. There can be no assurances, however, that market
conditions will not change which could result in impairment on long-lived assets
in the future.

<PAGE>F-11

Revenue Recognition

The Company intends to recognize revenue from product sales, net of any
discounts, when products are shipped and title passes to customers. Revenues
from services are recognized at the time the related service is performed.

In December 1999, the Securities and Exchange Commission issued Bulletin No. 101
("SAB 101"). SAB 101 provides guidance on applying accounting principles
generally accepted in the United States of America to revenue recognition in
financial statements. Management believes that the Company's revenue recognition
policies conform with SAB 101.

Research and Development

Research and development costs are charged to operations as incurred. The amount
of research and development costs is reduced by any applicable refundable tax
credits relating to government grants.

Advertising

The Company expenses the cost of advertising when incurred. The Company had
expensed approximately $17,000 of advertising costs during the year ended July
31, 2001 which the Company has recorded under the "General and Administrative"
caption of the consolidated statements of operations and comprehensive loss. The
Company had no advertising expenses in the year ended July 31, 2002.

Income Taxes

The Company follows Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" ("SFAS 109") for recording the provision for
income taxes. Deferred tax assets and liabilities are computed based upon the
difference between the consolidated financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate applicable when the
related asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more likely
than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future changes in such
valuation allowance are included in the provision for deferred income taxes in
the period of change.

<PAGE>F-13

Stock-Based Compensation

The Company accounts for stock-based compensation issued to employees  using
the  intrinsic value based method as prescribed by Accounting  Principles  Board
Opinion  No. 25 ("APB 25"), "Accounting for Stock Issued  to  Employees."  Under
the intrinsic value based method, compensation is the excess,  if  any, of the
fair value of the stock at the grant date or other measurement date  over  the
amount  an employee must pay to acquire the stock. Compensation, if any, is
recognized over the applicable service period, which is usually the vesting
period.

The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." This standard, if fully adopted, changes the method of accounting
for employee stock-based compensation plans to the fair value based method. For
stock options and warrants, fair value is determined using an option pricing
model that takes into account the stock price at the grant date, the exercise
price, the expected life of the option or warrant and the annual rate of
quarterly dividends. Compensation expense, if any, is recognized over the
applicable service period, which is usually the vesting period.

The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25; however, pro forma disclosures, as if the Company
adopted the cost recognition requirements under SFAS 123, are required to be
presented.

In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting for
Certain Transactions Involving Stock Compensation, an Interpretation of APB 25."
FIN 44 clarifies the application of APB 25 for (a) the definition of employee
for purposes of applying APB 25, (b) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (c) the accounting consequence for various
modifications to the terms of a previously fixed stock option or award, and (d)
the accounting for an exchange of stock compensation awards in a business
combination.

<PAGE>F-14

Basic and Diluted Loss per Common Share

The Company has adopted Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings Per Share."  Under SFAS 128, basic earnings per share is
computed by dividing income available to common shareholders by the weighted-
average number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive
(there were 86,450 and zero additional potential common shares as of July 31,
2002 and 2001, respectively).  Pro forma per share data has been computed using
the weighted average number of common shares outstanding during the periods.
Because the Company has incurred net losses, basic and diluted loss per share
are the same as additional potential common shares would be anti-dilutive (See
Note 9).

Comprehensive Income (Loss)

The Company adopted SFAS No. 130 "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive income (loss)
and its components in a full set of general-purpose financial statements. Total
comprehensive income (loss) represents the net change in stockholders' equity
during a period from sources other than transactions with stockholders and as
such, includes net earnings. For the Company, the components of other
comprehensive income (loss) are the changes in the cumulative foreign currency
translation adjustments and are recorded as components of stockholders' deficit.

Segments of an Enterprise and Related Information

The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 establishes standards for the way public
companies report information about segments of their business in their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity- wide
disclosures about the products and services an entity provides, the material
countries in which it holds assets and reports revenues and its major customers.
The Company has had no revenues since its inception.  See Note 4 for information
on long- lived assets located in Canada.

<PAGE>F-15

Recently Issued Accounting Pronouncements

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), "Business Combinations," which is effective for business
combinations initiated after June 30, 2001. SFAS 141 eliminates the pooling of
interest method of accounting for business combinations and requires that all
business combinations occurring after July 1, 2001 are accounted for under the
purchase method. The adoption of SFAS 141 did not have a material impact on the
Company's financial statements.

