Edgar Filing: TIDELANDS OIL & GAS CORP/WA

As filed with the Securities and Exchange Commission on December 17, 2004
Registration No. 33-______
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TIDELANDS OIL & GAS CORPORATION
(Name of small business issuer in its charter)
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Nevada 4922 66-0549380
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

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1862 W. Bitters Rd 1862 W. Bitters Rd
San Antonio, TX 78248 San Antonio, TX 78248
(210) 764-8642 (210) 764-8642
(Address and telephone number of (Address of principal place
principal executive office) of business)

Michael Ward, President
1862 W. Bitters Rd.
San Antonio, TX 78248

(Name, address and telephone number of agent for service)
----------------------------
COPIES TO:
Counsel to Issuer
Gregory M. Wilson, Esq.
18610 East 32nd Ave.
Greenacres, WA 99016
Tel (509) 891-8373
Fax (509) 891-8382

Approximate Date of Proposed Sale to the Public.
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.|X|

CALCULATION OF REGISTRATION FEE

Title of Each Class of Number of Proposed Proposed Amount of
Securities to be Registered Shares to be Maximum Maximum Registration
Registered(1) Offering Price Aggregate Offering Fee(2)
Per Share(2) Price(2)
---------------------------------- ------------- -------------- ------------ ---------------

Common Stock, $0.001 par value (3) 17,078,948 $ 0.67 $ 11,442,895 $ 1,449.80
Common Stock, $0.001 par value (4) 11,111,111 $ 0.67 $ 7,444,444 $ 943.20
Common Stock, $0.001 par value (5) 11,733,118 $ 0.67 $ 7,861,189 $ 996.00
Total Registration and Fee 39,923,177 $ 0.67 $ 26,748,528 $ 3,389.00(6)

(1) Pursuant to Rule 416 under the Securities Act, such additional number of
shares of Common Stock subject to the Warrants are also being registered to
cover any adjustment resulting from stock splits, stock dividends or similar
transactions. The indeterminate number of additional shares shall be issuable
pursuant to Rule 416 to prevent dilution resulting from stock splits, stock
dividends or similar transactions.

(2) In accordance with Rule 457(C) , the aggregate offering price of shares of
common stock of Tidelands is estimated solely for the purposes of calculating

the registration fees payable pursuant hereto, as determined in accordance with
Rule 457(c), using the average of the high and low sales price reported by the
OTC Bulletin Board for the Common Stock on December 13 2004, which was $0.67 per
share.

(3) Represents the number of shares of our common stock to be sold issuable upon
exercise of outstanding warrants at exercise prices ranging from $0.335 to $2.50
per share.

(4) Represents the maximum number of shares of our common stock to be sold
issuable upon the conversion of outstanding 7% Convertible Debentures. This
number of shares has been calculated based on the maximum number of shares
issuable based on the "floor conversion price" of $0.45 per share.

(5) Represents shares of our common stock to be sold that are currently issued
and outstanding. (6) Balance in Tideland's SEC account of $197.00 plus funds
paid via wire transfer in the amount of $3,338.15.

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
securities act, or until the registration statement shall become effective on
such date as the commission, acting pursuant to said section 8(a), may
determine.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER __, 2004

[Logo of Tidelands Oil & Gas Corporation]

PROSPECTUS

39,923,177
Common Shares

TIDELANDS OIL & GAS CORPORATION
1862 W. Bitters Rd., San Antonio, TX 78248

The Resale of Shares of Common Stock

The selling price of the shares will be determined by market factors at the time
of their resale.

This prospectus relates to the resale by the selling shareholders of up to
shares of common stock. The selling shareholders may sell the stock from time to
time in the over-the-counter market at the prevailing market price or in
negotiated transactions. With regard to the offered shares,

o up to 8,500,000 shares are issuable upon exercise of
outstanding warrants, at exercise price of $0.335 per share to
Impact International, LLC;
o up to 1,329,500 shares issued and outstanding for sale by
Impact International, LLC;
o up to 11,733,118 shares issued and outstanding for sale by
selling security holders;
o up to 11,111,111 shares are issuable upon conversion of
outstanding 7% Convertible Debentures, which are convertible
pursuant to a formula, provided that the conversion price
shall not be less than $0.45, nor more than $0.76 per share;
o up to 6,578,948 shares are issuable upon exercise of
outstanding warrants at exercise prices ranging between $0.80
and $0.87 per share;

o up to 1,000,000 shares are issuable upon the exercise of
outstanding warrants at an exercise price of $0.50 per share;
and
o up to 1,000,000 shares are issuable upon the exercise of
outstanding warrants at an exercise price of $2.50 per share.

This offering is not being underwritten. The common shares offered under this
prospectus may be sold by the selling shareholders on the public market, in
negotiated transactions with a broker-dealer or market maker as a principal or
agent, or in privately negotiated transactions not involving a broker or dealer.

We will receive no proceeds from the sale of the shares by the selling
shareholders. However, we may receive up to $16,340,921 Dollars of proceeds from
the shares issuable upon the exercise of all the warrants, conversion of the
Debentures and payment of promissory notes secured by certain the stock of
certain selling shareholders. The proceeds from the exercise of the Impact
warrants must be used to offset debt we owe to Impact. The proceeds from the
conversion of the Debentures would be applied to the outstanding balances due on
the Debenture debt.

There is no assurance that all of the warrants will be exercised or the
Debentures converted at any price.

Our common stock is quoted on the over-the-counter Electronic Bulletin Board
under the symbol TIDE. On December 13, 2004, the average of the bid and asked
prices of the common stock on the Bulletin Board was $0.67 per share.

Investing in the common stock involves a high degree of risk. You should not
invest in the common stock unless you can afford to lose your entire investment.
See "Risk Factors" beginning on page of 5 this prospectus.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

Please read this prospectus carefully. It describes our company, finances,
products and services. Federal and state securities laws require us to include
in this prospectus all the important information that you will need to make an
investment decision.

