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, 2003
                         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.)


                  1862 West Bitters Rd., San Antonio, TX 78410
                     (Address of principal executive office)

                                 (210) 764-8642
                           (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 $178,856 for the year ended  December 31,
2003.

This report contains a total of 37 pages. The Exhibit Index appears on page 15.

As of December 31, 2003,  there were  44,825,302  shares of the issuer's  common
stock  outstanding.  The aggregate market value of the 35,856,422  shares of the
issuer's voting stock held by  non-affiliates  was $70,995,716  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, 2003, 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, 2003



                                                                            Page
                                                                            ----


PART I.....................................................................    3

ITEM 1.  Business..........................................................    3
ITEM 2.  Properties........................................................    4
ITEM 3.  Legal Proceedings.................................................    4
ITEM 4.  Submission of Matters to vote of Security Holders.................    5

PART II....................................................................    5

ITEM 5.  Market for Common Equity and Related Stockholder Matters..........    5
ITEM 6.  Management's Discussion and Analysis of Financial
             Condition and Results of Operations...........................    6
ITEM 7.  Financial Statements..............................................   10
ITEM 8.  Changes In and Disagreements With Accounting and
             Financial Disclosure..........................................   10
ITEM 8A. Controls and Procedures...........................................   10

PART III...................................................................   10

ITEM 9.  Directors, Executive Officers, Promoters, and Control
           Persons: Compliance With Section 16(a) of the Exchange Act......   10
ITEM 10.  Executive Compensation...........................................   13
ITEM 11.  Security Ownership of Certain Beneficial Owners and Management...   14
ITEM 12.  Certain Relationships and Related Transactions...................   15
ITEM 13.  Exhibits and Reports on Form 8-K.................................   15
ITEM 14.  Principal Accounting Fees and Services...........................   15
SIGNATURES.................................................................   16
EXHIBIT INDEX..............................................................   17



















                                       2
<PAGE>

                                     PART I



ITEM 1.  Business.

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 two wholly owned  subsidiaries
named Rio Bravo Energy,  LLC, and Sonora Pipeline,  LLC. The Company also owns a
25% limited partnership interest in Reef Ventures, L.P. as described below.

Rio Bravo  Energy,  LLC was formed on August 10, 1998 to operate the Chittim Gas
Processing  Plant which was  purchased  in 1999 and was  processing  natural gas
primarily from Conoco Oil's Sacatosa Field.  The Sacatosa Field was primarily an
oilfield  which produced high BTU  casinghead  gas from which  processing  would
yield  valuable  hydrocarbon  components  such as  propane,  butane and  natural
gasolines.  As the field  depleted  lower volumes of  casinghead  gas were being
delivered by Conoco and other gas  producers  could not be  contracted  with for
processing of additional replacement volumes of gas. Therefore, in October 2002,
the plant was temporarily  shut down due to the declining  economics  associated
with low volume  operation  of the plant.  Management  plans to reopen the plant
when adequate  volumes of gas from third party producers makes plant  operations
economically  attractive.  The market for the products of plant  operation could
include our future propane/butane terminal and pipeline crossing into Mexico.

Sonora  Pipeline,  LLC was formed in January 1998 to operate the Sonora pipeline
network which has the capability of delivering  adequate  volumes of natural gas
for economic operation of the Chittim Gas Processing Plant. The pipeline network
consists of approximately  80 miles of gas pipeline.  The assets of this company
were acquired in conjunction with the Chittim Gas Processing  Plant  acquisition
and, when  operational,  would generate revenue from  transportation  fees to be
charged to third party gas producers shipping natural gas to the gas plant owned
by Rio Bravo Energy LLC.

On April 16, 2003, the Company sold a Seventy-five  (75%) interest in our wholly
owned subsidiaries,  Reef International,  L.L.C. and Reef Marketing,  L.L.C. for
$1,960,867.  The L.L.C. interests were acquired by Impact International,  L.L.C.
(99% of the 75%) and  Coahuila  Pipeline,  L.L.C.  (1% of the 75%).  Immediately
after the transactions, Tidelands, Impact International and Coahuila transferred
their respective interests in both Reef L.L.C.'s to Reef Ventures, L.P., a Texas
limited  partnership.  Tidelands retained a 25% interest in Reef Ventures,  L.P.
Reef International, L.L.C. is the holder of United States, Texas permits for the
construction,  ownership,  operation and  maintenance of a twelve (12") pipeline
and a six (6") liquids line  (together  with loading and  unloading  facilities)
from Eagle Pass,  Texas to Piedras Negras,  Mexico.  Reef Marketing,  L.L.C. was
organized for the  marketing,  gathering and  transportation  of natural gas and
natural gas liquids from Eagle Pass, Texas to Piedras Negras, Mexico.

Impact  International  LLC and  Coahuila  Pipeline  LLC fully funded the capital
required for  construction of the Reef Ventures,  L.P.  natural gas pipeline and
related metering  facilities.  Full operation of these assets by the partnership
began on  November 1, 2003.  Under the terms of the  partnership  agreement,  no
income or loss is  allocable to Tidelands  Oil & Gas  Corporation's  25% limited
partnership  interest until such time as Impact and Coahuila have recovered 150%
of their capital contributions.  Additionally,  Impact has agreed to finance the
construction  of the 6  inch  propane/butane  liquids  pipeline  subject  to the
negotiation  and  execution  of  definitive  agreements.  The  liquids  pipeline
financial  commitment is  $2,723,226.  Impact's  total  financial  commitment to
Tidelands regarding the sale of the Reef interests and pipeline  construction is
not to exceed $8,000,000.



                                       3
<PAGE>

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  midstream  energy   companies,   including   competition  from  U.S.  and
international midstream energy companies.

Employees

The Company has six employees,  including the Company  officers and two clerical
and accounting personnel.

ITEM 2.  Properties

         Rio Bravo  Energy,  LLC owns and  operates  the Chittim Gas  Processing
Plant  which  is  located  in  Maverick,  County,  Texas.  This  entity  has  no
significant   encumbrances  other  than  a  $213,059  account  payable  owed  to
ConocoPhillips  Inc.  which was paid in full on February 24, 2004.  The plant is
currently  shut  down  until  adequate  volumes  of  natural  gas  suitable  for
processing is acquired.

