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

                                   FORM 10-KSB

            ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                      For the year ended December 31, 2002
                         Commission File Number 0-29613


                         TIDELANDS OIL & GAS CORPORATION
                 (Name of small business issuer in its charter)


         Nevada                                                  66-0549380
(State or other jurisdiction of                              (I. R. S. Employer
 incorporation or organization)                              Identification No.)


              13330 Leopard St., Suite 26, Corpus Christi, TX 78410
                     (Address of principal executive office)

                                 (361) 241-2244
                           (Issuer's Telephone Number)

        Securities Registered Pursuant of Section 12(b) of the Act: None

           Securities Registered Pursuant of Section 12(g) of the Act:
                         Common Stock, $0.001 Par Value



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act of 1934  during the  preceding  12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such 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 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 of
this Form 10-KSB. [ ]

The issuer had  operating  revenues of $709,662 for the year ended  December 31,
2002.

This report contains a total of 35 pages. The Exhibit Index appears on page 12.

As of December 31, 2002,  there were  33,683,329  shares of the issuer's  common
stock  outstanding.  The aggregate market value of the 26,789,055  shares of the
issuer's voting stock held by non-affiliates was $6,429,373 based on the low bid
price on that date as reported by the NASD OTC Electronic  Bulletin  Board.  The
sum excludes  the shares held by officers,  directors,  and  stockholders  whose
ownership  exceeded 10% of the outstanding  shares at December 31, 2002, in that
such persons may be deemed  affiliates  of the Company.  This  determination  of
affiliate  status  is not  necessarily  a  conclusive  determination  for  other
purposes.

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                                   FORM 10-KSB

                                December 31, 2002



                                                                            Page


PART I.....................................................................

ITEM 1.  Business..........................................................
ITEM 2.  Properties........................................................
ITEM 3.  Legal Proceedings.................................................
ITEM 4.  Submission of Matters to vote of Security Holders.................

PART II....................................................................

ITEM 5.  Market for Common Equity and Related Stockholder Matters..........
ITEM 6.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...........................
ITEM 7.  Financial Statements..............................................
ITEM 8.  Changes In and Disagreements With Accounting and
             Financial Disclosure..........................................

PART III...................................................................

ITEM 9.  Directors, Executive Officers, Promoters, and Control
           Persons: Compliance With Section 16(a) of the Exchange Act......
ITEM 10.  Executive Compensation...........................................
ITEM 11.  Security Ownership of Certain Beneficial Owners and Management...
ITEM 12.  Certain Relationships and Related Transactions...................

PART IV....................................................................

ITEM 13.  Exhibits and Reports on Form 8-K.................................
SIGNATURES.................................................................
EXHIBIT INDEX..............................................................


                                     PART I

ITEM 1.   Business.

Business Overview

         Tidelands Oil & Gas Corporation (the  "Company"),  formerly known as C2
Technologies,  Inc., was  incorporated  under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation  on  November  19,  1998.  The Company  has six  subsidiaries  named
Tidelands Oil Corporation  (TOC) and Tidelands Gas Corporation  (TGC), Rio Bravo
Energy, LLC, Sonora Pipeline,  LLC, Reef  International,  LLC and Reef Marketing
LLC.

         The Company's  plan of operations  has been  refocused  towards our gas
processing plant and pipeline interest along with a new  international  pipeline
crossing.

         Tidelands Oil Corporation  was formed in May 1985.  Since inception and
through the second quarter of 2001, Tidelands Oil Corporation had devoted all of
its  efforts to  acquiring  control of leases  which  comprised a portion of the
Sacatosa Field in Maverick County,  Texas.  The Company  discontinued all of its
activities related to oil and gas producing  properties during 2001.  Management
proceeded  to  dispose  all  Company  interests  in its oil and gas  properties,
terminated all leases,  disbanded all joint ventures and settled  related claims
and disputes.  After liquidating all of the properties  Tidelands sold Tidelands
Oil Corporation for book value to Royis Ward a director of the company.



<PAGE>

         Tidelands Gas Corporation was formed on August 29, 1996.  Tidelands Gas
Corporation was formed primarily for the purpose of acquiring the Delhi Pipeline
System for use as a gas  transportation  outlet  for the  shallow  gas  reserves
underlying  Tideland's  leases.  After  liquidating  all of the oil & gas leases
Tidelands elected to sell Tidelands Gas to Royis Ward for book value.

         Tidelands Oil & Gas Corporation  organized two Texas Limited  Liability
companies, Rio Bravo Energy, LLC and Sonora Pipeline, LLC.

         Rio Bravo  Energy,  LLC was  formed on August 10,  1998.  It was formed
primarily to operate the Chittim Gas Processing  Plant.  Rio Bravo Energy,  LLC.
purchased  the Chittim gas  processing  plant from Conoco,  Inc.  This plant was
purchased  by Rio Bravo in 1999 and  processed  natural  gas from  Conoco  Oil's
Sacatosa Field which consists of approximately 3000 wells. The gas plant has the
capability  to  fractionate  the natural gas into  commercial  grade propane and
butane. However in October 2002 Rio Bravo temporarily shut down the plant due to
low volume of gas and plans to reopen the plant sometime in the third quarter of
2003  utilizing  gas  produced  from third party  producers  before going to our
international  crossing.  This would  maximixe all of the capacity of the plant.
Therefore  allowing more liquids to be stripped from the gas, thus complimenting
our propane/butane terminal and crossing into Mexico.

         Sonora  Pipeline,  LLC  was  formed  in  January  1998.  It was  formed
primarily to operate the Sonora pipeline  network which delivers  natural gas to
the Rio Bravo Chittim Gas Processing  Plant.  Sonora's pipeline network consists
of approximately 80 miles of gas pipeline.

         Sonora will transport gas produced from other  operators in the area to
the Rio Bravo gas plant.  Rio Bravo will operate the gas plant.  It will process
the natural gas into gas products such as natural gasoline, propane, butane. Rio
Bravo will also market the gas products.

         Rio Bravo intends to ship all propane and butane products to Mexico and
to sell natural  gasolines to domestic  customers.  We believe the plant will be
operating at full capacity  with our  fractionating  facilities  also running at
maximum capacity.

         The Texas Railroad Commission  regulates all aspects of the production,
transportation and processing of petroleum products.

         Reef International,  LLC was formed to obtain permits and construct two
international  pipeline  crossings between Texas and Mexico.  The pipelines when
constucted will transport natural gas to Piedra Negras,  Mexico for distribution
by CONAGAS (Cianacional DE Gas, S.A. DE C.V.). Reef intends to transport propane
and butane into Mexico via its  propane/butane  terminal to be constucted on the
U.S.  side of the river.  Reef has been  successful  in  obtaining  presidential
permits  for  both  the  natural  gas  and  the  propane/butane  crossigs.  Reef
Marketing,  LLC  was  formed  as a  marketing  company  to  market  all  gas and
propane/butane into Mexico.

As previously  disclosed in our quarterly report for the period ending September
30, 2002, we executed a Purchase and Sale Agreement with ZG Gathering,  Ltd. for
the purpose of acquiring  their  pipeline  system.  Although,  the agreement was
formally  executed,  ZG failed to deliver us  control  of the  pipeline  system,
including,  but not limited to,  financial  and other  records  necessary to the
operation of the system,  including  monthly  revenues.  We are seeking judicial
rescission and cancellation of the purchase and sale agreement.

Competition

         Tidelands  will  compete  for  gas  suppliers  and  petroleum   product
purchasers.  This competition will be against  companies with greater  financial
and other resources.  Competitive factors will include price, contract terms and
quality  of  service,  including  pipeline  connection  times  and  distribution
efficiencies  and financial  resources.  The Company will face  competition from
other producers and suppliers,  including competition from other local and world
wide energy suppliers.

Employees

The Company has seven employees,  including the Company  officers,  two clerical
and  accounting  personnel,   three  field  personnel  and  two  contract  plant
operators.



<PAGE>

ITEM 2.   Properties

         Rio Bravo  Energy,  LLC owns and  operates  the Chittim Gas  Processing
Plant which is located in Maverick, County, Texas.

         Sonora  Pipeline,  LLC owns the Sonora Pipeline  network  consisting of
approximately 80 miles of pipeline.

         We rented  two  properties  for our  operations  during  2002,  (a) our
executive offices located at 13330 Leopard St, Corpus Christi,  Texas, at $2,050
monthly and (b) our field office at $400 monthly.  Our rent expense for 2002 was
$29,400.  Our executive office is a month-to-month  tenancy. Our field office is
located at Crystal Springs, Texas and is a month-to-month tenancy.