You should rely only on the information contained or incorporated by reference
in this prospectus to make your investment decision. We have not authorized
anyone to provide you with different information. The selling shareholders are
not offering these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front page of this prospectus.

Brokers or dealers effecting transactions in the Shares should confirm the
registration of the Shares under the securities laws of the states in which such
transactions occur or the existence of an exemption from such registration, or
should cause such registration to occur in connection with any offer or sale of
the Shares.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

The Date of this Prospectus is December ___, 2004

The following table of contents has been designed to help you find
important information contained in this prospectus. We encourage you to read the
entire prospectus.

TABLE OF CONTENTS

Forward-looking Statements................................................. 1

Prospectus Summary......................................................... 2

The Company....................................................... 2

The Offering...................................................... 2

Recent Developments............................................... 3

Summary Financial Information..................................... 4

Risk Factors...................................................... 5

Use of Proceeds............................................................ 12

Market For Common Equity and Related Shareholder Matters................... 13

Dividends and Dividend Policy.............................................. 13

Business................................................................... 14

Properties................................................................. 16

Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................................. 17

Selling Shareholders....................................................... 19

Plan of Distribution....................................................... 21

Directors and Executive Officers........................................... 22

Principal Shareholders..................................................... 25

Transactions with Management and Others.................................... 29

Legal Proceedings.......................................................... 30

Description of Securities.................................................. 30

Legal Matters.............................................................. 32

Experts.................................................................... 33

Where You Can Find More Information........................................ 33

Index to Consolidated Financial Statements................................. F-1

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this prospectus we make a number of statements, referred to as
"forward-looking statements", which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "seek", "anticipate", "believe", "estimate", "expect",
"intend", "plan", "budget", "project", "may be", "may continue", "may likely
result", and similar expressions. When reading any forward looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including those
relating to:

o whether or not markets for our products develop and, if they do
develop, the pace at which they develop;

o our ability to attract the qualified personnel to implement our growth
strategies,

o our ability to develop sales, marketing and distribution capabilities;

o the accuracy of our estimates and projections;

o our ability to fund our short-term and long-term financing needs;

o changes in our business plan and corporate strategies; and

o other risks and uncertainties discussed in greater detail in the
sections of this prospectus, including those captioned "Risk Factors"
and "Management's Discussion And Analysis Of Financial Condition And
Results Of Operations".

o Each forward-looking statement should be read in context with, and with
an understanding of, the various other disclosures concerning our
company and our business made elsewhere in this prospectus as well as
other pubic reports filed with the United States Securities and
Exchange Commission (the "SEC"). You should not place undue reliance on
any forward-looking statement as a prediction of actual results or
developments. We are not obligated to update or revise any
forward-looking statement contained in this prospectus to reflect new
events or circumstances unless and to the extent required by applicable
law.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and should
be read in conjunction with, the more detailed information and the Financial
Statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise specifically referenced, all references to dollar amounts refer
to United States dollars.

The Company

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 nine subsidiaries which it
directly and indirectly owns as follows: (1) Rio Bravo Energy LLC, (2) Sonora
Pipeline LLC, (3) Arrecefe Management LLC, (4) Marea Associates, L.P. , (5)
Terranova Energia, S.de R.L. de C.V. and (6) Sonterra Energy Corporation. We
also own a 97% limited partnership interest in Reef Ventures, L.P.(7). Arrecefe
Management LLC owns a 1% general partner interest in Reef Ventures, L.P. Reef
Ventures, L.P. owns 100% of the member interest in Reef International LLC(8) and
Reef Marketing LLC(9).

The Company's products and services are primarily focused on development and
operation of transportation, processing, distribution and storage projects for
natural gas and liquid gas in the northeastern states of Mexico (Chihuahua,
Coahuila, Nuevo Leon and Tamaulipas) and the State of Texas.

Unless otherwise noted, the "Company" as used in this Prospectus, will refer to
Tidelands Oil & Gas Corporation as described above.

The Offering

This prospectus relates to the offer and sale by some of our shareholders during
the period in which the registration statement containing this prospectus is
effective up to 40,324,177 common shares consisting of:

o up to 8,500,000 shares are issuable upon exercise of
outstanding warrants, at exercise price of $0.335 per share to
Impact International, LLC;
o up to 1,329,500 shares issued and outstanding for sale by
Impact International, LLC;
o up to 11,733,118 shares issued and outstanding for sale by
selling security holders;
o up to 11,111,111 shares are issuable upon conversion of
outstanding 7% Convertible Debentures, which are convertible
pursuant to a formula, provided that the conversion price
shall not be less than $0.45, nor more than $0.76 per share;
and
o up to 6,578,948 shares are issuable upon exercise of
outstanding warrants at exercise prices ranging between $0.80
and $0.87 per share.
o up to 1,000,000 shares are issuable upon the exercise of
outstanding warrants at an exercise price of $0.50 per share,
o up to 1,000,000 shares are issuable upon the exercise of
outstanding warrants at an exercise price of $2.50 per share.

The common shares offered under this prospectus may be sold by the selling
shareholders on the public market, in negotiated transactions with a
broker-dealer or market maker as principal or agent, or in privately negotiated
transactions not involving a broker or dealer. Information regarding the selling
shareholders, the common shares they are offering to sell under this prospectus,
and the times and manner in which they may offer and sell those shares is
provided in the sections of this prospectus captioned "Selling Shareholders",
and "Plan of Distribution". We will not receive any of the proceeds from those
sales. Should the selling shareholders in their discretion, exercise any of the
common share purchase warrants underlying the common shares offered under this
prospectus, we would, however, receive the exercise price for those warrants.
The registration of common shares pursuant to this prospectus does not
necessarily mean that any of those shares will ultimately be offered or sold by
the selling shareholders.