         Sonora  Pipeline,  LLC owns the Sonora Pipeline  network  consisting of
approximately  80 miles of  pipeline.  No  significant  encumbrances  exist with
respect to the assets of this  company.  The pipeline is currently  inactive and
will be used  primarily to transport  natural gas from third party  producers to
supply  feedstock for the Chittim Gas Processing Plant owned by Rio Bravo Energy
LLC.

         Reef  Ventures,  L.P. owns and operates the  international  natural gas
pipeline and related facilities located in Maverick County,  Texas and Coahuila,
Mexico. Tidelands owns a 25% limited partnership interest in this entity and has
no significant  liability for capital  contributions  to this entity nor does it
have any liability for the debts of the entity.

         We moved our  executive  offices on August 1, 2003 from  13330  Leopard
Street, Corpus Christi, Texas to 1862 West Bitters Road, San Antonio, Texas. The
lease for our San Antonio  office runs from August 1, 2003 to February  28, 2005
at $3,400 per month.  The Corpus Christi  office rent was $2,050 per month.  Our
total rent expense for 2003 was $28,100.

ITEM 3.  Legal Proceedings

Matter No. 1
------------

         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,


                                       4
<PAGE>

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.

Matter No. 2.

         On October 29, 2003, we settled the El Viejo Ranch lawsuit.  We entered
into a  Release  and  Settlement  Agreement  and paid El Veijo  Ranch the sum of
$6,000.

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, 2003.

                                     PART II


ITEM 5.  Market for Common Equity and Related Stockholder Matters

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 each quarter during 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 quarterly trade and quote data provided by
NASDAQ OTC Bulletin Board.

Table 1.

Bid Information






                                       5
<PAGE>

Fiscal Quarter Ended
                                High             Low

December 31, 2003               2.57            0.75
September 30, 2003              1.05            0.24
June 30, 2003                   0.47            0.20
March 31, 2003                  0.40            0.15

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

         According to our stock  transfer  agency  records,  the Company had 105
active  shareholders  of our common stock as of December 31, 2003 holding 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, 2003, no cash or stock
dividends  were  declared  or  paid  and  none  are  expected  to be paid in the
foreseeable future.

         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  October 1 through  December 31, 2003,  we issued the
following securities in exempt transactions not requiring registration:

         On October 3, 2003,  we issued  60,000 common shares to Barry Gross for
investor public relations services valued at $38,700.

         On October 29, 2003, we issued 150,000 common shares to Carl Hessel for
investment banking services valued at $148,500.

         On October 29, 2003, we issued  200,000 common shares to C. Siddons for
consulting services valued at $198,000.

         On  November  1,  2003,  we  issued  500,000  common  shares  to  David
Zirulniksff for consulting services valued at $625,000.

         On November 1, 2003, we issued 200,000 common shares to Marcello Kochen
for consulting services valued at $250,000.

         On November 4, 2003, we issued 300,000 common shares to C. Siddons for
consulting services valued at $375,000.



                                       6
<PAGE>

         On November 14, 2003,  we issued  150,000  common shares to Carl Hessel
for investment banking services valued at $187,500.

         On November 14, 2003, we issued 300,000 common shares to Milo Resources
for consulting services valued at $375,000.

         On November 24, 2003, we issued 581,395 common shares for $1,000,000.

         We believe all of the above described common stock was issued in
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.

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 two wholly owned  subsidiaries
named Rio Bravo Energy,  LLC, and Sonora Pipeline,  LLC. The Company also owns a
25% limited partnership interest in Reef Ventures, L.P. as described above.

RESULTS OF OPERATIONS

REVENUES:  The Company reported revenues of $178,856 from continuing  operations
for the twelve  months ended  December 31, 2003 as compared  with  revenues from
continuing operations of $709,662 for the twelve months ended December 31, 2002.
The revenue  reductions were due to the temporary  closing of our Gas Processing
Plant.  Management fee revenue earned from services rendered during construction
of the international natural gas pipeline crossing totaled $155,000.

TOTAL COSTS AND EXPENSES:  Total costs and expenses from  continuing  operations
decreased  from  $4,454,087  for the twelve  months  ended  December 31, 2002 to
$3,061,068  for the twelve  months ended  December 31, 2003.  While  general and
administrative expenses remained relatively constant from year to year, expenses
related to gas purchases and operation of the gas processing  plant decreased by
$735,794  in 2003  compared  to 2002 due to the  temporary  shut down of the gas
processing  plant.  The  remaining  decrease  in total  costs  and  expenses  is
primarily a result of the absence of  litigation  settlement  costs and goodwill
impairment  charges in 2003 versus $544,910  incurred in 2002 and a reduction of
interest expense by $37,662 for the year ended December 31, 2003 versus December
31, 2002.

COST OF  SALES:  The  cost  of  sales  (purchases)  from  continuing  operations
decreased  from $529,332 for twelve  months ended  December 31, 2002 to $-0- for
the twelve  months  ended  December  31,  2003.  This  reduction  was due to the
temporary closing of our Gas Processing Plant.

OPERATING EXPENSES: Operating expenses from continuing operations decreased from
$234,229 for the twelve months ended December 31, 2002 to $27,767 for the twelve
months  ended  December  31,  2003.  The  decrease  of  $206,462  was due to the
temporary closing of our Gas Processing Plant.



                                       7
<PAGE>

SELLING, GENERAL AND ADMINSTRATIVE EXPENSES: Selling, general and administrative
expense from  continuing  operations  increased  from  $3,013,606 for the twelve
months  ended  December  31,  2002 to  $2,937,132  for the twelve  months  ended
December  31,  2003.  The  decrease  of $76,474  was due to a variety of factors
including   increased   travel  expenses  for   investigation  of  new  business
opportunities  and the hiring of new employees  offset  against a reduction of a
number of other expenses.

INCOME TAX: The pretax loss  improved  from  ($4,060,772)  for the twelve months
ended December 31, 2002 to ($1,348,481) for the twelve months ended December 31,
2003, an improvement of $2,712,291 due  substantially to the gain on the partial
sale of a subsidiary,  non-recurring litigation settlement expenses and goodwill
impairment, and a loss from discontinued operations in 2002.

LIQUIDITY AND CAPITAL RESOURCES:  Capital  expenditures during the twelve months
ended  December 31, 2003 totaled  $134,505,  as compared  with  $353,820 for the
twelve  months  ended  December  31,  2002.  The  decrease of $219,315  consists
primarily of lower pre-construction costs for projects under development.