In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142 ("SFAS 142"), "Goodwill and Other Intangible Assets," which is effective for
fiscal years beginning after December 15, 2001. Early adoption is permitted for
entities with fiscal years beginning after March 15, 2001, provided that the
first interim financial statements have not been previously issued. SFAS 142
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in the financial statements upon their
acquisition and after they have been initially recognized in the financial
statements. SFAS 142 requires that goodwill and intangible assets that have
indefinite useful lives not be amortized but rather be tested at least annually
for impairment, and intangible assets that have finite useful lives be amortized
over their useful lives. SFAS 142 provides specific guidance for testing
goodwill and intangible assets that will not be amortized for impairment. In
addition, SFAS 142 expands the disclosure requirements about goodwill and other
intangible assets in the years subsequent to their acquisition. Impairment
losses for goodwill and indefinite-life intangible assets that arise due to the
initial application of SFAS 142 are to be reported as resulting from a change in
accounting principle. However, goodwill and intangible assets acquired after
June 30, 2001 will be subject immediately to the provisions of SFAS 142. The
Company does not expect SFAS 142 to have a material effect on its financial
statements.

In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143 ("SFAS 143"), "Accounting for Asset Retirement Obligations." SFAS 143
establishes standards associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect SFAS 143 to have a material effect on its financial
statements.

<PAGE>F-16

Recently Issued Accounting Pronouncements

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS 144 addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of. The
provisions of SFAS 144 are effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within these fiscal
years, with early adoption encouraged. The Company does not expect SFAS 144 to
have a material impact on its financial statements.

In August 2002, the FASB issued Statement on Financial Accounting Standards No.
146 ("SFAS 146"). SFAS 146, "Accounting for Costs Associated with Exit or
Disposal Activities," is effective for such activities initiated after December
31, 2002. Activities of this type include restructurings (such as relocation of
a business and fundamental reorganizations of a business itself), which may give
rise to costs such as contract cancellation provisions, employee relocation, and
one-time termination costs. SFAS 146 prohibits liability recognition based
solely on management's intent, and requires that liabilities be measured at
estimated fair value. Management has not determined the effect, in any, of SFAS
146 on the Company's future financial statements.

Reclassifications

Certain reclassifications have been made to the July 31,2001 financial
statements presentation to correspond to the July 31, 2002 format.

3.  BIOFUEL SYSTEM

In August 2001, the Company entered into an agreement with a customer to supply,
install and operate the M500 BioFuel system. Management believes the system is
capable of producing clean renewable green gas from organic waste, heat, water
and air. The system was placed at the customer's site and was operating for a
month, but it was returned to the Company's facility in October 2002 because it
could not work on a stand-alone basis. Management believes that the completion
of manufacturing and commissioning of this machine should take four to six
months once the required funding is available. Accordingly, the Company has
incurred and capitalized approximately $54,000 in the accompanying consolidated
balance sheet at July 31, 2002 in relation to manufacturing the M500.  The
Company has not earned any revenue from the above transaction.

<PAGE>F-17

4.  PROPERTY AND EQUIPMENT

Property and equipment, all located in Vancouver, Canada consists of the
following at July 31, 2002:

Computer hardware and         $  2,773
software

Equipment                       27,131
                                29,904


Accumulated depreciation        (6,638)
                                ------
                              $ 23,266
                                ======

5.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following at July 31,
2002:

Trade accounts payable          $ 81,275

Accrued consulting and
professional fees                355,583

Accrued payroll taxes payable     10,947
                                 -------
                               $ 447,805
                                 =======

6.  DUE TO A RELATED PARTY

The amount due to a related party was advanced to the Company from an officer.
The advance is due on demand, is unsecured and has no set interest rate.

<PAGE>F-18

7.  EQUITY TRANSACTIONS

Common Stock

During the year ended July 31, 2001, debt aggregating $254,095 was converted
into 1,034,910 shares of the Company's common stock. These shares were issued at
a discount of $207,000. This amount has been charged to interest expense and
recorded as a capital contribution.