Information on Outstanding Shares
---------------------------------

The number of shares of our common stock outstanding before and after this
offering is set forth below:

o Common shares issued and outstanding before this offering: 60,603,359
o Common shares issued and outstanding after this Offering: 88,793,418

The number set forth above for the shares of common stock outstanding before
this offering is the number of shares of our common stock outstanding on
November 30, 2004. The number of shares issued and outstanding after this
Offering assumes that all of the warrants are exercised and the debentures are
converted at the "Floor Price $0.45" and the underlying shares issued and sold.
None of the warrant or debenture holders are obligated to exercise their
warrants or convert their Debentures. The Debenture conversion price may vary
between the "Floor Price $0.45" and "Ceiling Price $0.76".

Recent Developments

Mercator Financing
------------------

On November 18, 2004, we completed a $5 million financing through the sale of 7%
Convertible Debentures ("Debentures"). The financing was completed in a private
placement with the Mercator Advisory Group and its related funds. We received
the first $3,250,000 Dollars on November 19, 2004, and will receive the balance
of $1,750,000 Dollars on the day which is two days following our initial filing
of this registration statement. The Debentures are convertible at any time into
shares of our common stock at 85% of the average of the lowest three inter-day
trading prices of our common stock during the ten consecutive trading days
immediately preceding the conversion date, with a maximum conversion price of
$0.76 per share and a minimum conversion price of $0.45 per share. If we are
unable to have this registration statement declared effective within the 90 days
following its filing with the Securities and Exchange Commission (SEC) the
conversion price of the Debentures will be reduced from 85% to 75% of the
average of the lowest three inter-day trading prices of our common as
specifically outlined above.

As part of this financing, we issued three-year warrants to the Mercator
Advisory Group and its related funds entitling them to purchase an aggregate of
6,578,948 shares of our common stock, half at $0.80 per share and half at $0.87
per share. We also paid to Mercator Advisory Group $200,000 as due diligence
fees and $15,000 as reimbursement of legal expenses.

In connection with the financing, we also paid $250,000 to KMR Capital, LLC, as
placement agent. KMR also received 450,000 warrants to purchase our common stock
exerciseable 200,000 shares at $0.80, 150,000 shares at $0.84 and 100,000 shares
at $0.87.

Oneok Propane Acquisition
-------------------------

On November 1, 2004, through our subsidiary, Sonterra Energy Corporation, we
entered into an Asset Purchase and Sale Agreement with Oneok Propane
Distribution Company, a division of ONEOK Propane Company, a Delaware
corporation. We purchased the assets of this division for Two Million
($2,000,000). The assets consist of propane distribution systems, including gas
mains, yard lines, meters and storage tanks, serving the following residential
subdivisions in the Austin, Texas area:

Austin's Colony Phase II
Costa Bella
Jacarandas
Lake Pointe
La Ventana
Lakewinds Estates
Northshore on Lake Travis Phase I
Riverbend
Rob Roy Rim
Senna Hills
Sterling Acres
The Point
The Preserve at Barton Creek

The propane distribution system is comprised of approximately 25 miles of gas
main pipe, 75,000 feet of yard lines, 850 meters, storage tanks with a combined
capacity of 156,000 gallons.

On November 1, 2004, Sonterra also acquired assets of BNC Engineering for
$250,000. BNC Engineering constructed residential propane systems. It also
provided operating services for Oneok residential propane systems. The assets
consisted of machinery, vehicles, computer equipment, construction equipment,
meters and an inventory of pipe and fittings for use in the construction of gas
mains, service lines and other storage tanks. We assumed BNC Engineering's lease
obligations for a field office mobile house and a photocopier lease. Sonterra
employed the field operating personnel associated with the residential propane
operations.

ACH Financing Oneok Propane Acquisition
---------------------------------------

On October 13, 2004, we sold Four Million (4,000,000) Tidelands Oil & Gas common
shares to ACH Securities, S.A., a company domiciled in Geneva, Switzerland, for
Two Million ($2,000,000) Dollars. On October 14, 2004, in connection with the
ACH Securities transaction, we issued Margaux Investment Group, S.A. common
stock warrants to purchase One Million (1,000,000) Tidelands Oil & Gas common
shares for Fifty ($0.50) Cents per share and One Million (1,000,000)shares for
$2.50 per share. We used the proceeds of the ACH financing to fund Sonterra's
purchase of the Oneok propane distribution business.

Use of Proceeds

We will not realize any of the proceeds from the sale of the shares offered by
the selling stockholders. See "Use of Proceeds". However, may receive cash
proceeds from the exercise of common stock warrants in the form of cash or
credit to outstanding financial obligations. Proceeds from the conversion of the
7% Debentures will offset all or a portion of the Debenture obligations.
Proceeds from the Impact International warrants will reduce our promissory note
debt owed to Impact. All other uncommitted proceeds will be used for working
capital.

Summary Financial Information

The following table presents selected historical financial data for the Company
derived from the Company's Financial Statements. The historical financial data
are qualified in their entirety by reference to, and should be read in
conjunction with, the Financial Statements and notes thereto of the Company,
which are incorporated by reference into this Prospectus. The following data
should be read in conjunction with "Managements' Discussion and Analysis" and
"Plan of Operation" and the Financial Statements of the Company and the notes
thereto included elsewhere in this Prospectus.