Total debt  decreased  from  $3,915,273  at December 31, 2002 to  $1,138,905  at
December  31,  2003.  Total debt as of December  31, 2003 and  December 31, 2002
expressed as a percentage of the sum of total debt and shareholders'  equity was
70.15% and 283.85% respectively.

Net loss for the twelve  months  ended  December  31,  2003 was  ($1,348,481)  a
decrease  of 301.14%  from the net loss of  ($4,060,772)  for the twelve  months
ended December 31, 2002.  Diluted net loss per common share improved  466.67% to
($0.03). The net loss per share calculation for the twelve months ended December
31, 2003 included an increase in actual and equivalent shares outstanding.

As detailed above,  the Company has  experienced  significant  improvement  with
respect to its  financial  condition  in the past year.  Total debt and  capital
commitments required for projects have been dramatically reduced from prior year
levels due to actions undertaken by the Company in fiscal 2003. Debt was reduced
by the sale of the  interests  in the Reef LLC's and the cost of  financing  the
Eagle  Pass/Piedras  Negras, MX projects for natural gas and natural gas liquids
was shifted to joint venture partners.

Improvement  in the ability to fund ongoing  operations  has also  occurred as a
result of actions taken in 2003. At December 31, 2003,  the Company had received
$1,000,000  of the  $5,083,335  total  funding  commitment  with  respect to the
private placement of 3,303,618  restricted common shares with Margaux Investment
Management Group, S.A. and associated  entity. On February 11, 2004, the Company
received the final  disbursement  of funds which  fulfilled the full  $5,083,335
commitment.   Management  anticipates  that  sufficient  liquidity  and  capital
resources  currently  exists to fund our  operations  with  respect to recurring
operating expenses, debt service and project  pre-construction  expenditures for
planned projects in the upcoming fiscal year.

However,  additional  borrowing,  formation  of joint  ventures,  and/or sale of
additional  shares of stock will be  necessary  to fund actual  construction  of
newly planned  projects such as the Burgos Basin gas storage  facility  which is
currently in the pre-construction phase of development. Other projects currently
in the feasibility study phase include  bi-directional  natural gas liquid (NGL)
and natural gas pipeline crossings and pipeline  infrastructure  projects in the


                                       8
<PAGE>

interior  regions of Mexico.  It is expected  that the capital  required for the
development  of the various  projects  under  consideration  by the Company will
exceed  $100,000,000.  Until these projects are constructed  and operating,  the
Company  does not  expect  to  receive  significant  revenues  and must  rely on
existing  cash  resources  and  future   borrowings   and/or  equity   issuance.
Management's focus in the future,  therefore,  will be to safeguard the adequacy
of working capital through additional funding combined with conservation of cash
resources,  while continuing to fund new project development  opportunities with
the highest returns.  Additional  efforts will be made to secure gas supplies in
order to utilize idle assets owned by the Company's subsidiary companies.

Management believes that market forces continue to justify the Company's efforts
to provide  midstream  energy projects for the  cross-border and Mexican natural
gas  marketplace.  The  industrialized  northern  region of Mexico  continues to
demand increasing imports of natural gas and natural gas liquids for industrial,
power  generation  and  residential  customers.  Low  levels  of  investment  in
exploration and production as well as  infrastructure  for natural gas and NGL's
in Mexico  are  expected  to  continue  absent  significant  constitutional  law
changes,  thus  presenting  niche market  participants  such as  Tidelands  with
selected business opportunities.

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",  "plan" 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.



                                       9
<PAGE>

ITEM 7.  Financial Statements

                          Index to Financial Statements


Independent Accountant's Report.......................................    F-3
Financial Statements
       Balance Sheet..................................................    F-4
       Statements of Stockholders' Equity.............................    F-5
       Statements of Operations.......................................    F-6
       Statements of Cash Flows.......................................F-7 - F-8
       Notes to Financial Statements..................................F-9 - F-21

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

           None.

ITEM 8A. 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, 2003, 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.


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, 2003.  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, CEO            October 21, 1998
Royis Ward (1)     70       Director, Secretary                 October 21, 1998
James B. Smith     50        Vice President, CFO                August 16, 2003
Ahmed Karim        31       Director,  Vice President           October 21, 1998

Note:
(1) Royis Ward resigned as an officer and director effective October 1, 2003.



                                       10
<PAGE>

         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.

         Royis Ward was 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. Royis Ward is the
father of Michael Ward. Mr. Ward resigned effective October 1, 2003.

         On  August  16,  2003,  we  employed  James B.  Smith to act as an Vice
President  and  Chief  Financial  Officer.  We  offered  Mr.  Smith  a  one-year
employment  agreement.  Mr. Smith's compensation is $80,000 per year. We granted
Mr. Smith common stock options to acquire  500,000 shares for $110,000  Dollars.
The option may be  exercised  commencing  February  15,  2004 and expires on, or
before March 1, 2005.

         Mr. Smith  received a Bachelor of Science from Texas A&M University and
a Master of Professional  accounting  degree from the McCombs School of Business
at the  University  of Texas,  Austin.  He is  licensed  as a  Certified  Public


                                       11
<PAGE>

Accountant  in Texas and  Colorado.  From 1996  through  2001,  he directed  the
financial affairs and tax planning for several closely held corporations engaged
in land  development  in Colorado.  From 2000 through  2003,  he served as Chief
Financial  Officer for Starr  Produce  Company,  a major  produce  company  with
significant subsidiaries in real estate development and agri-business.

         Ahmed  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
is business experience includes work with Quest Investments Group and Interworld
Trade and Finance where his  responsibilities  included  marketing,  finance and
investor relations.

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

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, 2003,  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:  (1) Royis
Ward,  former office and director,  failed to file eleven Forms 4's representing
13  transactions,  Statement of Changes in Beneficial  Ownership of  Securities,
during the 90 day period following his resignation,  he also did not file a Form
5,  Statement of Annual  Beneficial  Ownership due February 14, 2003,  (2) Ahmed
Karim,  director and vice  president,  failed to file six Forms 4,  representing
eight  transactions  during 2003 and a Form 5 due February 14, 2003, (3) Michael
Ward, director and president, failed to file a Form 5 due February 14, 2003.

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.