During 2001, the Company issued 992,453 shares of common stock for services and
interest valued at $327,329. The per share value assigned to the shares
corresponds to recent per share cash purchases of common shares. In addition,
the Company issued 969,834 shares of common stock for cash aggregating $278,137.
Effective June 23, 2001, the Company entered into a best effort financing
agreement with a third party. The agreement provides for the third party to sell
up to 300,000 shares of the Company's restricted common stock at $2.00 per share
for a total of $700,000 to qualified investors. As of July 31, 2001, the Company
sold 100,000 shares of the Company's restricted common stock for $200,000 and
the Company terminated the financing agreement in 2002.

On June 30, 2002, the Company received $10,000 from an investor for 100,000
shares at $0.10 per share. Because the shares were not issued as of July 31,
2002, the contribution was accounted for and reported as common stock subscribed
in the accompanying consolidated statements of stockholders deficit. The Company
granted this investor a warrant to purchase up to 100,000 of the Company's
common stock (see below) at graduated exercise prices ranging from $0.20 to
$0.30 per share. The warrant vested on the date of grant and is exercisable
through December 31, 2003.



Warrants

From time to time, the Company issues warrants pursuant to various consulting
and service agreements.

In June 2002, the Company granted an investor a warrant to purchase up to
100,000 shares of the Company's restricted shares at exercise prices ranging
from $0.20 to $0.30 per share (see above). The warrants vested on the date of
grant and are exercisable through December 31, 2003. As the warrants were issued
in connection with fund raising activities, no expense is to be recognized.

<PAGE>F-19

The following represents a summary of warrants outstanding for the years ended
July 31, 2002 (there was no warrant activity or warrants outstanding as of and
for the year ended July 31, 2001).

                                                   Weighted
                                                   Average
                                       Warrants    Exercise
                                                   Price


Warrants outstanding -August 1, 2001  $       -   $      -

Warrants granted                        100,000       0.25
Warrants expired/forfeited                    -          -
Warrants exercised                            -          -
                                        -------    -------
Warrants outstanding - July 31, 2002    100,000       0.25
                                        =======    =======

Warrants exercisable                    100,000
                                        =======

All warrants have an exercise price ranging from $0.20 to $0.30 per share, with
a weighted average exercise price of $0.25 and a weighted average remaining
contractual life of 1.4 years. All warrants are exercisable at July 31, 2002.

8.  INCOME TAX PROVISION

There is no material income tax expense recorded for the years ended July 31,
2002 and 2001, due to the Company's net losses.

Income tax expense for the years ended July 31, 2002 and 2001 differed from the
amounts computed by applying the U.S. federal income tax rate of 34 percent for
the following reasons:

                                          2002        2001

Income tax benefit at U.S. federal  $  (192,000)  $ (281,000)
statutory rates

Miscellaneous tax benefits              (37,000)     (55,000)

Miscellaneous operating losses not
benefited                           $   229,000   $  336,000


The Company has a deferred tax asset and like amount of valuation allowance of
approximately $1,233,000 at July 31, 2001, relating to tax net operating losses
and research and development carryforwards.

The valuation allowance increased by approximately $229,000 during the year
ended July 31, 2002.

<PAGE>F-20

As of July 31, 2002, the Company had net operating loss carryforwards of
approximately $2,223,000 to offset future taxable Federal, and foreign income
which expire through 2022. The foreign net operating loss carryforward has no
expiration period. The Company also has research and development credit
carryforwards of approximately $480,000 to offset future taxable federal and
foreign income.

In the event the Company were to experience a greater than 50% change in
ownership as defined in Section 382 of the Internal Revenue Code, the
utilization of the Company's net operating loss carryforwards could be severely
restricted.

9.  LOSS PER SHARE

The following is a reconciliation of the numerators and denominators of the
basic and diluted loss per share computations for the periods ended July 31,:

                                         2002        2001

Numerator for basic and diluted
loss per share:

Net loss charged to common          $  (565,853)  $ (827,004)
stockholders

Denominator for basic and diluted
loss per share:

Weighted average number of shares    15,500,000    9,295,817


Basic and diluted loss per share    $     (0.04)  $    (0.09)


10.  SUBSEQUENT EVENTS

Stock Option Plan

On August 1, 2002, the Company's Board approved the Malahat Energy Corporation
Stock Option Plan (the "Plan"), effective upon approval by the shareholders of
the Company by July 31, 2003.  The Plan provides for the grant of various types
of stock options, including qualified and non-qualified stock options. A maximum
of 1,000,000 qualified and 3,000,000 total options of the Company's common stock
may be issued pursuant to the Plan. The Plan is administered by the Board of
Directors and terminates on July 31, 2012.