Fiscal Year Ended Nine Months
December 31 ended Sept. 30
(unaudited)

2003 2002 2004 2003
----------- ----------- ----------- -----------

Statement of Operations
Data:
Revenue $ 178,856 $ 709,662 $ 1,332,560 $ 123,992
Net income (loss) $(1,348,481) $(4,060,772) $(5,091,877) $ 675,083
Basic Net income (loss) per
share $ (0.03) $ (0.14) $ (0.10) $ 0.02
Diluted Net
income(loss)/share $ (0.03) $ (0.14) $ (0.03) $ 0.02

Fiscal Year Ended Nine Months
December 31 ended Sept. 30
(unaudited)

2003 2002 2004 2003
----------- ----------- ----------- -----------

Balance Sheet Data:
Working Capital $ (221,011) $(1,930,180) $ 3,955,459 $ (905,599)
Total assets $ 1,623,515 $ 1,379,343 $12,421,763 $ 856,578
Total liabilities $ 1,138,905 $ 3,915,273 $ 7,062,336 $ 1,203,437
Stockholder's equity (deficit) $ 484,610 $(2,535,930) $ 5,359,927 $ (346,859)

RISK FACTORS

An investment in the Securities offered in this Prospectus involves a high
degree of risk and should only be made by persons who can afford the loss of
their entire investment. Accordingly, prospective investors should consider
carefully the following factors, in addition to the other information concerning
the Company and its business contained in this Prospectus, before purchasing the
Securities offered hereby. An investment in the common stock the selling
shareholders are offering to resell is risky. You should be able to bear a
complete loss of your investment. Before purchasing any of the common stock, you
should carefully consider the following risk factors, among others.

OPERATING LOSSES

We have had significant losses ever since starting business and we expect to
continue losing mon
ey for some time. To date, we have incurred significant
losses. At September 30, 2004, our accumulated deficit was $15,707,080 and our
working capital was $3,955,459. For the year ended December 31, 2002, we lost $
4,060,772 and for the year ended December 31, 2003, we lost $1,348,481. These
losses were caused primarily by:

o Pre-operating expenses for the development period leading to
commencement of operations of the international pipeline crossing at
Eagle Pass;
o Limited volumes of gas transported through the international pipeline
crossing
o Pre-development and operating expenses associated with the development
of additional pipeline and storage projects in Mexico;
o Idle assets not producing revenue, such as the gas plant and associated
pipeline.

LIMITED OPERATING HISTORY.

We have a limited operating history and our financial health will be subject to
all the risks inherent in the establishment of a new business enterprise. The
likelihood of success of our company must be considered in the light of the
problems, expenses, difficulties, complications, and delays frequently
encountered in connection with the startup and growth of a new business, and the
competitive environment in which we will operate. Our success is dependent upon
the successful financing and development of our business plan. No assurance of
success is offered. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customers and market expertise, market conditions, sales, marketing and
governmental regulation. The failure of the Company to meet any of these
conditions would have a materially adverse effect upon the Company and may force
the Company to reduce or curtail operations. No assurance can be given that the
Company can or will ever operate profitably.

WE DEPEND HEAVILY ON THE CONTINUED SERVICE OF OUR CHIEF EXECUTIVE OFFICER.

We place substantial reliance upon the efforts and abilities of Michael Ward,
our chief executive officer. The loss of Mr. Ward's services could have a
serious adverse effect on our business, operations, revenues or prospects. We
maintain key man insurance on his life in the amount of One Million Dollars.

RELIANCE ON MANAGEMENT.

All decisions with respect to the management of our Company will be made by our
Company's directors and officers. Accordingly, no person should purchase any
shares offered by this Prospectus unless the subscriber is willing to entrust
all aspects of management to the Directors and Officers of our Company. The loss
of their services could have a material adverse effect on our Company's business
and prospects.

TRADING IN OUR COMMON STOCK ON THE OTC BULLETIN BOARD MAY BE LIMITED.

Our common stock trades on the OTC Bulletin Board. The OTC Bulletin Board is not
an exchange. Trading of securities on the OTC Bulletin Board is often more
sporadic than the trading of securities listed on an exchange or NASDAQ. You may
have difficulty reselling any of the shares that you purchase from the selling
shareholders.

THERE HAS BEEN AN VOLATILE PUBLIC MARKET FOR OUR COMMON STOCK AND THE PRICE OF
OUR STOCK MAY BE SUBJECT TO FLUCTUATIONS.

We cannot assure you that a liquid transparent trading market for our common
stock will develop or be sustained. You may not be able to resell your shares at
or above the initial offering price. The market price of our common stock is
likely to be volatile and could be subject to fluctuations in response to
factors such as the following, most of which are beyond our control:

o operating results that vary from the expectations of securities
analysts and investors;
o changes in expectations as to our future financial performance,
including financial estimates by securities analysts and investors;
o the operations, regulatory, market and other risks discussed in this
section;
o announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o announcements by third parties of significant claims or proceedings
against us; and
o future sales of our common stock.

In addition, the market for our stock has from time to time experienced extreme
price and volume fluctuations. These broad market fluctuations may adversely
affect the market price of our common stock

OUR COMMON STOCK IS SUBJECT TO PENNY STOCK REGULATION.

Our common stock is subject to regulations of the Securities and Exchange
Commission relating to the market for penny stocks. The Securities Enforcement
and Penny Stock Reform Act of 1990 (the "Reform Act") also requires additional
disclosure in connection with any trades involving a stock defined as a "penny
stock" (generally, according to recent regulations adopted by the Commission,
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. These regulations generally require broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors to deliver a disclosure schedule explaining the penny stock market and
the risks associated with that market. These regulations also impose various
sales practice requirements on broker-dealers. The regulations that apply to
penny stocks may severely affect the market liquidity for our securities and
that could limit your ability to sell your securities in the secondary market.

RISKS RELATING TO LOW-PRICE STOCKS.

Because our stock is quoted on the NASD OTC Electronic Bulletin Board and
subject to the Penny Stock Regulations, an investor may find it difficult to
dispose of, or to obtain accurate quotations as to the market value of, our
Company's securities. The regulations governing low-priced or penny stocks could
limit the ability of broker-dealers to sell the Company's securities and thus
the ability of the purchasers of this Offering to sell their securities in the
secondary market.

THE EXERCISE OF WARRANTS AND THE CONVERSION OF THE DEBENTURES COULD DEPRESS OUR
STOCK PRICE AND REDUCE YOUR PERCENTAGE OF OWNERSHIP.