                                       12
<PAGE>

ITEM 10. Executive Compensation

         The  following  sets  forth the  compensation  of the  officers  of the
Company in the year ended December 31, 2003.

Summary Compensation.

The  following  table sets forth the  compensation  paid by the  Company  during
fiscal year 2003 to its officers.  This information includes the dollar value of
base  salaries,  bonus awards and number of stock options  granted,  and certain
other compensation, if any.

Table 1.                                                                Stock
                                                                      Underlying
Name and Positon           Year        Salary/Fee     Bonus            Options

Michael Ward, Pres.        2003         $120,000       -0-              500,000
Royis Ward, Sec/Trea.      2003         $ 90,000     $25,000            500,000
James Smith, CFO           2003         $ 30,000       -0-              500,000
Ahmed Karim, V.P.          2003         $ 48,000       -0-              500,000

Executive Officer Compensation

         During 2003,  the Company had four  executive  officers,  Michael Ward,
Royis Ward,  James B. Smith and Ahmed Karim.  Michael  Ward's  annual  salary is
$120,000.  Royis Ward's  annual  salary is $120,000.  The company has paid these
salaries to April 30, 2003 and the unpaid  amounts are due and  accruing.  Royis
Ward resigned his officer and director positions on October 1, 2003 and received
a $25,000 severance entitlement, which was also accrued. James B. Smith's annual
salary was  $80,000  beginning  August 16,  2003,  his  employment  date.  As of
December 31, 2003,  salaries of $185,000 from May 1, 2003 were accrued including
Royis Ward's severance pay.

Director Compensation

         On April 11,  2001,  the Company  agreed to  compensate  a director for
services provided at the rate of $5,000 per month until June 30, 2003 and $3,000
per month thereafter.  For the year ended December 31, 2003, we incurred $48,000
for director compensation of which $18,000 is still due as of December 31, 2003.
There are no other formal or informal understandings or arrangements relating to
compensation.

         On  February 5, 2003,  we granted  Michael  Ward,  Royis Ward and Ahmed
Karim common stock options to purchase  500,000  shares each at $0.22 per share.
On August 16, 2003,  we granted  James B. Smith common stock options to purchase
500,000 shares at $0.22 per share. The options expire March 5, 2005.


ITEM 11. Security Ownership of Certain Beneficial Owners and Management

         The following table sets forth the Common Stock  ownership  information
as of December 31, 2003,  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. Unless otherwise  indicated,
each  has  sole  voting  and  investment   power  with  respect  to  the  shares
beneficially  owned.  The percentages are based on 44,825,302  shares issued and
outstanding as of December 31, 2003.



                                       13
<PAGE>

(a)      Beneficial  Ownership of more than 5% based on 55,842,107 common shares
         assuming the exercise of all  outstanding  stock  options and the stock
         purchase warrants.

Beneficial Ownership of 5%.

Table 1.

    (1)              (2)                          (3)                 (4)
Title of Class   Name and Address           Amount and Nature   Percent of Class
Common Stock

Common        Redec & Associates
              2800 Island Blvd., Ste. 604       4,000,000              7.16%
              Williams Islands, FL 33160

Warrants      Impact International, LLC (1)     8,516,807             15.25%
              111 W. 5th St. Ste.720
              Tulsa, OK 74103

Total                                          12,516,807             22.41%

Notes:

(1)      This  number  represents  common  stock  available  under the terms and
         conditions of a Stock Purchase  Warrant  Agreement where Impact has the
         right to acquire 19% of the issued and outstanding  common stock of the
         company.   The  warrant   agreement  is  subject  to  an  anti-dilution
         provision.  Impact  has  given  the  company  notice  of its  intent to
         exercise all warrants  under the cash less  exercise  provisions of the
         Stock Warrant Agreement. We have not issued any common shares to date.


(b)      Security Ownership of Management.  Based on 55,842,107 common shares as
         set forth in (a) above as of December 31, 2003.

         Table 2.

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

Common        Michael Ward                    6,317,038 (2)           11.31%
              13707 Bluffgate
              San Antonio, TX

Common        Royis Ward (1)                  3,541,674 (2)            6.34%
              2600 Sherri Ln.
              Flower Mound, TX

Common        James B. Smith                    607,668 (2)            1.09%
              309 Wollschlaegar
              Boerne, TX

Common        Ahmed Karim                       502,500 (2)             .90%
              1532 Woods Dr.
              N. Vancouver, B.C.
              Canada V7R 1A9

Total                                        10,968,880               19.64%

Directors and  Management  as a group owned 20.01% of the  Company's  issued and
outstanding stock.



                                       14
<PAGE>

Notes:

(1)      Royis Ward  resigned  his  officer  and  director  positions  effective
         October 1, 2003.

(2)      The figure includes  500,000 common stock options which are immediately
         exercisable  at  $0.22  per  share.  None of  these  options  has  been
         exercised to date.

ITEM 12.  Certain Relationships and Related Transactions

         During 2003,  the Company had four  executive  officers,  Michael Ward,
Royis Ward,  James B. Smith and Ahmmed  Karim.  Michael  Ward's annual salary is
$120,000.  Royis Ward's  annual  salary is $120,000.  The company has paid these
salaries to April 30, 2003 and the unpaid  amounts are due and  accruing.  Royis
Ward resigned his officer and director positions on October 1, 2003 and received
a $25,000 severance entitlement, which was also accrued. James B. Smith's annual
salary was  $80,000  beginning  August 16,  2003,  his  employment  date.  As of
December 31, 2003,  salaries of $185,000 from May 1, 2003 were accrued including
Royis Ward's severance pay.

         On  February 5, 2003,  we granted  Michael  Ward,  Royis Ward and Ahmed
Karim common stock options to purchase  500,000  shares each at $0.22 per share.
On August 16, 2003,  we granted  James B. Smith common stock options to purchase
500,000 shares at $0.22 per share. The options expire March 5, 2005.

         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 was offset against his officer loan of
$117,492. See Note 5 to the attached financial statements.

         On April 11,  2001,  the Company  agreed to  compensate  a director for
services provided at the rate of $5,000 per month until June 30, 2003 and $3,000
per month thereafter.  For the year ended December 31, 2003, we incurred $48,000
for these services of which $18,000 is still due as of December 31, 2003.  There
are no other  formal or  informal  understandings  or  arrangements  relating to
compensation.