Note Payable To Related Party

On September 13, 2002, the Company entered into a note agreement with one of its
officers, under which the officer advanced approximately $40,000 to the Company.
The note is unsecured and bears no interest if paid on or before the maturity
date of December 31, 2002. If the Company is in default on the note, an annual
interest rate of 10% will be payable on the unpaid principal balance.

<PAGE>F-21

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

Subsequent to the end of the Company's fiscal year, as of August 27, 2002, the
Company changed accountants from Stark Winter Schenkein & Co., LLP (formerly
Stock Tinter & Associates, LLC.)to Squar Milner Reehl & Williamson,LLP(Squar
Milner).

The Company decided not to reappoint Stark Winter Schenkein & Co, LLP as its
independent accountant.  The financial statements reported on by Stark Winter
Schenkein & Co, L.L.P. were not subject to an adverse or qualified opinion, or a
disclaimer of opinion and were not modified as to uncertainty, audit scope or
accounting principles during the past  fiscal year, and the interim period
through August 27, 2002, except as relating to the Registrant's ability to
continue as a going concern.

..  There were no disagreements related to accounting principles or practices,
financial statement disclosure, or auditing scope or procedure during the past
two fiscal years and the interim period through August 27, 2002.The Company did
not consult with Squar Milner on any matters prior to their retention.

The decision to change accountants was approved by the Company's Board of
Directors. Effective August 27, 2002, the Company's directors dismissed Stark,
Winter, Schenkein & Co., LLP ("Stark Winter") as its independent auditors and
approved the engagement of Squar, Milner, Reehl & Williamson, LLP ("Squar
Milner") as its independent auditors for the fiscal year ended July 31, 2002 to
replace Stark Winter. The decision to change the Company's auditors was approved
by the Company's board of directors. The Company did not consult with Squar
Milner on any matters prior to retaining such firm as its new auditors.

The report of Stark Winter on the Registrant's financial statements for the
fiscal year ended July 31, 2001, and the related statements of operations,
stockholder's equity and cash flows for the fiscal year then ended, did not
contain an adverse opinion or a disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles, except as
relating to the Registrant's ability to continue as a going concern.

Since the date of Stark Winter engagement and through their dismissal, there
were no disagreements with Stark Winter on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of Stark Winter would have caused
Stark Winter to make reference to the matter in their reports.

<PAGE>26

                                    PART III


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

Directors And Executive Officers

Effective June 18, 2002, the Registrant's board of directors accepted the
resignation of Kimberlee S. Bogen as a director. Ms. Bogen made no reference to
any disagreement with the Registrant on any matter relating to the Registrant's
operations, policies or practices and the Registrant is not aware of any such
disagreements. Concurrent with the acceptance of Ms. Bogen's resignation,
effective June 18, 2002, the Registrant's board of directors appointed Robert
Janzen as a director to fill the vacancy created by Ms. Bogen's resignation. Mr.
Janzen is a corporate lawyer practicing in Arthur, Ontario, Canada, and was
formerly Chairman of one of the Registrant's predecessor private corporate
entities, Malahat Systems Corporation, from December 1995 through May 2001.
Effective July 15, 2002, the Registrant's board of directors also appointed Mr.
Jake Neufeld and Dr. David Wiles as additional directors in accordance with the
Registrant's articles and by-laws and applicable legislation.

The following table sets forth certain information concerning its executive
officers and directors as of July 31, 2002.

     NAME               AGE       POSITION/OFFICE HELD
-------------------     ---       ---------------------------
Ben Dulley              58        Chief Executive Officer,
                                   President and a Director

Bruce Ramsay            50        Chief Financial Officer,
                                   Secretary, and a Director

Jake Neufeld            52        Chief Operating Officer and
                                   Director