ITEM 3.   Legal Proceedings

         On January 6, 2003,  we were  served as a third  party  defendant  in a
lawsuit titled Northern  Natural Gas Company vs. Betty Lou Sheerin vs. Tidelands
Oil & Gas  Corporation,  ZG Gathering,  Ltd. and Ken Lay, in the 150th  Judicial
District Court, Bexar County, Texas, Cause Number 2002-C1-16421. The lawsuit was
initiated by Northern Natural Gas when it sued Betty Lou Sheerin for her failure
to make  payments on a note she  executed  payable to  Northern in the  original
principal amount of $1,950,000.  Northern's suit was filed on November 13, 2002.
Sheerin  answered  Northern's  lawsuit  on January  6,  2003.  Sheerin's  answer
generally  denied  Northern's  claims  and raised the  affirmative  defenses  of
fraudulent inducement by Northern,  estoppel,  waiver and the further claim that
the not does not comport with the legal requirements of a negotiable instrument.
Sheerin  seeks a judicial  ruling that  Northern  be denied any  recovery on the
note. Sheerin's answer included a counterclaim  against Northern,  ZG Gathering,
and Ken Lay generally alleging, among other things, that Northern, ZG Gathering,
Ltd. and Ken Lay,  fraudulently  induced her execution of the note. Northern has
filed a general denial of Sheerin's  counterclaims.  Sheerin's answer included a
third party cross claim against  Tidelands.  She alleges that Tidelands  entered
into an agreement to purchase the Zavala Gathering System from ZG Gathering Ltd.
and that,  as a part of the  agreement,  Tidelands  agreed to satisfy all of the
obligations  due  and  owing  to  Northern,  thereby  relieving  Sheerin  of all
obligations she had to Northern on the promissory note in question.  She alleges
that  Tidelands  is liable to her for all of her  actual  damages,  costs of the
lawsuit and other  unstated  relief.  Tidelands and Sheerin  agreed to delay the
Tideland's  answer  date in order  to allow  time  for  mediation  of the  case.
Tideland's  participated  in a  mediation  on March 11,  2003.  The case was not
settled at that time.  Tideland's  answered  the Sheerin suit on March 26, 2003.
Tideland's  answer  denies all of Sheerin's  allegations.  No discovery has been
completed  at this time.  Based on  initial  investigation,  however,  Tidelands
appears to have a number of potential  defenses to Sheerin's claims.  Tideland's
intends  to  aggressively  defend  the  lawsuit.  At  this  early  stage  in the
litigation,  and in light of our continuing  investigation  of the facts and the
issues in the case,  we cannot give a more  definitive  evaluation of the extent
Tideland's liability exposure.

         On December 23, 2002, we were served as a defendant in a lawsuit titled
El Viejo Ranch, Ltd. vs. Tidelands Oil & Gas Corporation,  in the 293rd Judicial
District,  Zavala County, Texas, Cause Number  02-12-10606-ZCV.  The lawsuit was
initiated by El Viejo Ranch, Ltd. on December 10, 2002. El Viejo contends that a
pipeline  right of way agreement  was breached as a result of certain  insurance
coverage,  required to be maintained  under the  right-of-way  agreement,  being
allowed to lapse resulting in termination of the right-of-way easement. El Viejo
seeks a  declaratory  judgement  that the  right-of-way  agreement  was properly
terminated,  that Tidelands is obligated to cease use of the pipeline,  reconvey
the easement to El Viejo, to remove the pipeline, and to remediate the property.
El Viejo also  seeks a  temporary  injunction  to enjoin  Tidelands'  use of the
easement,  damages  in an  unstated  amount and  recovery  of  attorneys'  fees.
Tidelands'  answered the El Viejo lawsuit in early  February,  2003.  Tidelands'
answer denies all of El Viejo's allegations.

<PAGE>

ITEM 4.   Submission of Matters to vote of Security Holders

No matters  were brought to a vote of the  Security  Holders  during the quarter
ended December 31, 2002.


                                     PART II

ITEM 5.       Market for Common Equity and Related Stockholder Matters

         Our common stock is traded on the OTC Electronic  Bulletin  Board.  The
following  table sets forth the high and low bid prices of our common  stock for
each quarter for the years 2001 and 2002. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

Common Stock:

         Our common  stock  trades  Over-the-Counter  (OTC) on the OTC  Bulletin
Board  under  the  symbol  TIDE.  Table  1.  sets  forth  the  high  and low bid
information  for the past  two  years.  These  quotations  reflect  inter-dealer
prices,  without retail  mark-up,  mark-down or commission and may not represent
actual transactions. These data provided by NASDAQ Historical Data Service.

Table 1.

Bid Information


Fiscal Quarter Ended

                                High             Low

December 31, 2002               0.26            0.24
September 30, 2002              0.34            0.34
June 30, 2002                   0.58            0.53
March 31, 2002                  1.09            0.88
December 31, 2001               1.48            0.82
September 30, 2001              1.80            0.75
June 30, 2001                   1.25            0.32
March 31, 2001                  0.50            0.15





         According  to our stock  transfer  agency  records,  the Company had 81
active  shareholders  of our  common  stock  as of  December  31,  2002  holding
34,683,329 common shares.

Dividends and Dividend Policy

         There  are no  restrictions  imposed  on the  Company  which  limit its
ability to declare or pay  dividends on its common  stock,  except as limited by
state corporation law. During the year ended December 31, 2002, no cash or stock
dividends  were  declared  or  paid  and  none  are  expected  to be paid in the
foreseeable future.

<PAGE>

         We expect to continue to retain all  earnings  generated  by our future
operations  for the  development  and  growth  of our  business.  The  Board  of
Directors will determine  whether or not to pay dividends in the future in light
of our earnings, financial condition, capital requirements and other factors.

Recent Sales of Unregistered Securities


         During the period  September 1 through December 31, 2002, we issued the
following securities in exempt transactions not requiring registration:

         On September 5, 2002, we authorized the issuance of 1,000,000 shares of
our common stock in  connection  with ZG Gathering  pipeline  transaction.  (See
Legal Proceedings) The shares were issued to Aztec Energy  Corporation  (250,000
shares),  E.C.  Partnership  Ltd.  (100,000  shares),  Stephen R. West (500,000)
shares, William B. Kingman (50,000 shares),  Shiloh Partners (50,000 Shares) and
Betty Lou  Sheerin  (500,000).  The company  has taken the  position  that these
shares  issued in the ZG  Gathering  trasaction  were void and has placed a stop
transfer order with its stock transfer agent,  Signature Stock Transfer Company,
Inc.

         On  December  31,  2002,  we sold  400,000  common  shares in a private
transaction to Stanley Merdinger for $100,000.

         All of the  above  described  common  stock  issued  in  these  private
transactions pursuant to Section 4(2) of the Securities Act of 1933, as amended,
and are deemed restricted securities.


ITEM 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations.

         The following discussion of our results of operations and liquidity and
capital resources should be read in conjunction with our condensed  consolidated
financial  statements  and related  notes  thereto  appearing  elsewhere in this
report.  All  information in the discussion and references to the years 2001 and
2002 are based on our fiscal year that ends on December 31.

OVERVIEW:

The  Company  completely  refocused  its  plan of  operations  from  oil and gas
production  to  natural  gas  processing  and  pipeline  transportation  and the
development of an international pipeline crossing to Mexico.

During 2001, we organized a subsidiary named, Reef International,  LLC. Reef has
obtained the necessary  state and federal  permits for the  construction  of the
international  pipeline crossing between Eagle Pass, Texas and Piedras,  Mexico.
Approvals have been secured from the State of Texas for these  permits.  Federal
Presidential  Permits have been issued for both our natural gas crossing and our
propane/butane  crossing.  All  engineering and  construction  studies have been
finalized and approved by both state and federal agencies.

The  international  pipeline crossing will consist of a twelve (12) inch natural
gas line and six (6) inch  propane/butane  line  between  Texas and Mexico.  The
natural gas pipeline will transport  natural gas to Piedras  Negras,  Mexico for
distribution by a qualified existing Mexican Company.  The  propane/butane  line
will allow the Company to  transport  propane and butane  products  into storage
facilities  in  Mexico.   The  Company  is  actively   exploring  other  similar
opportunities  to  provide  natural  gas and  it's  by-products  to  Mexico  for
distribution by Mexican organizations.

<PAGE>

During October 2002, the Company  ceased  processing  natural gas at its Chittim
Gas  Processing  Plant due to lack of sufficient  working  capital and a reduced
volume of natural gas unput. The Company plans to re-open the plant by the third
quarter, 2003 subject to negotiations with third party producers.

In  addition  to  the  Eagle   Pass/Piedras   Negas,   Mexico   crossing,   Reef
International,  LLC. has commenced the initial  engineering  prior to commencing
the permitting process for a second international  crossing at El Paso, Texas to
Juarez, Mexico.


RESULTS OF OPERATIONS

         REVENUES:  The Company  reported  revenues of $709,662 from  continuing
operations  for the year ended  December 31, 2002 as compared with revenues from
continuing  operations of $1,059,028  for the year ended  December 31, 2001. The
revenue  reduction  was  primarily due to decreases in the sale price of natural
gas related products and reduced sales natural gas products.

         TOTAL COSTS AND  EXPENSES:  Total costs and  expenses  from  continuing
operations  increased  from  $2,760,080  for 2001 to  $4,454,087  for 2002.  The
increase  of  $1,694,007  is  substantially  due to the  increased  general  and
administrative expenses.