If all of the Warrants are exercised and Debentures converted at the "Floor
Price" and assuming that we issue a total of 28,190,059 will dilute the
percentage ownership of our other shareholders. The "Description of Securities"
section of this prospectus provides you with more information about the Warrants
and Debentures.

WE MAY NOT HAVE ENOUGH FUNDING TO COMPLETE OUR BUSINESS PLAN.

We will need additional financing to fully implement our business plan. We
cannot give any assurance that this additional financing could be obtained on
attractive terms or at all. In addition, our ability to raise additional funds
through a private placement may be restricted by SEC rules which limit a
company's ability to sell securities similar to those being sold in a registered
offering before the time that offering is completed or otherwise terminated.
Additionally, we may not have a sufficient quantity of common stock capital if
all of the warrants are exercised and debentures converted. We would have to
amend our articles of incorporation and increase our authorized common stock
capital. Lack of funding could force us to curtail substantially or cease our
operations.

FUTURE CAPITAL NEEDS COULD RESULT IN DILUTION TO INVESTORS; ADDITIONAL FINANCING
COULD BE UNAVAILABLE OR HAVE UNFAVORABLE TERMS.

Our Company's future capital requirements will depend on many factors, including
cash flow from operations, progress in its gas operations, competing market
developments, and the Company's ability to market its proposed products
successfully. Although the Company currently has specific plans and arrangements
for financing its working capital is presently insufficient to fund the
Company's activities. It may be necessary to raise additional funds through
equity or debt financings. Any equity financings could result in dilution to our
Company's then-existing stockholders. Sources of debt financing may result in
higher interest expense. Any financing, if available, may be on terms
unfavorable to the Company. If adequate funds are not obtained, the Company may
be required to reduce or curtail operations. The Company anticipates that its
existing capital resources, will be adequate to satisfy its operating expenses
and capital requirements for at least 6 months after the date of this
Prospectus. However, such estimates may prove to be inaccurate.

SUBSTANTIAL CAPITAL REQUIREMENTS

We may make substantial capital expenditures for the development, acquisition
and production of natural gas pipeline , processing systems and, or storage
facilities. We believe that the Company will have sufficient cash provided by
operating activities and equity financing to fund planned capital expenditures
in the near future excluding the proposed Burgos Basin storage facility in
Mexico. If revenues or the Company's equity financing decrease as a result of
lower natural gas prices, operating difficulties, the Company may have limited
ability to expend the capital necessary to undertake or complete proposed plans
and opportunities. There can be no assurance that additional debt or equity
financing or cash generated by operations will be available to meet these
requirements.

WE CAN GIVE NO ASSURANCE REGARDING THE AMOUNTS OF CASH THAT WE WILL GENERATE.

The actual amounts of cash we generate will depend upon numerous factors
relating to our business which may be beyond our control, including:

o the demand for natural gas;
o profitability of operations;
o required principal and interest payments on any debt we may incur;
o the cost of acquisitions;
o our issuance of equity securities;
o fluctuations in working capital;
o capital expenditures;
o continued development of gas transportation network systems;
o prevailing economic conditions;
o government regulations.

WE DO NOT EXPECT TO PAY DIVIDENDS FOR SOME TIME, IF AT ALL.

No cash dividends have been paid on the Common Stock. We expect that any income
received from operations will be devoted to our future operations and growth. We
do not expect to pay cash dividends in the near future. Payment of dividends
would depend upon our profitability at the time, cash available for those
dividends, and other factors.

COMPETITION

Our Company will be competing with other established businesses that market
similar products. Many of these companies have greater capital, marketing and
other resources than we do. There can be no assurance that these or other

companies will not develop new or enhanced products that have greater market
acceptance than any that may be marketed by the Company. There can be no
assurance that our Company will successfully differentiate itself from its
competitors or that the market will consider our products to be superior or to
or more appealing than those of our competitors. Market entry by any significant
competitor may have an adverse effect on our sales and profitability. See
"Competition."

WE OPERATE IN HIGHLY COMPETITIVE MARKETS IN COMPETITION WITH A NUMBER OF
DIFFERENT COMPANIES.

We face strong competition in our geographic areas of operations. Our
competitors include major integrated oil companies, interstate and intrastate
pipelines. We compete with integrated companies that have greater access to raw
natural gas supply and are less susceptible to fluctuations in price or volume,
and some of our competitors that have greater financial resources may have an
advantage in competing for acquisitions or other new business opportunities.

GROWING OUR BUSINESS BY CONSTRUCTING NEW PIPELINES AND PROCESSING FACILITIES
SUBJECTS US TO CONSTRUCTION RISKS AND RISKS THAT RAW NATURAL GAS SUPPLIES WILL
NOT BE AVAILABLE UPON COMPLETION OF THE FACILITIES.

One of the ways we intend to grow our business is through the construction of
additions to our existing gathering systems, modification of our existing gas
processing plant and construction of new processing facilities. The construction
of gathering and processing facilities requires the expenditure of significant
amounts of capital, which may exceed our expectations. Generally, we may have
only limited raw natural gas supplies committed to these facilities prior to
their construction. Moreover, we may construct facilities to capture anticipated
future growth in production in a region in which anticipated production growth
does not materialize. As a result, there is the risk that new facilities may not
be able to attract enough raw natural gas to achieve our expected investment
return, which could adversely affect our results of operations and financial
condition.

A SIGNIFICANT COMPONENT OF OUR GROWTH STRATEGY WILL BE ACQUISITIONS AND WE MAY
NOT BE ABLE TO COMPLETE FUTURE ACQUISITIONS SUCCESSFULLY.

Our business strategy will emphasize growth through strategic acquisitions, but
we cannot assure you that we will be able to identify attractive or willing
acquisition candidates or that we will be able to acquire these candidates on
economically acceptable terms. Competition for acquisition opportunities in our
industry exists and may increase. Any increase in the level of competition for
acquisitions may increase the cost of, or cause us to refrain from, completing
acquisitions.