David Wiles             69        Director

Robert Janzen           55        Director


<PAGE>27

Business Experience

Ben Dulley has served as President of the Company since May 2001. Prior thereto,
from December 1999 through May 2001, Mr. Dulley was president of PreferSoft,
Inc. (formerly IPS), a private company in the business of developing and
marketing web base e-commerce software. From January 1999 through October 1999,
Mr. Dulley served as CEO and president of Beta Systems Canada, a subsidiary of
Beta Systems Software AG, a German public company (Frankfurt BSS) in the
business of providing management software for large data centers.  From January
1998 through December 1998, he served as CEO and president of HARBOR Systems
Management Ltd., a private software company that provided automated backup and
recovery for large computer installations. From 1995 through Decenmber 1997, Mr.
Dulley was vice president of Interlink Computer Sciences Inc., a Nasdaq listed
company under the trading symbol INLK, in the business of developing and
marketing software products for large mainframe based computer networks.  Mr.
Dulley also serves as a director on the board of directors for Peterborough
Capital Corp., a public capital pool corporation (CDNX PEC), Replicon Inc. a
private software company providing web based time sheets and Hatsize Learning, a
private company providing automated technical training for computer system
administrators.

Bruce Ramsay has served as Chief Financial Officer and Secretary of the Company
since May 2001.  From October 2000 through May 2001, Mr. Ramsay served as Chief
Financial Officer of Malahat Systems Corporation, the entity that was acquired
by SARG and whose assets were later acquired by the Company.  Prior thereto,
from 1995 through September 2000, Mr. Ramsay was the president of Triple F
Ventures Ltd., a private venture capital fund focused on Canadian companies and
for which he still serves as a director.  Mr. Ramsay also serves on the board of
directors of HTS Hi-Tech Systems Ltd., a computer systems and consulting
company, 455812 B.C. Ltd., a holding company, and Hobbs Miller Maat Inc., a bio-
remediation company.

Jake Neufeld has served as Chief Operating Officer for the Company since May
2001. Mr. Neufeld is a founding principal of Malahat Energy Corporation and
filled the role of President during the research and development stage of the
Company. Mr. Neufeld was President of J. Neufeld Developments Ltd., from 1974
and J. Neufeld Construction Inc. from 1979.  Drawing on his considerable
construction and mechanical engineering background, Mr. Neufeld will focus on
commercial implementation of the Company's technology and the production and
sales operations of the Company.

<PAGE>28

Dr. Wiles was Director General (1975 to 1990) of the National Research Council
of Canada, Chemistry Division.  Dr. Wiles formerly served as Chairman and then
President of the Chemical Institute of Canada and served as a member of the
Committee on Macromolecular Chemistry of the U.S. National Research Council,
among many other such positions.  Since 1990, Dr. Wiles has served as the
principal of Plastichem Consulting, a limited partnership which consults to
various chemical companies worldwide on polymers and provides expert witness
testimony for science and technology matters.  Since 1995, Dr. Wiles has served
as a director of MLB Industries Inc., a company whose shares trade on the TSX
Venture Exchange under the symbol "MLB".

Mr. Janzen is a corporate lawyer practicing in Arthur, Ontario, Canada, and was
formerly Chairman of one of the Registrant's predecessor private corporate
entities, Malahat Systems Corporation, from December 1995 through May 2001.

Directors are generally elected at the annual meeting of its shareholders. Each
director holds office until his successor is elected and qualified and, thus,
generally hold one-year terms.

Executive officers are chosen by, and serve at the discretion of, its board of
directors, absent any employment agreement, of which none currently exists.

Family Relationships

There are no family relationships between or among the directors, executive
officers, or persons nominated or chosen by the Company to become directors or
executive officers.

Involvement in Legal Proceedings

To the best of the Company's knowledge, during the past five years, none of the
following occurred with respect to a present or former director or executive
officer of the Company: (1) Any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time; (2) Any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (3) Being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; and (4) Being found
by a court of competent jurisdiction (in a civil action), the SEC or the
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.

<PAGE>29

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires its executive officers and directors,
and persons who beneficially own more than 10% of a registered class of its
equity securities, to file with the Securities Exchange Commission, or
Commission, initial reports of ownership and reports of changes in ownership of
common stock and its other equity securities. Such officers, directors and
shareholders are required by Commission regulations to furnish it with copies of
all reports so filed.

Based solely upon review of the copies of such reports furnished to the Company
during, and with respect to, the fiscal year ended July 31, 2002, or any written
representations received by the Company from a director, officer, or beneficial
owner of more than 10% of its common stock that no other reports were required,
the Company believes that, for the fiscal year ended July 31, 2002, all Section
16(a) filing requirements applicable to its reporting persons were met, with the
following exceptions: Messrs Janzen, and Wiles filed their Form 3's late.