         COST OF SALES: The cost of sales (purchases) from continuing operations
decreased  from  $699,010 in 2001 to $529,332 in 2002.  The decrease of $169,678
reflects  both a reduced  volume of natural gas  purchases  and lower prices for
most of 2002.

         OPERATING  EXPENSES:  Operating  expenses related to our gas processing
plant and pipeline  operations  increased  from  $208,815 in 2001 to $234,229 in
2002.  The  increase  of $25,414 was  substantially  attributable  to  increased
casualty insurance costs.

         SELLING  GENERAL  AND  ADMINISTRATIVE  EXPENSES:  Selling  general  and
administrative expenses from continuing operations increased from $1,716,301 for
2001 to  $3,013,606  for 2002.  The increase of $1,297,305 in 2001 was primarily
due to increased  consulting fees, including those relating to various financing
efforts  associated  with our  international  pipeline  crossing  at Eagle Pass,
Texas.

         INCOME TAX: The pre-tax loss  increased from  ($2,606,265)  for 2001 to
($4,060,772) for 2002 on an increase of ($1,454,507).


         LIQUIDITY  AND  CAPITAL  RESOURCES:  Capital  expenditures  during 2002
totaled $353,820 as compared to $199,710 during 2001.

         Total debt increased from $3,840,674 at December 31, 2001 to $3,915,273
at December 31, 2002 of which $1,330,000 was unpaid officer's salaries,  $45,000
was unpaid  director's fees and $344,362 was loans from officers.  Total debt as
of December 31, 2002 and December 31, 2001  expressed as a percentage of the sum
of total debt and shareholder's equity was 283.9% and 231.6% respectively.

         Net loss for the year  ended  December  31,  2002 was  ($4,060,772)  an
increase of 155.8% from the net loss of ($2,606,265) for the year ended December
31, 2001. Diluted net loss per common share increased 120.7% to ($0.140) for the
year ended  December 31, 2002  compared to ($0.116) for the year ended  December
31,  2001.  The net loss per share  calculation  for the year  December 31, 2002
included an increase in actual and equivalent shares outstanding.


<PAGE>

         We currently do not have the liquidity or capital resources to fund our
operations  without raising  capital either from  additional  borrowing and, or,
from  the  sale  of  additional  shares  of  stock.  The  Company  is  currently
negotiating a funding/joint venture of $8,000,000.

FORWARD-LOOKING STATEMENTS:

         We have included  forward-looking  statements in this report.  For this
purpose,  any  statements  contained in this report that are not  statements  of
historical fact may be deemed to be forward looking statements. Without limiting
the foregoing, words such as "may", "will", "expect",  "believe",  "anticipate",
"estimate",  or  "continue"  or the  negative  or other  variations  thereof  or
comparable  terminology  are  intended to identify  forward-looking  statements.
These statements by their nature involve  substantial  risks and  uncertainties,
and actual  results  may differ  materially  depending  on a variety of factors.
Factors that might cause  forward-looking  statements to differ  materially from
actual  results  include,  among other  things,  overall  economic  and business
conditions,  demand  for the  Company's  products,  competitive  factors  in the
industries  in which we compete or intend to compete,  natural gas  availability
and cost and timing,  impact and other  uncertainties of our future  acquisition
plans.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

         The Company does not issue or invest in financial  instruments or their
derivatives for trading or speculative  purposes.  The operations of the Company
are conducted  primarily in the United States,  and, are not subject to material
foreign  currency  exchange risk.  Although the Company has outstanding debt and
related  interest  expense,  market risk of interest rate exposure in the United
States is currently not material.

ITEM 7.  Financial Statements

                          Index to Financial Statements


Independent Accountant's Report..........................................
Financial Statements
       Balance Sheets....................................................
       Statements of Operations..........................................
       Statements of Stockholder's Equity................................
       Statements of Cash Flows..........................................
       Notes to Financial Statements.....................................


ITEM 8. Changes In and Disagreements With Accountants o Accounting and Financial
        Disclosure.

None

<PAGE>

PART III


ITEM  9.  Directors,   Executive  Officers,   Promoters,  and  Control  Persons:
          Compliance With Section 16(a) of the Exchange Act



         The  following  table  lists the  names,  ages,  and  positions  of the
executive  officers and  directors  of the Company  that served  during the year
ending  December 31, 2002.  All officers and  directors  have been  appointed to
serve until their successors are elected and qualified.  Additional  information
regarding the business experience,  length of time served in each capacity,  and
other matters relevant to each individual is set forth following the table.

Name               Age       Position or officer                Appointment Date
--------------------------------------------------------------------------------

Michael Ward       47       Director, President                 October 21, 1998
Royis Ward         69       Director,  Secretary/Treasurer      October 21, 1998
Ahmmed Karim       31       Director,  Vice President           October 21, 1998



         Michael Ward is the President,  Chief Executive Officer and Director of
the Company and Chief Executive  Officer of Tidelands Gas  Corporation.  Michael
Ward has served in his present  capacities  since October 21, 1998. Mr. Ward has
more than 25 years of diversified experience as an oil and gas professional.  He
was educated in business  management and administration at Southwest Texas State
University and the University of Texas.  He has wide  experience in the capacity
in which he successfully served in operating oil and gas companies in the United
States.  During the past 20 years,  he has been  associated  with Century Energy
Corporation where his duties and  responsibilities  were production and drilling
superintendent and supervised 300 re-completions and new drills in Duval County,
Texas. In association with Omega Minerals, Inc., where he was vice president and
part owner,  he  operated  65 wells in 23  counties in South and West Texas:  17
wells in Seminole and Osage  Counties,  Oklahoma,  44 wells in Neosho and Wilson
Counties,  Kansas and 125 wells in Brown,  Pike,  Schuyler  and Scott  Counties.
Illinois.  He was president and owner of Major  Petroleum  Company.  He drilled,
completed  and produced 42 wells in South and West Texas  counties.  The company
was sold. With Tidelands Oil  Corporation,  his duties included  supervising and
performing  remedial  well  work,  work-overs  and  economic  evaluation  of the
corporate  properties.  The  primary  area of interest  was in Maverick  County,
Texas. He has performed  project  financing  analysis and consulting of refinery
acquisitions  for the Yemen  government.  Currently,  he is negotiating  new gas
purchase and sale contracts,  supervising and administering the sale of gas line
connections and hookups.

         Royis Ward is the Secretary/Treasurer and a Director of the Company and
the President of Tidelands Oil  Corporation.  Mr. Ward has served in his present
capacities  since  October  21,  1998.  He has been  engaged  in the oil and gas
industry  since  graduation  from Tyler Junior  College,  Tyler,  Texas in 1952.
Initially,  he was  employed  as a  production  superintendent  and  landman for
Coffield  &  Guthrie,  Inc.,  a  large  independent  oil and  gas  operator  and
thereafter placed in charge of pipeline and drilling  operations from 1952-1955.
In 1955.  he began to develop oil and gas  properties  for his own account as an
independent  oil and gas operator  throughout the southwest  until 1962. At that
time, he became President of Omega Petroleum Corporation, Shreveport, Louisiana.
Thereafter,  he  continued  as an  independent  oil  and gas  operator  drilling
individual in excess of 50 wells in the South Texas Area. In 1968, he became the
President and CEO of Omega Minerals, Inc. and was instrumental in acquiring vast
oil and gas properties by drilling,  development, and re-acquisitions.  In 1985,
Tidelands Oil Corporation,  a Texas  Corporation,  was formed for the purpose of
drilling and developing oil and gas properties in South Texas.

         Ahmmed  Karim Vice  President  and  director  of the  Company.  He is a
graduate   of  Simon   Fraser   University.   He  holds  a  degree  in  Business
Administration, specializing in marketing and international business. Since 1995
his  business   experience  includes  work  with  Quest  Investments  Group  and
Interworld  Trade and Finance  where his  responsibilities  included  marketing,
finance and investor relations.

<PAGE>

Royis Ward is the father of Michael Ward.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

         Section  16(a) of the  Securities  Exchange  Act of 1934  requires  the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock, to file with the Securities and Exchange  Commission
initial  reports of  beneficial  ownership  and reports of changes in beneficial
ownership of Common Stock of the Company.  Officers,  directors and greater than
10%  shareholders  are required by the  Securities  and Exchange  Commission  to
furnish the Company with copies of all section  16(a)  reports they file.  Based
solely  on  copies  of such  forms  furnished  as  provided  above,  or  written
representations that no Forms 5 were required,  the Company believes that during
the fiscal year ended December 31, 2002,  all Section 16(a) filing  requirements
applicable to its executive  officers,  directors and beneficial  owners of more
than 10%of its Common Stock were complied  with,  except as follows:  Royis Ward
failed  to file a number  of Forms  4's,  Statement  of  Changes  in  Beneficial
Ownership of Securities, relating to several transactions during 2002.

CODE OF ETHICAL CONDUCT.

         On March 26, 2003,  our board of directors  adopted our code of ethical
conduct  that  applies to all of our  employees  and  directors,  including  our
principal executive officer,  principal financial officer,  principal accounting
officer or controller,  and persons performing similar functions. We believe the
adoption of our Code of Ethical Conduct is consistent  with the  requirements of
the Sarbanes-Oxley Act of 2002.