 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 & Gas 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
         31.1     Chief Executive  Officer-Section 302 Certification pursuant to
                  Sarbane- Oxley Act.
         31.2     Chief Financial Officer- Section 302 Certification pursuant to
                  Sarbane-Oxley Act.
         32.1     Chief Executive  Officer-Section 906 Certification pursuant to
                  Sarbane-Oxley Act.
         32.2     Chief Financial Officer- Section 906 Certification pursuant to
                  Sarbane-Oxley Act.

*        Previously filed.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

         The Company paid or accrued the following fees in each of the prior two
fiscal years to its principal  accountant,  Baum & Co.,  P.A. of Coral  Springs,
Florida.


                                           Year End           Year End
                                           12-31-03           12-31-02

(1)      Audit Fees                        $ 49,324           $ 41,926
(2)      Audit-related Fees                       0                  0
(3)      Tax Fees                                 0                  0
(4)      All other fees                           0                  0
                                           --------           --------
                                           $ 49,324           $ 41,926
                                           ========           ========

Total Fees

The Company has no formal audit committee. However, as defined in Sarbanes-Oxley
Act of 2002,  the entire  Board of  Directors  is the  Company's  defacto  audit
committee.

The Company's  principal  accountant,  Baum & Co., P.A. did not engage any other
persons or firms  other than the  principal  accountant's  full-time,  permanent
employees.







                                       15
<PAGE>

                                   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,  2003  to be  signed  on its  behalf  by the  undersigned,
thereunto duly authorized on this 30th day of March, 2004.

                                      TIDELANDS OIL & GAS CORPORATION


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

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: March 30, 2004                   /s/ Michael Ward
                                      ------------------------------------------
                                      Michael Ward, President, Director


                                       /s/ James B. Smith
                                      ------------------------------------------
                                      James B. Smith, Senior Vice President, CFO


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







                                       16
<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002


<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002




                                TABLE OF CONTENTS





INDEPENDENT AUDITOR'S REPORT........................................         F-3

CONSOLIDATED FINANCIAL STATEMENTS:

    Consolidated Balance Sheet......................................         F-4

    Statements of  Consolidated Stockholders' Equity................         F-5

    Statements of Consolidated Operations ..........................         F-6

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

    Notes to Consolidated Financial Statements ...................... F-9 - F-21










<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
San Antonio, Texas

We have audited the accompanying  consolidated  balance sheet of Tidelands Oil &
Gas Corporation as of December 31, 2003, and the related consolidated statements
of  stockholders'  equity  (deficit),  operations,  and cash flows for the years
ended December 31, 2003 and 2002. 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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  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, 2003 and the results of their
consolidated  operations and their  consolidated  cash flows for the years ended
December 31, 2003 and 2002 in conformity  with accounting  principles  generally
accepted in the United States of America.



Baum & Company, P.A.
Coral Springs, Florida
March 25, 2004












                                       F-3

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2003

                                     ASSETS
                                     ------


Current Assets:
      Cash                                                         $    894,457
      Accounts and Loans Receivable                                         228
      Prepaid Expenses (Note 3)                                          22,209
                                                                   ------------
         Total Current Assets                                           916,894
                                                                   ------------

Property Plant and Equipment, Net (Notes 1,4)                           604,192
                                                                   ------------

Investment - Reef Ventures, L.P.  (Note 13)                              98,629
                                                                   ------------

Other Assets:
      Deposits                                                            3,800
                                                                   ------------

         Total Assets                                              $  1,623,515
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current Liabilities:
      Accounts Payable and Accrued Expenses                        $    813,905
      Current Maturities of Long-Term Debt
      (Note 6)                                                          325,000
                                                                   ------------

         Total Current Liabilities                                    1,138,905

Long-Term Debt                                                             --

Due to Related Parties (Note 5)                                            --
                                                                   ------------

         Total Liabilities                                            1,138,905
                                                                   ------------

Commitments and Contingencies (Notes 11,12, 13)

Stockholders' Equity:
      Common Stock, $.001 Par Value Per Share,
        100,000,000 Shares Authorized, 44,825,302
        Shares Issued and Outstanding                                    44,826
      Paid-in Capital in Excess of Par Value                         11,072,987
      Subscriptions Receivable                                          (18,000)
      Accumulated (Deficit)                                         (10,615,203)
                                                                   ------------
         Total Stockholders' Equity                                     484,610
                                                                   ------------

         Total Liabilities and Stockholders' Equity                $  1,623,515
                                                                   ============




           See Accompanying Notes to Consolidated Financial Statements
                                       F-4


<PAGE>
<TABLE>
<CAPTION>

                        TIDELANDS OIL AND GAS CORPORATION
            STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                                                                                                       Total
                                                                 Additional         Stock                          Stockholders'
                                   Common          Stock          Paid-In        Subscription     Accumulated         Equity/
                                   Shares          Amount         Capital         Receivable        (Deficit)        (Deficit)
                                -------------   -------------   -------------    -------------    -------------    -------------
<S>                             <C>             <C>             <C>              <C>              <C>              <C>
Balance -
  December 31, 2001                24,154,900   $      24,156   $   3,017,751    $     (18,000)   $  (5,205,950)   $  (2,182,043)

Common Stock
  Issued for Cash                     400,000             400          99,600             --               --            100,000

Issuances of Common
  Stock for Services                4,507,500           4,507       1,763,758             --               --          1,768,265

Issuance of Common
  Stock for Conversion
  of  Related Party Debt            1,967,016           1,967         676,653             --               --            678,620

Issuance of Common
  Stock for Conversion
  Of Deferred Director's Fees         173,913             174          59,826             --               --             60,000

Issuance of Common Stock
  in Payment of Litigation
  Settlement                        1,200,000           1,200         490,800             --               --            492,000

Issuance of Common Stock
  in Payment of Legal Fees
  in Connection With the
  Litigation                        1,000,000           1,000         551,000             --               --            552,000

Issuance of Common Stock
  For Conversion of Accrued
  Legal Fee and Accrued-
  Interest                            280,000             280          55,720             --               --             56,000

Net Loss                                 --              --              --               --         (4,060,772)      (4,060,772)
                                -------------   -------------   -------------    -------------    -------------    -------------
Balance -
  December 31, 2002                33,683,329          33,684       6,715,108          (18,000)      (9,266,722)      (2,535,930)