Our strategy of acquisitions is dependent upon, among other things, our ability
to obtain debt and equity financing and possible regulatory approvals. Our
ability to pursue our growth strategy may be hindered if we are not able to
obtain financing or regulatory approvals, including those under federal and
state antitrust laws. Our ability to grow through acquisitions and manage such
growth will require us to to invest in operational, financial and management
information systems and to attract, retain, motivate and effectively manage our
employees. The inability to manage the integration of acquisitions effectively
could have a material adverse effect on our financial condition, results of
operations and business. Pursuit of our acquisition strategy may cause our
financial position and results of operations to fluctuate significantly from
period to period.

IF WE ARE UNABLE TO MAKE ACQUISITIONS ON ECONOMICALLY AND OPERATIONALLY
ACCEPTABLE TERMS, OUR FUTURE FINANCIAL PERFORMANCE MAY BE LIMITED.

There can be no assurance that:

o we will identify attractive acquisition candidates in the future;
o we will be able to acquire assets on economically acceptable terms;
o any acquisitions will not be dilutive to earnings and operating
surplus; or
o any debt incurred to finance an acquisition will not affect our ability
to make distributions to you.

If we are unable to make acquisitions on economically and operationally
acceptable terms, our future financial performance will be limited to the
performance of our present gas gathering network.

Our acquisition strategy involves many risks, including:

o difficulties inherent in the integration of operations and systems;

o the diversion of management's attention from other business concerns;
and
o the potential loss of key employees of acquired businesses.

In addition, future acquisitions may involve significant expenditures. Depending
upon the nature, size and timing of future acquisitions, we may be required to
secure financing. We cannot assure you that additional financing will be
available to us on acceptable terms.

OUR BUSINESS IS DEPENDENT UPON PRICES AND MARKET DEMAND FOR NATURAL GAS AND
PROPANE, WHICH ARE BEYOND OUR CONTROL AND HAVE BEEN EXTREMELY VOLATILE.

We are subject to significant risks due to fluctuations in commodity prices,
primarily with respect to the prices of gas that we may own as a result of our
processing and distribution activities.

The markets and prices for residue gas depend upon factors beyond our control.
These factors include demand for oil, and natural gas, which fluctuate with
changes in market and economic conditions and other factors, including:

o the impact of weather on the demand for oil and natural gas; o the level of
domestic oil and natural gas production; o the availability of imported oil and
natural gas; o the availability of local, intrastate and interstate
transportation systems; o the availability and marketing of competitive fuels; o
the impact of energy conservation efforts; and o the extent of governmental
regulation and taxation.

WE GENERALLY DO NOT OWN THE LAND ON WHICH OUR PIPELINES ARE CONSTRUCTED AND WE
ARE SUBJECT TO THE POSSIBILITY OF INCREASED COSTS FOR THE LOSS OF LAND USE.

We generally do not own the land on which our pipelines are constructed.
Instead, we obtain the right to construct and operate the pipelines on other
people's land for a period of time. If we were to lose these rights, our
business could be affected negatively.

RISKS RELATED TO THE RETAIL PROPANE AND ASSOCIATED BUSINESSES

o Decreases in the demand for propane because of warmer weather may
adversely affect our financial condition and results of operations.

o Weather conditions have a significant impact on the demand for propane
for heating purposes. All of our propane customers rely heavily on
propane as a heating fuel. The volume of propane sold is at its highest
during the six-month peak heating season of October through March and
is directly affected by the severity of the winter weather. We estimate
that approximately two-thirds of our annual retail propane volume will
be sold during these months. Actual weather conditions can vary
substantially from quarter to quarter and year to year, significantly
affecting our financial performance. Furthermore, warmer than normal
temperatures in our service area can significantly decrease the total
volume of propane we sell. Consequently, our operating results may vary
significantly due to actual changes in temperature. Weather conditions
in any quarter or year may have a material adverse effect on our
operations.

o Sudden and sharp propane price increases that cannot be passed on to
customers may adversely affect our profits, income, and cash flow.

o Energy efficiency and technology may reduce the demand for propane and
our revenues.

o The national trend toward increased conservation and technological
advances, including installation of improved insulation and the
development of more efficient furnaces and other heating devices, has
adversely affected the demand for propane by retail customers. Future
conservation and efficiency measures or technological advances in
heating, conservation, energy generation, or other devices might reduce
demand for propane and our revenues.

o The propane business is highly regulated. New or stricter
environmental, health, or safety regulations may increase our operating
costs and reduce our net income.

o The propane business is subject to a wide range of federal, state, and
local environmental, transportation, health and safety laws and
regulations governing the storage, distribution, and transportation of
propane. We may have increased costs in the future due to new or
stricter safety, health, transportation, and environmental regulations
or liabilities resulting from non-compliance with operating or other
regulatory permits. The increase in any such costs may reduce our net
income.

o We will be subject to all operating hazards and risks normally
associated with handling, storing, transporting, and delivering
combustible liquids such as propane for use by consumers. As a result,
we may be a defendant in various legal proceedings and litigation
arising in the ordinary course of business. Our insurance may not be
adequate to protect us from all material expenses related to potential
future claims for personal injury and property damage or that insurance
will be available in the future at economical prices. In addition, the
occurrence of a serious accident, whether or not we are involved, may
have an adverse effect on the public's desire to use our products.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

Our business is regulated by certain local, state and federal laws and
regulations relating to the exploration for, and the development, production,
marketing, pricing, transportation and storage of, natural gas and oil. We are
also subject to extensive and changing environmental and safety laws and
regulations governing plugging and abandonment, the discharge of materials into
the environment or otherwise relating to environmental protection. In addition,
we are subject to changing and extensive tax laws, and the effect of newly
enacted tax laws cannot be predicted. The implementation of new, or the
modification of existing, laws or regulations, including regulations which may
be promulgated under the Oil Pollution Act of 1990, could have a material
adverse effect on the Company.