         Our Code of Ethical  Conduct is  designed  to deter  wrongdoing  and to
promote:

o        Honest and ethical conduct, including the ethical handling of actual or
         apparent  conflicts  of  interest  between  personal  and  professional
         relationships;
o        Full, fair, accurate,  timely and understandable  disclosure in reports
         and  documents  that we file or submit  to the  Securities  &  Exchange
         Commission and in other public communications made by us;
o        Compliance with applicable governmental laws, rules and regulations,
o        The  prompt  internal  reporting  to an  appropriate  person or persons
         indentified  in the code of violations of our Code of Ethical  Conduct;
         and
o        Accountability for adherence to the Code.

ITEM 10.      Executive Compensation

         The  following  sets  forth the  compensation  of the  officers  of the
Company in the year ended December 31, 2002.

Executive Officer Compensation

         The Company has three executive officers,  Michael Ward, Royis Ward and
Ahmmed Karim.  Michael  Ward's  annual  salary is $120,000.  Royis Ward's annual
salary is $120,000.  The company has not paid any of these  salaries to date and
the amounts due are accruing.


<PAGE>

Director Compensation

         On April 11,  2001,  the Company  agreed to  compensate  a director for
services  provided at the rate of $5,000 per month.  For the year ended December
31, 2002, we incurred  $60,000 for these  services of which $45,000 is still due
as of December 31, 2002. There are no other formal or informal understandings or
arrangements relating to compensation.

ITEM 11.   Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth the Common Stock  ownership  information
as of December 31, 2002,  with respect to(i) each person known to the Company to
be the beneficial owner of more than 5% of the Company's Common Stock; (ii) each
director  of the  Company;  and  (iii) all  directors,  executive  officers  and
designated  stockholders  of the  Company  as a group.  This  information  as to
beneficial ownership was furnished to the Company by or on behalf of the persons
named.  Unless  otherwise  indicated,  each has sole voting and investment power
with respect to the shares  beneficially  owned.  The  percentages  are based on
34,683,329 shares issued and outstanding as of December 31, 2002.


(a)      Beneficial Ownership of more than 5% based on 34,683,329 common shares.

Beneficial Ownership of 5%.

Table 1.

    (1)              (2)                          (3)                 (4)
Title of Class   Name and Address           Amount and Nature   Percent of Class
Common Stock
                 Redec & Associates
                 2800 Island Blvd., Ste. 604     4,000,000            11.5%
                 Williams Islands, FL 33160
Total                                            4,000,000            11.5%





(b)      Security  Ownership of  Management.  Based on 34,683,329  shares as set
         forth in (a) above as of December 31, 2002.

         Table 2.

Title of Class   Name and Address           Amount and Nature   Percent of Class

Common           Michael Ward                    4,310,766            12.43%
                 9309 North Star
                 Corpus Christi, TX

Common           Royis Ward                      2,407,095             6.94%
                 5902 Fenway
                 Corpus Christi, TX

Common           Ahmmed Karim                      176,413             0.51%
                 1532 Woods Dr.
                 N. Vancouver, B.C.
                 Canada V7R 1A9

Total

Directors as a group owned 19.88% of the Company's issued and outstanding stock.

<PAGE>

ITEM 12.  Certain Relationships and Related Transactions


         The Board of Director of the Company previously approved the accrual of
officer salaries  totaling  $1,275,000 for services rendered by Michael Ward and
Royis Ward during 2002 and previous years. These salaries remain unpaid.

         As of December 31, 2002, the cumulative  non-interest  bearing advances
due to  officers of the Company  and its wholly  owned  subsidiaries,  totaled $
312,758.

         On April 11,  2001,  the Company  agreed to  compensate  a director for
services  provided at the rate of $5,000 per month.  For the year ended December
31, 2002, we incurred  $60,000 for these  services of which $45,000 is still due
as of December 31, 2002.

         On February 18, 2003,  effective January 1, 2003, the Company sold 100%
of the issued and outstanding common stock of Tidelands Oil Corporation, a Texas
corporation and Tidelands Gas Corporation,  a Texas  corporation,  to Royis Ward
for a total  price of $48,471.  This  amount will be offset  against his officer
loan of $117,492. See Note 14-Subseqent Events.

         See Note 6 to the attached financial statements.


                                     PART IV

ITEM 13. Exhibits and Reports on Form 8-K

(a)      Reports on Form 8-K.


         1.       No  Current  Reports  on Form 8-K were  filed  during the last
                  quarter of the fiscal year.


(b)      Exhibits

         *3.1     Articles of  Incorporation of Tidelands Oil & Ga Corporation.,
                  a Nevada corporation, formerly C2 Technologies, Inc.
         *3.2     Articles  of  Amendment   Tidelands  Oil  &  Gas  Corporation,
                  formerly C2 Technologies, Inc.
         *3.3     Bylaws of Tidelands Oil & Gas Corporation
         21       List of Subsidiaries
         20.1     Code of Ethical Conduct
         23       Consent of Independent Certifying Accountant
         99.1     Chief Executive  Officer-Section 302 Certification pursuant to
                  Sarbane- Oxley Act.
         99.2     Chief Financial Officer- Section 302 Certification pursuant to
                  Sarbane-Oxley Act.
         99.3     Chief Executive  Officer-Section 906 Certification pursuant to
                  Sarbane-Oxley Act.
         99.4     Chief Financial Officer- Section 906 Certification pursuant to
                  Sarbane-Oxley Act.

*        Previously filed.

ITEM 14. CONTROLS AND PROCEDURES.

(a)      Evaluation of Disclosure Controls and Procedures.

         Within the 90 days prior to the date of this Annual Report for the year
ended December 31, 2002, we carried out an evaluation, under the supervision and
with the participation of our management,  including the Company's  Chairman and
Chief Executive Officer and the Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure  controls and procedures  pursuant to
Rule 13a-14 of the Securities  Exchange Act of 1934 (the "Exchange Act"),  which
disclosure  controls  and  procedures  are  designed to insure that  information
required to be  disclosed  by a company in the  reports  that it files under the
Exchange Act is recorded,  processed,  summarized and reported  within  required
time periods specified by the SEC's rules and forms. Based upon that evaluation,
the Chairman  and the Chief  Financial  Officer  concluded  that our  disclosure
controls  and  procedures  are  effective  in timely  alerting  them to material
information  relating  to the Company  required to be included in the  Company's
period SEC filings.

(b) Changes in Internal Control.

         Subsequent   to  the  date  of  such   evaluation   as   described   in
subparagraph(a)above, there were no significant changes in our internal controls
or other factors that could significantly  affect these controls,  including any
corrective   action  with  regard  to  significant   deficiencies  and  material
weaknesses.


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) to the Securities  Exchange
Act of 1934,  the Company has duly caused this Form 10-KSB Report for the period
ending  December  31,  2002  to be  signed  on its  behalf  by the  undersigned,
thereunto duly authorized on this 12th day of May, 2003.


                                       TIDELANDS OIL & GAS CORPORATION


                                       BY: /s/ Mike Ward
                                          --------------------------------------
                                          Michael Ward, President


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 Company and in
the capacities and on the dates indicated.


Date: May 12, 2003                      /s/ Michael Ward
                                       -----------------------------------------
                                       Michael Ward, President, Director



                                        /s/ Royis Ward
                                       -----------------------------------------
                                       Royis Ward, Secretary/Treasurer, Director



                                        /s/ Ahmmed Karim
                                       -----------------------------------------
                                       Ahmmed Karim
                                       Vice President, Director

<PAGE>






                         TIDELANDS OIL & GAS CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001





<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001




                                TABLE OF CONTENTS





INDEPENDENT AUDITOR'S REPORT...............................................    3

CONSOLIDATED FINANCIAL STATEMENTS:

   Consolidated Balance Sheet..............................................    4

   Statements of  Consolidated Stockholders' (Deficit).....................    5

   Statements of Consolidated Operations ..................................    6

   Statements of Consolidated Cash Flows...................................  7-8

   Notes to Consolidated Financial Statements ............................. 9-22










<PAGE>


                              BAUM & COMPANY, P.A.
                        1515 UNIVERSITY DRIVE, SUITE 209
                          CORAL SPRINGS, FLORIDA 33071







                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
Tidelands Oil & Gas Corporation
Corpus Christi, Texas

We have audited the accompanying  consolidated  balance sheet of Tidelands Oil &
Gas Corporation as of December 31, 2002, and the related consolidated statements
of  stockholders'  (deficit),  operations,  and cash  flows for the years  ended
December 31, 2002 and 2001.  These  consolidated  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 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 made by  management,  as well as evaluating the
overall consolidated 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  consolidated  financial  position  of
Tidelands Oil & Gas Corporation as of December 31, 2002 and the results of their
consolidated  operations and their  consolidated  cash flows for the years ended
December 31, 2002 and 2001 in conformity  with accounting  principles  generally
accepted in the United States of America.