ITEM 10.   EXECUTIVE COMPENSATION

The Company paid the following compensation to the named executive
officers for the fiscal year ended July 31, 2002:

                    SUMMARY COMPENSATION TABLE

NAME AND POSITION                       YEAR     SALARY    BONUS
-------------------------------------   ------------------------
Ben Dulley                              2002     $ 3,200     Nil
                                        2001         Nil     Nil

Bruce Ramsay                            2002     $ 8,900     Nil
Chief Financial Officer and Secretary   2001     $24,200     Nil



Jake Neufeld                            2002     $ 8,900     Nil
Chief Operating Officer                 2001     $26,500     Nil
-------------------------------------   ------------------------

Each of the above executives officers were appointed to their respective
positions in May 2001, as a result of the closing of the Stock Exchange
Agreement by which the Company acquired the assets, liabilities and obligations
of a private Nevada entity known as Sarenghetti Enterprises.  This transaction
is described above in more detail in Part I, Item I and in Part II, Item 6.

<PAGE>30

None of the above named executive officers received any compensation in the form
of a bonus, stock awards, stock options, stock appreciation rights, stock
dividends or award under any long-term incentive plan.

Stock Option Plan

On August 1, 2002, the Company's Board approved the Malahat Energy Corporation
Stock Option Plan (the "Plan"), effective upon approval by the shareholders of
the Company by July 31, 2003.  The Plan provides for the grant of various types
of stock options, including qualified and non-qualified stock options. A maximum
of 1,000,000 qualified and 3,000,000 total options of the Company's common stock
may be issued pursuant to the Plan. The Plan is administered by the Board of
Directors and terminates on July 31, 2012.

------------------------------------------------------------------
Plan category    Number of        Weighted-        Remaining
                 securities to    average          available for
                 be issued upon   exercise price   future issuance
                 exercise of      of outstanding   under equity
                 outstanding      options,         compensation
                 option,warrants  warrants and     plans
                 and rights       rights           (excluding
                                                   securities
                                                   reflected in
                                                   column (A))
                 (#)              ($)              (#)
------------------------------------------------------------------
Equity           0                0                3,000,000
compensation
plans approved
by security
holders
------------------------------------------------------------------
Equity           100,000          0.25             O
compensation
plans not
approved by
security
holders
------------------------------------------------------------------
Total            100,000          0.25             3,000,000
------------------------------------------------------------------

The shares of Common Stock in the Company, set forth below in Item 11, as being
held by Messrs. Dulley, Ramsay, Neufeld, Janzen and Wiles were received by them,
directly or indirectly, as a result of the closing of the Stock Exchange
Agreement and the conversion of shares in SARG held by them into shares of
Common Stock of the Company, as described above.

<PAGE>31

No retirement, pension, profit sharing,  or similar programs have been adopted
by the Company for the benefit of its employees. Subsequent to year end the
Board has adopted a Stock Option Plan which provides for the granting of either
incentive stock options or non-qualified stock options to officers, other key
employees and directors of the Company.  The Stock Option Plan is to be
administered by the Board of Directors.  The Company expects to present such
Plan tat the next Annual General Meeting for shareholder approval.

The Company has entered into Employment Agreements with each of the above named
executives for the period August 1, 2001 through July 31, 2002.

Ben Dulley executed an Employment Agreement that calls for an annual salary of
CDN $200,000 with up to CDN $5,000 payable in cash and the residual payable in
shares.  Bruce Ramsay and Jake Neufeld executed Employment Agreements that call
for an annual salary of CDN $120,000 with up to CDN $5,000 payable in cash and
the residual payable in shares.

Directors are not compensated for any services they may provide as directors on
the Company's board of directors.

The Articles of Incorporation provide for a limitation on the liability of
officers and directors of the Company, specifically "A director or officer of
the Corporation shall have no personal liability to the Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer,
except for damages for breach of fiduciary duty resulting from (a) acts or
ommissions which involve intentional miscouduct, fraud, or a knowing violation
of law, or (b) the payments of dividends in violation of section 78.300 of the
Nevada Revised Statutes as it may from time to time be amended or any successor
provision thereto."