Common Stock Issued
  For Cash                            781,395             781       1,049,219             --               --          1,050,000

Common Stock Issued
  For Services Regarding
  $1,000,000 Sale of
  Common Stock                        300,000             300         335,700             --               --            336,000

Fee for Services re: Sale
  of Common Stock                        --              --          (336,000)            --               --           (336,000)

Issuances of Common Stock
  For Services                      4,323,500           4,324       2,187,273             --               --          2,191,597

Issuances of Common
  Stock for Conversion of
  Deferred Officers'
  Salaries                          3,596,169           3,596         787,561             --               --            791,157

Issuance of Common Stock
  For Conversion of Deferred
  Director's Fees                     340,909             341          74,659             --               --             75,000

Issuance of Common
  Stock for Conversion of
  Accrued Legal Fees                  500,000             500          62,000             --               --             62,500

Issuance of Common Stock
  For Conversion of Notes
  Payable                           1,300,000           1,300         197,467             --               --            198,767

Net Loss                                 --              --              --               --         (1,348,481)      (1,348,481)
                                -------------   -------------   -------------    -------------    -------------    -------------

Balance -
  December 31, 2003                44,825,302   $      44,826   $  11,072,987    $     (18,000)   $ (10,615,203)   $     484,610
                                =============   =============   =============    =============    =============    =============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements
                                       F-5

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                      STATEMENTS OF CONSOLIDATED OPERATIONS
                                   YEARS ENDED

                                                   December 31,    December 31,
                                                       2003            2002
                                                   ------------    ------------
Revenues:
      Gas Processing Sales                         $          0    $    702,086
      Other                                             178,856           7,576
                                                   ------------    ------------
           Total Revenues                               178,856         709,662
                                                   ------------    ------------

Expenses:
      Purchases                                            --           529,332
      Operating Expenses                                 27,767         234,229
      Depreciation and Amortization                      43,006          41,185
      Interest                                           53,163          90,825
      Litigation Settlement                                --           492,000
      Officers & Directors Salaries & Fees              313,000         300,000
      Impairment of Goodwill                               --            52,910
      General and Administrative                      2,624,132       2,713,606
                                                   ------------    ------------
         Total Expenses                               3,061,068       4,454,087
                                                   ------------    ------------

Net (Loss) From Continuing Operations                (2,882,212)     (3,744,425)
Gain on Sale of Subsidiary (Note 13)                  1,533,731            --
(Loss) From Discontinued Operations (Note 2)               --          (316,347)
                                                   ------------    ------------

Net (Loss)                                         $ (1,348,481)   $ (4,060,772)
                                                   ============    ============

Net (Loss) Per Common Share:
      Basic
      Loss From Continuing Operations              $      (0.07)   $      (0.13)
      Gain on Sale of Subsidiary                           0.04            0.00
      Loss From Discontinued Operations                    0.00           (0.01)
                                                   ------------    ------------
           Total                                   $      (0.03)   $      (0.14)
                                                   ============    ============
Weighted Average Number of Common
       Shares Outstanding, Basic                     39,254,316      28,919,115
                                                   ============    ============

      Diluted
      Loss From Continuing Operations              $      (0.07)   $      (0.13)
      Gain on Sale of Subsidiary                           0.04            0.00
      Loss From Discontinued Operations                    0.00           (0.01)
                                                   ------------    ------------
           Total                                   $      (0.03)   $      (0.14)
                                                   ============    ============
Weighted Average Number of Common
    Shares Outstanding, Diluted                      44,764,219      28,944,115
                                                   ============    ============






           See Accompanying Notes to Consolidated Financial Statements
                                       F-6


<PAGE>

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


                                                   December 31,    December 31,
                                                       2003            2002
                                                   ------------    ------------


Cash Flows Provided (Required) By
  Operating Activities:
    Net (Loss)
      Continuing Operations                        $ (1,348,481)   $ (3,744,425)
      Discontinued Operations                              --          (316,347)
    Adjustments to Reconcile Net (Loss)
         to Net Cash Provided (Required) By
         Operating Activities:

    Depreciation, Depletion and Amortization
         Continuing Operations                           43,006          41,185
         Discontinued Operations                           --            26,527
    Loss on Disposal of Oil & Gas Properties               --             1,600
      Provision for Impaired Assets                        --            52,910
      Issuance of Common Stock:
         For Services Provided                        2,191,597       1,868,265
         For Litigation Settlement                         --           492,000
      Officers' Salaries                                185,000         240,000
       Changes in:
         Accounts Receivable                             16,078          51,369
         Inventory                                       12,155          (4,640)
         Prepaid Expenses                                21,392         260,643
         Other Assets                                    (1,805)           (308)
         Accounts Payable and Accrued Expenses         (677,815)        608,541
                                                   ------------    ------------
Net Cas  h Provided (Required)
   By Operating Activities                              441,127        (422,680)
                                                   ------------    ------------

Cash Flows Provided (Required)
  By Investing Activities:
      (Increase) in Investments                         (98,629)           --
      Acquisitions of Property, Plant & Equipment      (134,505)       (353,820)
      Disposals of Oil
      and Gas Properties                                598,924            --
                                                   ------------    ------------

         Net Cash Provided (Required)
           By Investing Activities                      365,790        (353,820)
                                                   ------------    ------------





           See Accompanying Notes to Consolidated Financial Statements
                                       F-7

<PAGE>

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



                                                   December 31,    December 31,
                                                       2003            2002
                                                   ------------    ------------

Cash Flows (Required) Provided
  by Financing Activities:
     Proceeds from Issuance of Common Stock           1,050,000         100,000
     Proceeds From Short-Term Loans                        --            45,600
     Repayment of Short-Term Loans                         --          (256,799)
     Repayment of Loans Due to Related Parties         (933,554)           --
     Proceeds of Loans From Related Parties              80,349         683,877
     Repayment of current Maturities of Long-Term
     Debt                                              (302,924)           --
                                                   ------------    ------------

Net Cash (Required) Provided by
  Financing Activities                                 (106,129)        572,678
                                                   ------------    ------------

Net Increase (Decrease) in Cash                         700,788        (203,822)
Cash at Beginning of Period                             193,669         397,491
                                                   ------------    ------------
Cash at End of Period                              $    894,457    $    193,669
                                                   ============    ============

Supplemental Disclosures of
   Cash Flow Information:
      Cash Payments for Interest                   $     38,773    $     36,551
                                                   ============    ============

      Cash Payments for Income Taxes               $          0    $          0
                                                   ============    ============
Non-Cash Financing Activities:
   Issuance of Common Stock:
      Operating Activities                         $  2,191,597    $  1,868,265
      Repayment of Loans                                198,767            --
      Payment of Accounts Payable                        62,500         508,000
      Repayment of Loans From Related Parties           866,157         738,620
      Litigation Settlement                                --           492,000
                                                   ------------    ------------

      Total Non-Cash Financing Activities          $  3,319,021    $  3,606,885
                                                   ============    ============







           See Accompanying Notes to Consolidated Financial Statements
                                       F-8


<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 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 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  development  of natural gas
         storage  facilities in Mexico and the  reopening of its gas  processing
         plant and pipeline in Texas.