Baum & Company, P.A.
Coral Springs, Florida
May 6, 2003






                                       -3-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2002

                                     ASSETS
                                     ------
Current Assets:
      Cash                                                          $   193,669
      Accounts Receivable                                                16,306
      Inventory (Note 1)                                                 12,155
      Prepaid Expenses (Note 4)                                          43,601
                                                                    -----------
         Total Current Assets                                           265,731
                                                                    -----------

Property Plant and Equipment, Net (Notes 1,5)                         1,111,617
                                                                    -----------

Other Assets:
      Deposits                                                            1,995
                                                                    -----------

         Total Assets                                               $ 1,379,343
                                                                    ===========

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)
                     ---------------------------------------

Current Liabilities:
      Accounts Payable and Accrued Expenses                         $ 1,369,220
      Current Maturities of Long-Term Debt (Note 8)                     826,691
                                                                    -----------

         Total Current Liabilities                                    2,195,911

Long-Term Debt                                                                0

Due to Related Parties (Note 7)                                       1,719,362
                                                                    -----------

         Total Liabilities                                            3,915,273
                                                                    -----------

Commitments and Contingencies (Notes 13,14, 15)                            --

Stockholders' (Deficit):
      Common Stock, $.001 Par Value Per Share,
        100,000,000 Shares Authorized, 33,683,329 Shares
        Issued and Outstanding                                           33,684
      Paid-in Capital in Excess of Par Value                          6,715,108
      Subscriptions Receivable                                          (18,000)
      Accumulated (Deficit)                                          (9,266,722)
                                                                    -----------
         Total Stockholders' (Deficit)                               (2,535,930)
                                                                    -----------

         Total Liabilities and Stockholders' (Deficit)              $ 1,379,343
                                                                    ===========



           See Accompanying Notes to Consolidated Financial Statements
                                       -4-


<PAGE>
<TABLE>
<CAPTION>

                         TIDELANDS OIL & GAS CORPORATION
               STATEMENTS OF CONSOLIDATED STOCKHOLDERS' (DEFECIT)
                     YEARS ENDED DECEMBER 31, 2002 AND 2001





                                                                    Paid-In
                                                                  Capital In
                                                                   Excess of    Accumulated
                                      Shares         Amount        Par Value     (Deficit)
                                    -----------    -----------    -----------   -----------
<S>                                 <C>                <C>         <C>          <C>
Balance December 31, 2000            20,728,948    $    20,729      1,872,418   $(2,599,685)

Issuance of Common Stock              4,318,809          4,319      1,145,333

Cancellation of Previously Issued
Common Stock                           (892,857)          (892)

Net (Loss)                           (2,606,265)
                                    -----------    -----------    -----------   -----------

Balance December 31, 2001            24,154,900    $    24,156    $ 3,017,751   $(5,205,950)
                                    -----------    -----------    -----------   -----------

Issuance of Common Stock              9,528,429          9,528      3,697,357

Net (Loss)                                                                       (4,060,772)
                                    -----------    -----------    -----------   -----------

Balance December 31, 2002            33,683,329    $    33,684    $ 6,715,108   $(9,266,722)
                                    ===========    ===========    ===========   ===========
</TABLE>



















           See Accompanying Notes to Consolidated Financial Statements
                                       -5-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                      STATEMENTS OF CONSOLIDATED OPERATIONS
                                   YEARS ENDED




                                                   December 31,    December 31,
                                                        2002            2001
                                                   ------------    ------------
Revenues:
      Gas Processing and Transportation            $    702,086    $  1,030,438
      Other                                               7,576          28,590
                                                   ------------    ------------
           Total Revenues                               709,662       1,059,028
                                                   ------------    ------------

Operating Expenses:
      Purchases                                         529,332         699,010
      Operating Expenses                                234,229         208,815
      Depreciation, Depletion & Amortization             41,185          43,937
      Interest                                           90,825          92,017
      Litigation Settlement                             492,000               0
      Officers & Directors Salaries & Fees              300,000         285,000
      Impairment of Goodwill (Note 3)                    52,910               0
      General and Administrative                      2,713,606       1,431,301
                                                   ------------    ------------
         Total Operating Expenses                     4,454,087       2,760,080
                                                   ------------    ------------
Net (Loss) From Continuing Operations                (3,744,425)     (1,701,052)
(Loss) From Discontinued Operations                    (316,347)       (905,213)
                                                   ------------    ------------

Net (Loss)                                         $ (4,060,772)   $ (2,606,265)
                                                   ============    ============

Net (Loss) Per Common Share
      Basic
      Loss From Continuing Operations              $     (0.129)   $     (0.076)
      Loss From Discontinued Operations                  (0.011)         (0.040)
                                                   ------------    ------------
         Total                                     $     (0.140)   $     (0.116)
                                                   ============    ============
Weighted Average Number of Common
      Shares Outstanding, Basic                      28,919,115      22,441,924
                                                   ============    ============
      Diluted
      Loss From Continuing Operations              $     (0.129)   $     (0.076)
      Loss From Discontinued Operations                  (0.011)          0.040)
                                                   ------------    ------------
         Total                                     $     (0.140)   $     (0.116)
                                                   ============    ============
Weighted Average Number of Common
   Shares Outstanding, Diluted                       28,944,115      22,531,924
                                                   ============    ============




           See Accompanying Notes to Consolidated Financial Statements
                                       -6-


<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   YEARS ENDED

                                                   December 31,    December 31,
                                                        2002            2001
                                                   ------------    ------------

Cash Flows Provided (Required) By
  Operating Activities:
    Net (Loss)
      Continuing Operations                        $ (3,744,425)   $ (1,701,052)
      Discontinued Operations                          (316,347)       (905,213)
    Adjustments to Reconcile Net (Loss)
      to Net Cash Provided (Required) By
      Operating Activities:

    Depreciation, Depletion and Amortization
      Continuing Operations                              41,185          43,937
      Discontinued Operations                            26,527          25,612
    Company's Share of Equity Method in
      Investee's Losses                                      0          10,764
   Loss on Disposal of Oil & Gas Properties              1,600          56,450
   Provision for Imparied Assets                        52,910               0
   Issuance of Common Stock
      For Services Provided                           1,868,265         815,300
      For Litigation Settlement                         492,000         289,352
    Officers' Salaries                                  240,000         240,000
     Changes in
      Accounts Receivable                                51,369          77,848
      Inventory                                          (4,640)         10,697
      Prepaid Expenses                                  260,643        (201,472)
      Other Assets                                         (308)           (408)
      Accounts Payable and Accrued Expenses             608,541         506,210
                                                   ------------    ------------
Net Cash (Required)
  by Operating Activities                              (422,680)       (731,975)
                                                   ------------    ------------
Cash Flows (Required)
  By Investing Activities:
      Goodwill Arising from Acquisition
         of Investment                                     --              --
      Decrease in Investments                              --              --
      Capital Contributions to Investments                 --              --
      Acquisitions of Property, Plant & Equipment      (353,820)       (199,710)
      Proceeds from Disposals of Oil
        and Gas Properties                                    0         151,402
                                                   ------------    ------------

         Net Cash (Required)
            By Investing Activities                    (353,820)        (48,308)
                                                   ------------    ------------



           See Accompanying Notes to Consolidated Financial Statements
                                       -7-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                   (CONTINUED)
                                   YEARS ENDED



                                                  December 31,     December 31,
                                                       2002             2001
                                                  ------------     ------------

Cash Flows Provided Required
  by Financing Activities
      Proceeds from Issuance of Common Stock           100,000           44,108
      Decrease Stock
        Subscription Receivable                              0           49,500
      Proceeds From Short-Term Loans                    45,600          325,000
      Payments of Short-Term Loans                    (256,799)        (202,429)
      Issuance of Long-Term Debt Pursuant
        To Litigation Settlement                             0          198,767
      Proceeds of Loans From
         Related Parties                               683,877          450,319
                                                  ------------     ------------

Net Cash Provided by Financing Activities              572,678          865,265
                                                  ------------     ------------

Net Increase (Decrease) in Cash                       (203,822)          84,982
Cash at Beginning of Period                            397,491          312,509
                                                  ------------     ------------
Cash at End of Period                             $    193,669     $    397,491
                                                  ============     ============

Supplemental Disclosures of
   Cash Flow Information
      Cash Payments for Interest                  $     36,551     $     75,484
                                                  ============     ============

      Cash Payments for Income Taxes              $          0     $        500
                                                  ============     ============
Non-Cash Financing Activities:
   Issuance of Common Stock:
      Operating Activities                        $  1,868,265     $    815,300
      Payment of Accounts Payable                      508,000                0
      Repayment of Loans From Related Parties          738,620                0
      Litigation Settlement                            492,000          289,352
                                                  ------------     ------------

      Total Non-Cash Financing Activities         $  3,606,885     $  1,104,652
                                                  ============     ============







           See Accompanying Notes to Consolidated Financial Statements
                                       -8-


<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------   ------------------------------------------

         This summary of significant  accounting policies is presented to assist
         in  understanding   these  consolidated   financial   statements.   The
         consolidated  financial  statements  and notes are  representations  of
         management who is responsible for their integrity and objectivity.  The
         accounting  policies  used conform to accounting  principles  generally
         accepted  in the United  States of America  and have been  consistently
         applied in the preparation of these consolidated financial statements.