FEDERAL, STATE OR LOCAL REGULATORY MEASURES COULD ADVERSELY AFFECT OUR BUSINESS.

While the Federal Energy Regulatory Commission, or FERC, does not directly
regulate the major portions of our operations, federal regulation, directly or
indirectly, influences certain aspects of our business and the market for our
products. As a raw natural gas gatherer and not an operator of interstate
transmission pipelines, we generally are exempt from FERC regulation under the
Natural Gas Act of 1938, but FERC regulation still significantly affects our
business. In recent years, FERC has pursued pro-competition policies in its
regulation of interstate natural gas pipelines. However, we cannot assure you
that FERC will continue this approach as it considers proposals by pipelines to
allow negotiated rates not limited by rate ceilings, pipeline rate case
proposals and revisions to rules and policies that may affect rights of access
to natural gas transportation capacity.

While state public utility commissions do not regulate our business, state and
local regulations do affect our business. We are subject to ratable take and
common purchaser statutes in the states where we operate. Ratable take statutes
generally require gatherers to take, without undue discrimination, natural gas
production that may be tendered to the gatherer for handling. Similarly, common
purchaser statutes generally require gatherers to purchase without undue
discrimination as to source of supply or producer. These statutes are designed
to prohibit discrimination in favor of one producer over another producer or one
source of supply over another source of supply. These statutes also have the
effect of restricting our right as an owner of gathering facilities to decide
with whom we contract to purchase or transport natural gas. Federal law leaves
any economic regulation of raw natural gas gathering to the states, and some of
the states in which we operate have adopted complaint-based or other limited
economic regulation of raw natural gas gathering activities. States in which we
operate that have adopted some form of complaint-based regulation, like
Oklahoma, Kansas and Texas, generally allow natural gas producers and shippers
to file complaints with state regulators in an effort to resolve grievances
relating to natural gas gathering access and rate discrimination. The states in
which we conduct operations administer federal pipeline safety standards under
the Pipeline Safety Act of 1968, and the "rural gathering exemption" under that
statute that our gathering facilities currently enjoy may be restricted in the
future. The "rural gathering exemption" under the Natural Gas Pipeline Safety
Act of 1968 presently exempts substantial portions of our gathering facilities
from jurisdiction under that statute, including those portions located outside
of cities, towns, or any area designated as residential or commercial, such as a
subdivision or shopping center.

OUR BUSINESS INVOLVES HAZARDOUS SUBSTANCES AND MAY BE ADVERSELY AFFECTED BY
ENVIRONMENTAL REGULATION.

Many of the operations and activities of our gathering systems, plants and other
facilities are subject to significant federal, state and local environmental
laws and regulations. These include, for example, laws and regulations that

impose obligations related to air emissions and discharge of wastes from our
facilities and the cleanup of hazardous substances that may have been released
at properties currently or previously owned or operated by us or locations to
which we have sent wastes for disposal. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued
under them, and violators are subject to administrative, civil and criminal
penalties, including civil fines, injunctions or both. Liability may be incurred
without regard to fault for the remediation of contaminated areas. Private
parties, including the owners of properties through which our gathering systems
pass, may also have the right to pursue legal actions to enforce compliance as
well as to seek damages for non-compliance with environmental laws and
regulations or for personal injury or property damage.

There is inherent risk of the incurrence of environmental costs and liabilities
in our business due to our handling of natural gas and other petroleum products,
air emissions related to our operations, historical industry operations, waste
disposal practices and the prior use of natural gas flow meters containing
mercury. In addition, the possibility exists that stricter laws, regulations or
enforcement policies could significantly increase our compliance costs and the
cost of any remediation that may become necessary. We cannot assure you that we
will not incur material environmental costs and liabilities. Furthermore, we
cannot assure you that our insurance will provide sufficient coverage in the
event an environmental claim is made against us.

Our business may be adversely affected by increased costs due to stricter
pollution control requirements or liabilities resulting from non-compliance with
required operating or other regulatory permits. New environmental regulations
might adversely affect our products and activities, including processing,
storage and transportation, as well as waste management and air emissions.
Federal and state agencies also could impose additional safety requirements, any
of which could affect our profitability.

RISK OF ADDITIONAL COSTS AND LIABILITIES RELATED TO ENVIRONMENTAL AND SAFETY
REGULATIONS AND CLAIMS

Our pipeline operations are subject to various federal, state and local
environmental, safety, health and other laws, which can increase the cost of
planning, designing, installing and operating such facilities. There can be no
assurance that costs and liabilities relating to compliance will not be incurred
in the future. Moreover, it is possible that other developments, such as
increasingly strict environmental and safety laws, regulations and enforcement
policies thereunder, and claims for damages to property or persons resulting
from our operations, could result in additional costs to and liabilities for us.

GOVERNMENTAL REGULATION OF OUR PIPELINES COULD INCREASE OUR OPERATING COSTS

Currently our operations involving the gathering of natural gas from wells are
exempt from regulation under the Natural Gas Act. Section 1(b) of the Natural
Gas Act provides that the provisions of the Act shall not apply to facilities
used for the production or gathering of natural gas. Our physical dimensions and
operations support the conclusion that our facilities perform primarily a
gathering function. We should not, therefore, be subject to Natural Gas Act
regulation. There, however, can be no assurance that this will remain the case.
The Federal Energy Regulatory Commission's oversight of entities subject to the
Natural Gas Act includes the regulation of rates, entry and exit of service,
acquisition, construction and abandonment of transmission facilities, and
accounting for regulatory purposes. The implementation of new laws or policies
that would subject us to regulation by the Federal Energy Regulatory Commission
under the Natural Gas Act could have a material adverse effect on our financial
condition and operations. Similarly, changes in the method or circumstances of
operation, or in the configuration of facilities, could result in changes in our
regulatory status. Our gas gathering operations are subject to regulation at the
state level, which increases the costs of operating our pipeline facilities.
Matters subject to regulation include rates, service and safety. We have been
granted an exemption from regulation as a public utility in Texas. Presently,
our rates are not regulated in Texas . Changes in state regulations, or our
status under these regulations due to configuration changes in our operating
facilities, that subject us to further regulation could have a material adverse
effect on our financial condition. Litigation or governmental regulation
relating to environmental protection and operational safety may result in
substantial costs and liabilities