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth information regarding the
beneficial ownership
of its common stock as of July 31, 2002 by:

         o    each person known by it to own beneficially more than 5%, in the
              aggregate, of the outstanding shares of its common stock;

         o    each of its directors;

         o    its named executive officers in the Summary Compensation Table
              above; and

         o    all of its directors and executive officers as a group.

<PAGE>31

         The following calculations of the percent of outstanding shares are
based on 15,500,000 shares of its common stock issued and outstanding as of July
31, 2002. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and generally includes voting or investment
power with respect to securities. Except as indicated in the footnotes to the
table, the Company believes each shareholder possesses sole voting and
investment power with respect to all of the shares of common stock owned by that
shareholder, subject to community property laws where applicable. In computing
the number of shares beneficially owned by a shareholder and the percentage
ownership of that shareholder, shares of common stock subject to options or
warrants held by that person that are currently exercisable or are exercisable
within sixty days after the date of the table are deemed outstanding. Those
shares, however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person or group. Except as described below,
beneficial ownership and, accordingly, percent of class ownership, is calculated
pursuant to Securities and Exchange Commission Rule 13d-3.



                                      AMOUNT AND NATURE OF
NAME AND ADDRESS                      BENEFICIAL OWNERSHIP    PERCENT
OF BENEFICIAL OWNER                   OF COMMON STOCK         OF COMMON STOCK
-------------------                   --------------------    ---------------
Ben Dulley
C/o Malahat Energy Corporation            521,178 shares           3.36%
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

Bruce Ramsay (1)                          888,335 shares           5.69%
C/o Malahat Energy Corporation
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

Jake Neufeld (2)                        3,105,664 shares          20.04%
C/o Malahat Energy Corporation
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

David Wiles                             479,051 shares             3.10%
C/o Malahat Energy Corporation
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

Robert Janzen                           228,408 shares             1.47%
C/o Malahat Energy Corporation
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

George Neufeld (3)                      1,157,629 shares           7.47%
C/o Malahat Energy Corporation
700 - 101 Convention Centre Drive
Las Vegas, NV 89109

B.C. Advanced Systems Institute         1,034,910 shares           6.69%
450 - 1122 Mainland Street,
Vancouver, B.C. V6B 5L1

All officers and directors              5,322,636 shares          34.34%
as a group (5 persons)


(1)   Includes 297,816 shares of Common Stock held by Triple F Ventures Ltd., a
      firm of which Mr. Ramsay serves as a director, and 14,891 shares of Common
      Stock held in the name of Mr. Ramsay's wife, Susan Ramsay.

(2)   Includes 340,939 shares of Common Stock held by J. Neufeld Development
      Ltd., a development firm of which Mr. Neufeld is the CEO, and 148,908
      shares of Common Stock held in the name of Mr. Neufeld's wife, Linda
      Neufeld.

(3)   Includes 303,056 shares of Common Stock held by 11335276 Ontario Inc., a
      development firm of which Mr. George Neufeld is the CEO.


<PAGE>32

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Stock Exchange Agreement.  As of September 10, 2001, the Company completed the
merger reported earlier under its former name, Granada Mineral Products, Inc.,
pursuant to a Stock Exchange Agreement (the "Stock Exchange Agreement"), dated
May 8, 2001, entered into with Sarenghetti Enterprises, a Nevada
corporation("SARG"), which provided for the merger of SARG with and into the
Company which is the surviving entity, pursuant to a tax-free reorganization in
accordance with Section 354 and 368 of the Internal Revenue Code of 1986, as
amended.

Upon the closing of the Stock Exchange Agreement, which occurred on or about May
10, 2001, and the completion of the transactions contemplated therein, which
occurred on or about September 10, 2001, there was a change in control of the
Company.

Pursuant to the Stock Exchange Agreement, at the closing, SARG exchanged
6,765,929 shares of its common stock, par value $0.001 per share, representing
all of its issued and outstanding stock for 10,075,000 shares of common stock,
par value $0.001 per share, of the Company. As a result, upon the completion of
the closing and consummation of the merger as contemplated, the holders of
shares of SARG's common stock held 65% of the Registrant's issued and
outstanding common stock.

Pursuant to the terms of the Stock Exchange Agreement, the Company changed its
name to "Malahat Energy Corporation."