         Organization
         ------------

         Tidelands Oil & Gas Corporation  (formerly C2 Technologies,  Inc.) (the
         Company) was  incorporated in the state of Nevada on February 25, 1997.
         On  November  19,  1998,  the legal name of the  Company was changed to
         Tidelands  Oil and Gas  Corporation.  On  December  1, 2000 the Company
         acquired the  remaining  equity (50%) of Rio Bravo  Energy,  LLC.  (Rio
         Bravo).  Accordingly,  Rio Bravo is a  wholly-owned  subsidiary  of the
         Company.

         Nature of Operations
         --------------------

         The Company is currently  engaged in the management and  supervision of
         the  construction of an  international  pipeline from southern Texas to
         Mexico.

         Principles of Consolidation
         ---------------------------

         The  consolidated  financial  statements  include  the  accounts of the
         Company   and   its   wholly-owned   subsidiaries.    All   significant
         inter-company accounts and transactions are eliminated.

         Fair Value of Financial Instruments
         -----------------------------------

         Statement of Financial  Accounting  Standards No. 107 "disclosure about
         fair value of financial  instruments,"  requires the  disclosure of the
         fair value of off-and-on  balance sheet financial  instruments.  Unless
         otherwise  indicated,  the  fair  values  of all  reported  assets  and
         liabilities,  which represent financial  instruments (none of which are
         held for trading  purposes),  approximate  the carrying  values of such
         amounts.










                                       -9-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------   ------------------------------------------------------

         Use of Estimates
         ----------------

         The preparation of consolidated financial statements in accordance with
         accounting  principles  generally  accepted  in the  United  States  of
         America  requires  management to make  estimates and  assumptions  that
         affect certain reported amounts and  disclosures.  Accordingly,  actual
         results could differ from those estimates.

         Inventories
         -----------

         Inventories  consisting  of natural gas liquids are valued at the lower
         of average  cost or market  using the  first-in  and  first-out  (FIFO)
         basis.

         Property, Plant and Equipment
         -----------------------------

         Property,   plan  and  equipment  are  recorded  at  historical   cost.
         Depreciation  of  property,  plant and  equipment  is  provided  on the
         straight-line  method over the  estimated  useful  lives of the related
         assets.  Maintenance  and repairs are charged to operations.  Additions
         and  betterments,  which  extend  the  useful  lives of the  assets are
         capitalized.  Upon  retirement or disposal of the  property,  plant and
         equipment,  the cost and accumulated  depreciation  are eliminated from
         the  accounts,   and  the  resulting  gain  or  loss  is  reflected  in
         operations.

         Long-Lived Assets
         -----------------

         Statement of Financial  Accounting Standards 121 (SFAS 121) "Accounting
         for the  Impairment of  Long-Lived  Assets to be Disposed Of," requires
         that  long-lived  assets to be held and used by the Company be reviewed
         for impairment  whenever  events or changes in  circumstances  indicate
         that the related carrying amount may not be recoverable. When required,
         impairment losses on assets to be held and used are recognized based on
         the fair value of the asset,  and  long-lived  assets to be disposed of
         are reported at the lower of carrying amount or fair value less cost to
         sell.

         The  requirements of SFAS 121 and the evaluation by the Company did not
         have a significant  effect on the  consolidated  financial  position or
         results of consolidated operations.







                                      -10-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------   ------------------------------------------------------

         Income Taxes
         ------------

         The Company  accounts for income taxes in accordance  with Statement of
         Financial Accounting  Standards 109 (SFAS 109).  "Accounting for Income
         Taxes,"  which  requires the  establishment  of a deferred tax asset or
         liability for the  recognition of future  deductions or taxable amounts
         and operating  loss  carryforwards,  Deferred tax expense or benefit is
         recognized as a result of the change in the deferred asset or liability
         during the year. If necessary,  the Company will  establish a valuation
         allowance  to reduce any  deferred  tax asset to an amount  which will,
         more likely than not, be realized.

         Net (Loss) Per Common Share
         ---------------------------

         The Company  accounts for (loss) per share in accordance with statement
         of Financial Accounting Standard 128 ("SFAS 128") "Earnings per Share".
         Basic  (loss)  per share is based  upon the net  (loss)  applicable  to
         common  shares  after  preferred  dividend  requirements  and  upon the
         weighted average number of common shares outstanding during the period.
         Diluted (loss) per share reflects the effect of the assumed conversions
         of  convertible  securities  and exercise of stock  options only in the
         periods in which such affect would have been dilutive.

         Goodwill
         --------

         Statement of Financial Standards No. 142 "Goodwill and other intangible
         assets" ("SFAS 142")  requires  Goodwill to be tested for impairment on
         an annual basis and between annual tests in certain circumstances,  and
         written  down when  impaired,  rather than being  amortized as previous
         accounting standards required. Furthermore, SFAS 142 requires purchased
         intangible assets other than goodwill to be amortized over their useful
         lives unless these lives are determined to be indefinite.

         New Accounting Standards Not Yet Adopted
         ----------------------------------------

         In June 2001,  Statement of  financial  Accounting  Standards  No. 143,
         Accounting for Asset Retirement Obligations,  (SFAS No. 143) was issued
         and is effective for fiscal years  beginning  after June 15, 2002. SFAS
         No. 143 addresses  financial  accounting and reporting for  obligations
         associated  with the retirement of tangible  long-lived  assets and the
         associated asset retirement costs. We believe that the adoption of SFAS
         143 will not  have a  material  effect  on our  consolidated  financial
         statements.




                                      -11-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------   ------------------------------------------------------

         New Accounting Standards Not Yet Adopted (Continued)
         ----------------------------------------------------

         In July 2002,  Statement of  financial  Accounting  Standards  No. 146,
         Accounting for Costs Associated with Exit or Disposal activities, (SFAS
         No.  146) was issued  and is  effective  for  periods  beginning  after
         December 31, 2002.  SFAS No. 146  requires,  among other  things,  that
         costs  associated with an exit activity  (including  restructuring  and
         employee  and  contract  termination  costs)  or  with  a  disposal  of
         long-lived  assets be  recognized  when the liability has been incurred
         and can be measured at fair  value.  Companies  must record in earnings
         from continuing  operations  costs  associated with an exit or disposal
         activity  that  does  not  involve  a  discontinued  operation.   Costs
         associated  with an activity  that  involves a  discontinued  operation
         would be included in the results of discontinued operations. We believe
         that the implementation of the provisions of SFAS No. 146 will not have
         a material effect on our consolidated financial statements.

         In December 2002,  Statement of financial Accounting Standards No. 148,
         Accounting for Stock-Based compensation,  (SFAS No. 148) was issued and
         is effective for fiscal years  beginning  after December 15, 2002. SFAS
         No. 148 amends the disclosure  requirements of SFAS No. 123, Accounting
         for  Stock-Based  Compensation,  (SFAS No.  123) to  require  prominent
         disclosures in both interim and annual  financial  statements about the
         method of accounting  for  stock-based  employee  compensation  and the
         effect of the method used on reported results. SFAS No. 148 also amends
         SFAS  No.  123 to  provide  alternative  methods  of  transition  for a
         voluntary  change to the fair  value  based  method of  accounting  for
         stock-based employee  compensation.  We will provide quarterly footnote
         disclosure of the fair value based method of accounting for stock-based
         employee  compensation  beginning in the first quarter ending March 31,
         2003.  We have decided not to  voluntarily  adopt the SFAS No. 123 fair
         value  method of  accounting  for  stock-based  employee  compensation.
         Therefore, the new transition alternatives allowed in SFAS No. 148 will
         not affect our consolidated financial statements.













                                      -12-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 2 - DISCONTINUED OPERATIONS
------   -----------------------

         During the year ended  December 31, 2001, the Board of Directors of the
         Company authorized  management to discontinue all activities related to
         oil and gas-producing operations.  Management then proceeded to dispose
         of oil and gas  properties,  terminate  all  leases,  disband all joint
         ventures and settle all claims and disputes.  As a result of management
         activities,  a summary of  discontinued  operations for the years ended
         December 31 are as follows:


                                                         2002           2001
                                                     -----------    -----------

         Oil and Gas Sales                           $         0    $    54,840
         Other                                            15,496         57,803
                                                     -----------    -----------
              Total Revenues                              15,496        112,643
                                                     -----------    -----------

         Lease and Other Operating Expenses              257,878        322,515
         Depreciation                                     26,527         25,612
         Interest                                          4,086          5,660
         General and Administrative                       41,752         36,858
         Company's Share of Equity in
            Investee's Losses                                  0         20,642
         Loss on Disposal of Oil and
            Gas Properties                                 1,600         56,450
         Litigation Settlement                                 0        550,119
                                                     -----------    -----------
               Total Expenses                            331,843      1,017,856
                                                     -----------    -----------

         Net (Loss) Discontinued Operations          $  (316,347)   $  (905,213)
                                                     ===========    ===========

NOTE 3 - GOODWILL IMPAIRMENT
------   -------------------

         On December 1, 2000,  the Company  acquired  the  remaining  50% of its
         investment in Rio Bravo Energy,  LLC. (Rio Bravo) and its  wholly-owned
         subsidiary  Sonora  Pipeline,  LLC.,  for a  total  purchase  price  of
         $505,558.  The purchase of Rio Bravo was  accounted for by the purchase
         method,  whereby the underlying assets acquired and liabilities assumed
         are  recorded at their fair  value.  The excess of the amount paid over
         the fair value of Rio  Bravo's  identifiable  net  assets was  $57,029,
         which had been reflected in the balance sheet as goodwill.