         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 have been 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.








                                       F-9

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 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.

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

         Property,   plant  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.














                                      F-10

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 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 of 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 net  (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 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.

         New Accounting Standards
         ------------------------

         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. The adoption of SFAS 143 does not
         have a material effect on our consolidated financial statements.












                                      F-11

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


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

         New Accounting Standards (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.  The
         implementation  of the  provisions  of SFAS  No.  146  does  not have a
         material effect on the 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 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  the  consolidated  financial
         statements.















                                      F-12

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE 2 - 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.

         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  had  taken  place  to
         establish a  definitive  starting  date.  Accordingly,  management  has
         written off the value of goodwill of $52,910  related to the processing
         plant and pipeline for the year ended December 31, 2002.

NOTE 3 - PREPAID EXPENSES
------   -----------------

             As of December 31, 2003 prepaid expenses of $22,209 consisted of
             prepaid legal fees, prepaid consulting fees, prepaid insurance
             expense and financing costs.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
------   -----------------------------

         A summary of property,  plant and  equipment at December 31, 2003 is as
         follows:

                                                                      Estimated
                                                                       Economic
                                                                         Life
         Pre-Construction Costs-                                       --------
           International Crossings to Mexico            $ 133,308        N/A
         Equipment and
           Leasehold Improvements                          19,449       5 Years
         Pipelines                                        431,560      15 Years
         Processing Plant                                 166,410      15 Years
                                                        ---------
              Total                                       750,727
         Less Accumulated Depreciation                    146,535
                                                        ---------
              Total                                     $ 604,192
                                                        =========








                                      F-13

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002



NOTE 5 - RELATED PARTY TRANSACTIONS
------   --------------------------

         The Board of Directors  has annually  approved  officers'  salaries for
         services  provided.  The  liability  for these  salaries is included in
         accounts payable.  At December 31, 2003 the cumulative amount of unpaid
         officers' salaries is as follows:

         For Year Ended December 31, 2003                             $  185,000
                                                                      ==========

         The Company  agreed to  compensate a director for services  provided at
         the rate of $5,000 per month for the period January 1, 2003 to June 30,
         2003 and $3,000 per month for the period July 1, 2003 to  December  31,
         2003.  For the  years  ended  December  31,  2003 and 2002 the  Company
         incurred $48,000 and $60,000,  respectively for these services of which
         $18,000 is still due as of December 31, 2003.

         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 for book value
         as follows:

                    Tidelands Oil Corporation                         $   32,476
                                                                      ==========
                    Tidelands Gas Corporation                         $   15,995
                                                                      ==========


         The amounts due were offset  against the officer  loan  outstanding  at
         that time of $117,492.

NOTE 6 - LONG-TERM DEBT
------   --------------

         A summary of notes payable at December 31, 2003 is as follows:

             Note Payable, Unsecured, 10% Interest
                Maturing December 31, 2004                            $  250,000

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

                                                                         325,000

             Less:  Current Maturities                                   325,000
                                                                      ----------

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




                                      F-14

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE   7 - INCOME TAXES
--------   ------------

         The Company files a consolidated federal income tax return. At December
         31,  2003,  the  Company  had  a net  operating  loss  carryforward  of
         approximately  $9,778,847  available to offset future  federal  taxable
         income through 2023.

         The components of the deferred tax assets and  liabilities  accounts at
         December 31, 2003 are as follows:

               Total Deferred Tax Assets                              $3,325,000
               Less:  Valuation Allowance                              3,325,000
                                                                      ----------
               Deferred Tax Asset (Liability)                         $        0
                                                                      ==========

NOTE 8 -  COMMON STOCK TRANSACTIONS
------    -------------------------

         On  February  4,  2003,  the  Company  issued  200,000  shares  of  its
         restricted common stock for $50,000.

         On February 6, 2003,  the Company  authorized  the  issuance of 500,000
         shares of its common stock valued at $62,500 for payment of prior legal
         fees.

         On  February  24,  2003,  the  Company  issued  163,500  shares  of its
         restricted common stock for an employee bonus valued at $15,697.

         On March 31, 2003,  the Company issued 600,000 shares of its restricted
         common stock for consulting fees valued at $93,600.

         On June 30, 2003,  the Company  issued  3,596,169  common shares to two
         officers for accrued  officer's  salaries totaling $791,157 at $.22 per
         share.  The shares were issued under the Company's 2003 Stock Grant and
         Option Plan that was registered on June 11, 2003, Form S-8.


















                                      F-15

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE 8 -  COMMON STOCK TRANSACTIONS (CONTINUED)
------    -------------------------------------

         On June 30,  2003,  the  Company  issued  340,909  common  shares  to a
         director  for  accrued  director's  fees  totaling  $75,000 at $.22 per
         share.  These shares were issued under the  Company's  2003 Stock Grant
         and Option Plan.

         On June 30, 2003, the Company issued 1,300,000 restricted common shares
         as full payment of an outstanding  promissory note of $198,767.  Unpaid
         interest was waived. The shares were issued to nine individuals.

         On September 10, 2003,  the Company issued  600,000  restricted  common
         shares  which were  approved  August 15, 2003 for  consulting  services
         valued at $62,400.

         On September 12, 2003,  the Company issued  500,000  restricted  common
         shares  which were  approved  August 15, 2003 for  consulting  services
         valued at $52,000.

         On September 12, 2003,  the Company issued  300,000  restricted  common
         shares  which were  approved  August 15, 2003 for  consulting  services
         valued at $31,200.