In addition, pursuant to the terms of the Stock Exchange Agreement, upon the
Closing, Ben Dulley was appointed as a director and President, and Bruce Ramsay
as a director, Chief Financial Officer and Secretary of the Company and
Kimberlee Bogen as a director and Assistant Secretary.  Ms Bogen subsequently
resigned as a director and officer of the Company on June 18, 2002.


<PAGE>33

ITEM 13.        FINANCIAL STATEMENTS, EXHIBITS AND FORM 8-K FILINGS

(a)    The following documents are filed as a part of this Annual Report on Form
       10-KSB at item 7 on pages F-1 through F-12:

       Financial Statements
       Auditors Report to the Shareholders
       Consolidated Balance Sheets
       Consolidated Statement of Stockholders' Equity
       Consolidated Statements of Cash Flows
       Consolidated Statements of Operations
       Notes to Consolidated Financial Statements

(b)    Financial Statement Schedule Auditors Report from inception to December
       31, 1999

(c)    Exhibits are incorporated herein by reference or are filed with this
       report as indicated below:

EXHIBIT INDEX:

EXHIBITS

(a) The following documents are filed as part of this report:

         3.1    Articles of Incorporation and Certificate of Amendment of
                Articles of Incorporation of Company - (incorporated by
                reference to the corresponding exhibit from the Company's
                registration statement on Form 10SB filed February 11, 2000);

         3.2    By-Laws of Company - (incorporated by reference to the
                corresponding exhibit from the Company's registration statement
                on Form 10SB filed February 11, 2000);

        10.1    Equipment Lease - (incorporated by reference to the
                corresponding exhibit from the Company's registration statement
                on Form 10SB filed November 13, 2001);

(b) Reports on form 8-K in last fiscal quarter

       None.

<PAGE>34
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 13th day of
November, 2002.

                                        MALAHAT ENERGY CORPORATION

                                By: /s/ BEN DULLEY
                                        -----------------
                                        Ben Dulley
                                        President and CEO


Power Of Attorney

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Ben Dulley, his attorneys-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-KSB, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that the said attorney-in- fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the dates indicated.



      Signature                  Title                      Date
 ----------------------      --------------------------     -----------------

 /s/ BEN DULLEY              President and Director         November 13, 2002

     Ben Dulley


 /s/ BRUCE RAMSAY            Chief Financial Officer,       November 13, 2002
     ---------------         Secretary and a Director
     Bruce Ramsay


 /s/ JAKE NEUFELD            Chief Operating Officer        November 13, 2002
     ---------------         and Director
     Jake Neufeld

 /s/ BOB JANZEN              Director                       November 13, 2002
     ---------------
     Bob Janzen


 /s/ DAVID WILES             Director                       November 13, 2002
     ---------------
     David Wiles

<PAGE>35

                           CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Malahat Energy Corporation (the
"Company") on Form 10-KSB for the year ended July 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned in the capacity and on the date indicated below, hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operation of the Company.


/s/ Bruce Ramsay
    ---------------
    Bruce Ramsay
    Principal Accounting Officer and Chief Accounting Officer
    November 13, 2002


                           CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



In connection with the Annual Report of Malahat Energy Corporation (the
"Company") on Form 10-KSB for the year ended July 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned in the capacity and on the date indicated below, hereby certifies
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002, that:

1.   The Report fully complies with the requirements of Section 13(a) or 15(d)
     of the Securities Exchange Act of 1934; and

2.   The information contained in the Report fairly presents, in all material
     respects, the financial condition and results of operation of the Company.


/S/ Ben Dully
    ---------------
    Ben Dully
    Chief Executive Officer

Date:  November 13,2002
========================================================

I, Ben Dully, certify that:

1.  I have reviewed this report on Form 10-KSB of Malahat Energy Corporation,
    Inc.;

2.  Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the periods presented in this annual report.

Date: November 13, 2002

/s/ Ben Dully
    ---------------
    Ben Dully
    Chief Executive Officerr

===========================================================

I, Bruce Ramsay, certify that:

1.  I have reviewed this report on Form 10-KSB of Malahat Energy Corporation,
    Inc.;

2.  Based on my knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements were made, not misleading with respect to the period covered by
    this annual report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the periods presented in this annual report.

Date: November 13, 2002

/s/ Bruce Ramsay
    ---------------
    Bruce Ramsay
    Chief Financial Officer
    (Principal Accounting Officer)

<PAGE>36
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