                                      -13-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 3 - GOODWILL IMPAIRMENT (CONTINUED)
------   -------------------------------

         In October 2002,  management  temporarily  ceased operations of the gas
         processing plant and related  pipeline.  It is the intent of management
         to restart these operations  sometime in the subsequent  period, but as
         of  December  31,  2002 no  formal  negotiations  have  taken  place to
         establish a  definitive  starting  date.  Accordingly,  management  has
         determined to write off the value of goodwill of $52,910 related to the
         processing plant and pipeline for the year ended December 31, 2002.

NOTE 4 - PREPAID EXPENSES
------   -----------------

         As of  December  31, 2002  prepaid  expenses  of $43,601  consisted  of
         pre-construction and financing costs.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
------   -----------------------------

         A summary of property,  plant and  equipment at December 31, 2002 is as
         follows:



                                                                     Estimated
                                                                   Economic Life
                                                                   -------------

         Pre-Construction Costs-
           International Crossing                $      505,151 *        N/A
         Equipment and
           Leasehold Improvements                       236,606       3-10 Years
         Pipelines                                      431,560 **      15 Years
         Processing Plant                               166,410 **      15 Years
                                                 --------------
              Total                                   1,339,727
         Less Accumulated Depreciation                  228,110
                                                 --------------
              Total                              $    1,111,617
                                                 ==============

*    Non-depreciated  asset sold in subsequent period - see Note 14 - Subsequent
     Events
**   Collateral for secured note payable see Note 7 - Long-Term Debt

NOTE 6 - RELATED PARTY TRANSACTIONS
------   --------------------------

         The Board of Directors  has annually  approved  officers'  salaries for
         services provided. At December 31, 2002 the cumulative amount of unpaid
         officers' salaries is as follows:

          Service Provided For
         Year Ended December 31,                          Amount
         -----------------------                          ------

                1997 and Prior                         $      310,000
                1998                                           60,000
                1999                                          240,000
                2000                                          240,000
                2001                                          240,000
                2002                                          240,000
                                                       --------------
                                                       $    1,330,000
                                                       ==============



                                      -14-
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002




NOTE 6 - RELATED PARTY TRANSACTIONS (CONTINUED)
------   --------------------------------------


         At December 31, 2002,  cumulative  non-interest bearing advances due to
         the officers of the Company amount to $344,362.

         The Company  agreed to  compensate a director for services  provided at
         the rate of $5,000 per month.  For the year ended December 31, 2002 and
         2001 the Company incurred $60,000 and $45,000,  respectively, for these
         services of which $45,000 is still due as of December 31, 2002.

         On February 18, 2003,  effective January 1, 2003, the Company sold 100%
         of the  outstanding  common  stock of  Tidelands  Gas  Corporation  and
         Tidelands  Oil  Corporation  to an  officer  of the  Company.

                            Tidelands Oil Corporation                 $   32,476
                            Tidelands Gas Corporation                     15,995
                                                                      ----------
                                                                      $   48,471
                                                                      ==========

         The amount due will be offset against the officer loan of $117,492 (see
         Note 15, Subsequent Events).










                                      -15-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 7 - LONG-TERM DEBT
------   --------------

         A summary of notes payable at December 31, 2002 is as follows:

         Note Payable, Secured, Interest at Prime
             Rate Plus 5%, Maturing September 30, 2003   $  265,924

         Note Payable, Unsecured, 10% Interest
            Bearing, Maturing June 30, 2003                 250,000

         Notes Payable, Unsecured, 6% Interest,
            Payable on Demand                                37,000

         Note Payable, Unsecured, 10% Interest Until
            April 17, 2001, 18% Interest Thereafter,
             Payable on Demand                               75,000

         Note Payable, Unsecured, Interest at Prime
            Rate Plus 1%, Maturing July 2003                198,767
                                                         ----------
                                                            826,691

         Less:  Current Maturities                          826,691
                                                         ----------

                   Total Long-Term Debt                  $        0
                                                         ==========


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

         At December  31, 2002 the Company had  cumulative  net  operating  loss
         carryforwards  of  approximately  $8,000,000 to offset  against  future
         federal taxable income, that expire in the years through 2022.

         The  company  files  a  consolidated   income  tax  return  and  timing
         differences between the recognition of certain income and expense items
         for  income  tax  purposes  and  financial  reporting  purposes  are as
         follows:

         Cumulative benefit of net operating loss
            carryforwards                                           $ 8,176,333
         Officers' salary deductions in excess of
           tax deduction                                               (240,000)
         Tax depreciation more than book depreciation                    65,667
         Other differences                                               (2,000)
                                                                    -----------
                                                                    $ 8,000,000
                                                                    ===========

         Total deferred tax asset                                   $ 2,720,000
         Less valuation allowance                                    (2,720,000)
                                                                    -----------
         Net deferred tax asset                                     $         0
                                                                    ===========

         At the present time it cannot be determined as to when the Company will
         benefit from the deferred tax asset.



                                      -16-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 9 -  COMMON STOCK TRANSACTIONS
------    -------------------------

         On  January  8,  2002,  the  Company  issued  2,000,000  shares  of its
         restricted common stock to Redec & Associates, LLC as consideration for
         a three year financial consulting services contract valued at $860,000.

         On  January  25,  2002,  the  Company  issued  2,000,000  shares of its
         restricted  common stock to Redec & Associates,  LLC valued at $832,000
         for assisting the Company with the future  procurement  of  $10,000,000
         financing  in  connection   with  the   construction  of  our  proposed
         international pipeline.

         On March 1, 2002,  the Company  issued 20,000 shares of its  restricted
         common stock to Momentum  Group for website  planning and  construction
         services valued at $7,040.

         On April 2, 2002, the Company registered 1,000,000 shares of its common
         stock valued at $552,000 for use in payment of legal fees in connection
         with the Schwartz litigation described above and other ongoing matters.

         On May 30, 2002 the Company issued  1,967,016  shares of its restricted
         common  stock to two  officers  in payment of direct  loans and expense
         disbursements. The transation was valued at $678,621.

         On May 30, 2002,  the Company  issued  173,913 shares of its restricted
         common  stock  valued at  $60,000 to a company  director  in payment of
         director's fees.

         On September 10, 2002, the Company authorized the issuance of 1,200,000
         shares  of  its  common  stock  valued  at  $492,000  pursuant  to  the
         settlement with Schwartz Private Equity, LLC.

         On September  16, 2002, we  authorized  the issuance of 280,000  common
         shares for  conversion  of a $56,000  of accrued  legal fees and $6,000
         accrued interest expense. The shares were issued pursuant to securities
         transaction exemption Section 3 (a) 9 of the Securities Act.

         On  September  26,  2002,  the  Company  issued  487,500  shares of its
         restricted  common  stock  valued at $69,225 to Stanley  Merdinger  for
         consulting services.

         On December 31, 2002 issued  400,000  shares of its  restricted  common
         stock for $100,000.





                                      -17-

<PAGE>

                        TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2002


NOTE 10 - STOCK OPTIONS
-------   -------------

         As of  December  31, 2002 the  Company  had no  outstanding  previously
         issued stock options.

NOTE 11 - LEASES
-------   ------

         The  Company  entered  into two  operating  leases  for the  rental  of
         facilities (a) executive office, monthly rent of $2,050, month to month
         (b) field office, monthly rent of $400, expiring December 31, 2002.

         Future minimum lease payments required under  non-cancelable  operating
         leases are as follows: None

         Rent  expense  for the  Years  Ended  December  31,  2001 and 2002 were
         $21,300 and $27,000, respectively.

NOTE 12 - COMMITMENTS AND CONTINGENCIES
-------   -----------------------------

         The  Company  is subject to the laws and  regulations  relating  to the
         protection  of the  environment.  The  Company's  policy  is to  accrue
         environmental and cleanup related costs of a non-capital nature when it
         is both probable that a liability has been incurred and when the amount
         can be  reasonably  estimated.  Although it is not possible to quantify
         with any degree of  certainty  the  financial  impact of the  Company's
         continuing   compliance   efforts,   management   believes  any  future
         remediation or other compliance  related costs will not have a material
         adverse  effect on the  financial  condition  or  reported  results  of
         operations of the Company.