         On September 16, 2003,  the Company  issued 600,000 common shares which
         were approved  August 15, 2003 to its attorney for 2003 legal  services
         valued at $75,000.

         On October 3, 2003, the Company issued 60,000  restricted common shares
         to for investor public relations services valued at $38,700.

         On October 29,  2003,  the Company  issued  150,000  restricted  common
         shares for services  regarding  the private  placement of the Company's
         stock valued at $148,500.

         On October 29,  2003,  the Company  issued  200,000  restricted  common
         shares for consulting services valued at $198,000.

         On November 1, 2003 the Company issued 500,000 restricted common shares
         for consulting services valued at $625,000.

         On  November 1, 2003,  the Company  issued  200,000  restricted  common
         shares for consulting services valued at $250,000.







                                      F-16

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE 8 -  COMMON STOCK TRANSACTIONS (CONTINUED)
------    -------------------------------------

         On  November 4, 2003,  the Company  issued  300,000  restricted  common
         shares for consulting services valued at $375,000.

         On November 14, 2003,  the Company  issued  150,000  restricted  common
         shares for services regarding the private placement of Company's common
         stock valued at $187,500.

         On November 14, 2003,  the Company  issued  300,000  restricted  common
         shares for consulting services valued at $375,000.

         On November 24, 2003,  the Company  issued  581,395  restricted  common
         shares for $1,000,000.

NOTE 9 -  STOCK OPTIONS
------    -------------

         The status of the Company's stock option activities for the years ended
         December 31, 2003 is summarized as follows:

                                                                Weighted Average
                                            Number of Options    Exercise Price
         Options Outstanding
         Beginning of Year                              0         $         0

         Granted                                2,500,000                 .22
         Exersised                                      0                --
         Canceled                                       0                --
                                              -----------         -----------
         Options Outstanding-
         End of Year                            2,500,000         $       .22
                                              ===========         ===========


                     Accounting for Stock Based Compensation

As allowed by Statement of Financial  Accounting  Standards No. 123,  Accounting
for   Stock-Based   Compensation,   the   Company   has  elected  to  apply  the
intrinsic-value-based  method of  accounting.  Under this  method,  the  Company
measures stock based  compensation for option grants to employees  assuming that
options  granted at market price at the date of grant have no  intrinsic  value.
Restricted  stock awards were valued based on the  discounted  market price of a
share of non-restricted  stock on the date earned.  No compensation  expense has
been  recognized for  stock-based  incentive  compensation  plans other than for
restricted stock awards pursuant to executive employment agreements.



                                      F-17

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 10 - LEASES
-------   ------

         The Company  entered into an operating  lease on August 1, 2003 for the
         rental of its  executive  office at a monthly rent of $3,400,  expiring
         February 28, 2005.

         Future commitments under the operating lease is as follows:

                        Year Ending                         Total
                        -----------                         -----

                           2004                           $  40,800
                           2005                               6,800
                                                          ---------
               Total Minimum Lease Payments               $  47,600
                                                          =========

         Rent  expense  for the  years  ended  December  31,  2003 and 2002 were
         $28,100 and $27,000, respectively.

NOTE 11 - 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 related cleanup 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  consolidated  financial  condition  or reported
         results of consolidated operations of the Company.

NOTE 12 - 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
         Company  (Northern)  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.





                                      F-18

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 12 - LITIGATION (CONTINUED)
--------  ----------------------

         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 Oil & Gas  Corporation.  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  investigations,  however,  Tidelands appears to
         have a number of potential  defenses to Sheerin's  claims and Tidelands
         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  contended  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.

         On October  29,  2003 the  parties  executed a release  and  Settlement
         Agreement which was  subsequently  ratified by the court. and Tidelands
         Oil & Gas Corporation paid $6,000 to El Viejo Ranch, Ltd.




                                      F-19

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002


NOTE 13 - PARTIAL SALE OF SUBSIDIARIES
-------   -----------------------------

         In April 2003, the Company completed transactions with several entities
         hereafter known as Impact Energy Services  (Impact) for the sale of 75%
         interest of Reef International,  L.L.C. and Reef Marketing,  L.L.C. 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.

         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  received a management
         fee of $155,000  and may  receive 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.

         The Company recorded a gain on the partial sale of the two subsidiaries
         of $1,533,731.

NOTE 14 - STOCK PURCHASE WARRANT
-------   ----------------------

         On April 16, 2003, the Company issued a stock purchase  warrant for the
         purchase of common  shares of the  Company's  outstanding  stock at the
         time of  exercise,  which as of December  31,  2003 would be  8,516,807
         shares.  This number  represents common stock available under the terms
         and conditions of a Stock Purchase  Warrant  Agreement where Impact has
         the right to acquire 19% of the issued and outstanding  common stock of
         the  Company.  The  warrant  agreement  is subject to an  anti-dilution
         provision.  Impact  has  given  the  Company  notice  of its  intent to
         exercise the warrant.  The Company has not issued any common  shares to
         date.

         This sale included the commitment of Impact Energy Services and related
         entities  to  construct  and  fund,  up  to  $8,000,000,  for  multiple
         international pipelines from South Texas to Mexico.

         Pursuant to contractual obligation for these transactions,  the maximum
         exercise  price is $.35 which could be reduced to zero depending on the
         market price at time of exercise.


                                      F-20

<PAGE>

                         TIDELANDS OIL & GAS CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 15 - SUBSEQUENT EVENTS
-------   -----------------

         On January 8, 2004, the Company issued stock options for 250,000 shares
         of  restricted  common stock at $1.72 per share  expiring  December 31,
         2007.  In 2004,  the  Company  had  additional  stock  transactions  as
         follows:

         o        Sold   2,722,223   shares  of  restricted   common  stock  for
                  $4,083,335.

         o        Issued   700,000   shares  of  restricted   common  stock  for
                  consulting services valued at $1,050,000.

         o        Issued 300,000 shares of restricted  common stock for services
                  valued at  $450,000  regarding  the private  placement  of the
                  Company's common stock.

         o        Issued 52,800  shares  valued at $90,816 to a Company  officer
                  under the Stock Grant and Option Plan.

         o        Issued 75,000 shares of restricted  common stock in payment of
                  a $75,000 promissory note and accrued interest $39,121.

         o        Approved the issuance of 200,000 shares of common stock valued
                  at $172,000 to a Company attorney for 2004 legal services.






















                                      F-21