NOTE 13 - LITIGATION
--------  ----------

         On January 6, 2003,  the Company was served as a third party  defendant
         in a lawsuit titled Northern  Natural Gas Company vs. Betty Lou Sheerin
         vs. Tidelands Oil & Gas Corporation, ZG Gathering, Ltd. and Ken Lay, in
         the 150th Judicial District Court,  Bexar County,  Texas,  Cause Number
         2002-C1-16421.  the lawsuit was initiated by Northern  Natural Gas when
         it sued Betty Lou Sheerin  for her  failure to make  payments on a note
         she executed  payable to Northern in the original  principal  amount of
         $1,950,000.  Northern's  suit was filed on November 13,  2002.  Sheerin
         answered  Northern's  lawsuit  on January  6,  2003.  Sheerin's  answer
         generally denied Northern's claims and raised the affirmative  defenses
         of fraudulent inducement by Northern,  estoppel, waiver and the further
         claim that the note does not comport with the legal  requirements  of a
         negotiable instrument. Sheerin seeks a judicial ruling that Northern be
         denied  any  recovery  on  the  note.   Sheerin's   answer  included  a
         counterclaim  against  Northern,  ZG  Gathering,  and Ken Lay generally
         alleging, among other things, that Northern, ZG Gathering, Ltd. and Ken
         Lay,

                                      -18-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 13 - LITIGATION (CONTINUED)
--------  ----------------------

         fraudulently  induced her  execution of the note.  Northern has filed a
         general denial of Sheerin's counterclaims.  Sheerin's answer included a
         third party cross claim against  Tidelands.  She alleges that Tidelands
         entered into an agreement to purchase the Zavala  Gathering System from
         ZG Gathering , Ltd.  and that,  as a part of the  agreement,  Tidelands
         agreed to satisfy  all of the  obligations  due and owing to  Northern,
         thereby relieving Sheerin of all obligations she had to Northern on the
         promissory  note in question.  She alleges that  Tidelands is liable to
         her for all of her  actual  damages,  costs of the  lawsuit  and  other
         unstated  relief.  Tidelands and Sheerin agreed to delay the Tideland's
         answer  date  in  order  to  allow  time  for  mediation  of the  case.
         Tideland's  participated in a mediation on March 11, 2003. The case was
         not settled at that time. Tideland's answered the Sheerin suit on March
         26,  2003.  Tideland's  answer denies all of Sheerin's allegations.  No
         discovery   has  been   completed  at  this  time.   Based  on  initial
         investigation, however, Tidelands appears to have a number of potential
         defenses to Sheerin's claims. Tideland's intends to aggressively defend
         the lawsuit.

         In September  2002, as a pre-closing  deposit to the purchase of the ZG
         pipelines,  the Company executed a $300,000 promissory note to Betty L.
         Sheerin,  a partner of ZG  Gathering,  Ltd.  In  addition,  the Company
         issued  1,000,000  shares of its  restricted  common  stock to  various
         partners  of  ZG  Gathering,   Ltd.  The  company   believes  that  the
         aforementioned  promissory  note and shares of restricted  common stock
         will be cancelled  based upon the outcome of the  litigation  described
         above.

         On December  23,  2002,  the  Company  was served as a  defendant  in a
         lawsuit  titled  El  Viejo  Ranch,   Ltd.  vs.   Tidelands  Oil  &  Gas
         Corporation,  in the 293rd Judicial  District,  Zavala  County,  Texas,
         Cause  Number  02-12-10606-ZCV.  The lawsuit was  initiated by El Viejo
         Ranch,  Ltd. on December 10, 2002.  El Viejo  contends  that a pipeline
         right of way  agreement  was breached as a result of certain  insurance
         coverage,  required to be maintained under the right-of-way  agreement,
         being allowed to lapse  resulting in  termination  of the  right-of-way
         easement.  El Viejo seeks a declaratory  judgment that the right-of-way
         agreement was properly terminated, that Tidelands is obligated to cease
         use of the pipeline,  reconvey the easement to El Viejo,  to remove the
         pipeline,  and to  remediate  the  property.  El  Viejo  also  seeks  a
         temporary injunction to enjoin Tidelands' use of the easement,  damages
         in an unstated  amount and  recovery  of  attorneys'  fees.  Tidelands'
         answered  the El Viejo  lawsuit  in early  February,  2003.  Tidelands'
         answer denies all of El Viejo's allegations.



                                      -19-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002



NOTE 13 - LITIGATION (CONTINUED)
-------   ----------------------

         Swartz Litigation
         -----------------

         In June  2001,  Tidelands  commenced  an  action in the  United  States
         District  Court  for the  Southern  District  of Texas  against  Swartz
         Private Equity, LLC ("Swartz"). Shortly thereafter, Swartz commenced an
         action in the  superior  Court of  Fulton  County,  Georgia.  The Texas
         action has been  transferred  to the  Northern  District of Georgia and
         both actions were being dealt with jointly for discovery purposes.

         The  Tidelands  action  sought  declaratory  and  rescissionary  relief
         seeking to have the Court declare that the agreements between Tidelands
         and  Swartz  are  void  and   unenforceable  and  rescission  of  those
         agreements. Alternatively, Tidelands sought monetary damages for breach
         of the  agreements  in  amounts  to be  established  at trial  which it
         alleges to be $20,000,000.

         The  Swartz  action  sought to  enforce  the  agreements  signed by the
         parties  and the  issuance  of  1,157,150  shares of  Tidelands  stock,
         payment  of a claimed  termination  fee in the amount of  $200,000  and
         damages  for the  alleged  failure  of  Tidelands  to issue the  shares
         claimed  by  Swartz,   including   damages   arising  from  any  market
         fluctuations.  Alternatively,  Swartz  complaint  sought a direction to
         Tidelands  to  specifically  perform the  agreements  and damages in an
         unspecified amount for claimed defamation  concerning Swartz as well as
         for  damages  in  an  unspecified   amount  for  claimed   "intentional
         interference  with contractual  relations and intentional  interference
         with business  relations".  The Swartz  complaint also sought  punitive
         damages.

         The above action was settled in September 2002 with  Tidelands  issuing
         1.2 million  shares in full  settlement of all the  litigation  matters
         between the parties.















                                      -20-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

NOTE 14 - SUBSEQUENT EVENTS
-------   -----------------

         On February 18, 2003,  effective January 1, 2003, the Company sold 100%
         of the outstanding stock of Tidelands Gas Corporation and Tidelands Oil
         Corporation for the net book value of $48,471.

                                     Tidelands Oil Corp &    Consolidated Assets
                                      Tidelands Gas Corp.      & Liabilities
                                         At Jan 1,03           At Dec. 31, 02
                                       --------------          --------------
         Cash and cash equivalents     $          238          $      193,669
         Receivables                           15,419                  16,306
         Inventories                                0                  12,155
         Property, plant, and equipment
           (net)                              102,327               1,111,617
         Other assets                           5,263                  45,596
                                       --------------          --------------

              Total assets                    123,247               1,379,343

         Accounts payable and accrued
           expenses                           (74,776)             (1,369,220)
         Notes payable                              0                (826,691)
         Other current liabilities                  0              (1,719,362)
         Long-term debt                             0                       0
                                       --------------          --------------
              Net assets (deficit)     $       48,471          $   (2,535,930)
                                       ==============          ==============

         On March 10, 2003 the Company issued stock options for 2,000,000 shares
         of restricted  common stock at .22 cents per share,  expiring March 10,
         2005.

         In 2003, the Company had additional stock transactions as follows:

                  o        Sold 200,000  shares of  restricted  common stock for
                           $50,000.
                  o        Issued 163,500 shares of restricted  common stock for
                           an employee bonus valued at $15,697.
                  o        Issued 600,000 shares of restricted  common stock for
                           consulting fees valued at $93,600.
                  o        Approval  of the  issuance  of  3,596,169  shares  of
                           common stock for officers' accrued salaries valued at
                           $791,157.
                  o        Issued 500,000 shares of common stock for 2002 unpaid
                           legal services valued at $62,500.

         In  April  2003,  the  Company  completed  negotiations,  with  several
         entities herein known as Impact Energy Services (Impact),  for the sale
         of 75% interest of Reef International,  LLC and Reef Marketing, LLC for
         $1,960,867.  In addition,  Impact will contribute additional funding up
         to  $6,039,133  for  the  construction  of our  multiple  international
         pipelines from South Texas to Mexico.


                                      -21-

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


NOTE 14 - SUBSEQUENT EVENTS
-------   -----------------

         Upon the commencement of operations, the pipeline will be owned by Reef
         Ventures,  L.P. (a Texas limited  partnership) of which Tidelands Oil &
         Gas  Corporation  will hold a 25%  interest.  During  the  construction
         period  of the  natural  gas  pipeline,  the  Company  will  receive  a
         management  fee of $155,000,  and an  additional  management  fee to be
         determined  during the construction  period of the "liquids"  pipeline.
         After the  construction  period the company  will be a limited  partner
         with no direct management responsibilities for the limited partnership.
         Impact will receive a priority return of 150% of all actual  investment
         in the project before other partners receive their respective shares.

         In addition,  "Impact" has received the right for two years to purchase
         restricted  common stock of the Company equal to 19% of the outstanding
         shares of the common stock of the Company. The initial number of shares
         is 6,830,000 at a maximum cost of $.35  per share.






























                                      -22-