Our operations are subject to federal and state environmental laws under which
owners of natural gas pipelines can be liable for clean-up costs and fines in
connection with any pollution caused by the pipelines. We can also be liable for
clean-up costs resulting from pollution which occurred before our acquisition of
the gathering systems. In addition, we are subject to federal and state safety
laws that dictate the type of pipeline, quality of pipe protection, depth,
methods of welding and other construction-related standards. While we believe
that the gathering systems comply in all material respects with applicable laws,
we cannot assure you that future events will not occur for which we may be
liable. Possible future developments, including stricter laws or enforcement
policies, or claims for personal or property damages resulting from our
operations could result in substantial costs and liabilities to us.

SOVEREIGN RISK

The Company is focusing on the development of infrastructure projects through
its Mexican entity, Terranova Energia S.de R.L. de C.V., in the nation of the
United Mexican States (Mexico). The risk of indirect or regulatory actions by
local, state or federal authorities in Mexico which may inhibit, delay, hinder
or block projects under development in Mexico is very high given the history of
operations conducted by past businesses other than the Company in Mexico. There
is a substantial risk that a set of actions taken by commission or omission by
the various actors in the public, private, nongovernmental and/or social sectors
could negatively impact a project or investment in Mexico. The legal system
employed in Mexico is dramatically different in its structure and method of
operation compared to the common law foundation present in the United States of
America. The level of legal protection afforded investors by the North American
Free Trade Agreement has not materially improved from a foreign investor's
viewpoint.

There can be no assurance that a commercially viable project will be completed
due to the above factors which could result in commercial competitors trying to
circumvent the market system through the exploitation of undocumented,
extraofficial channels of influence that constitute unfair competition. Federal,
state and local authorities are not well coordinated in their legal protections
and improper influence and competition may arise from any level of government to
disrupt or destroy the commercial viability of investments by foreign investors.
While the Company has taken precautions to limit its investments to prudent
levels, there is a continuing risk of adverse activities arising from the above
sources that could impair or result in the entire loss of investment in
otherwise commercially viable projects initiated by the Company in Mexico.

PIPELINE SYSTEM OPERATIONS ARE SUBJECT TO OPERATIONAL HAZARDS AND UNFORESEEN
INTERRUPTIONS

The operations of our pipeline systems are subject to hazards and unforeseen
interruptions, including natural disasters, adverse weather, accidents or other
events, beyond our control. A casualty occurrence might result in injury and
extensive property or environmental damage. Although we intend to maintain
customary insurance coverages for gathering systems of similar capacity, we can
offer no assurance that these coverages will be sufficient for any casualty loss
we may incur.

OPERATING RISKS OF NATURAL GAS OPERATIONS

The natural gas business involves certain operating hazards. The availability of
a ready market for our natural gas products also depends on the proximity of
reserves to, and the capacity of, natural gas gathering systems, pipelines and
trucking or terminal facilities. As a result, substantial liabilities to third
parties or governmental entities may be incurred, the payment of which could
reduce or eliminate the funds available for exploration, development or
acquisitions or result in the loss of the Company's properties. In accordance
with customary industry practices, the Company maintains insurance against some,
but not all, of such risks and losses. The Company does not carry business
interruption insurance. The occurrence of such an event not fully covered by
insurance could have a material adverse effect on the financial condition and
results of operations of the Company.

OUR BUSINESS INVOLVES MANY HAZARDS AND OPERATIONAL RISKS, SOME OF WHICH MAY NOT
BE COVERED BY INSURANCE.

Our operations are subject to the many hazards inherent in the gathering,
compressing, treating and processing of raw natural gas and NGLs and storage of
residue gas, including ruptures, leaks and fires. These risks could result in
substantial losses due to personal injury and/or loss of life, severe damage to
and destruction of property and equipment and pollution or other environmental
damage and may result in curtailment or suspension of our related operations. We
are not fully insured against all risks incident to our business. If a
significant accident or event occurs that is not fully insured, it could
adversely affect our operations and financial condition.

INSURANCE

Companies engaged in the petroleum products distribution and storage business
may be sued for substantial damages in the event of an actual or alleged
accident or environmental contamination. The Company maintains $2,000,000 of
liability insurance. There can be no assurance that we will be able to continue
to maintain liability insurance at a reasonable cost in the future, or that a
potential liability will not exceed the coverage limits. Nor can there be any
assurance that the amount of insurance carried by us will enable it to satisfy
any claims for which it might be held liable resulting from the conduct of its
business operations.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares by the selling
shareholders. However, we may receive proceeds from the sale to (1) Impact
International, LLC, (2) the Mercator Group of Funds, and (3) Margaux Investment
Management Group, S.A. of common stock shares issuable upon the exercise of
warrants. We intend to use the proceeds from the exercise of warrants by Impact
for reduction of the principal balance of our financial obligation to Impact
under the terms of the Promissory Note. If all of the warrants were exercised,
the Debentures converted at the Floor Price and promissory notes paid in full,
we could realize $16,340,921 Dollars.

We will pay all the expenses incident to this registration. We plan to use any
net proceeds received upon the exercise of the warrants for general corporate
purposes.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the OTC Electronic Bulletin Board. The following
table sets forth the high and low bid prices of our common stock for each
quarter for the years 2003 and 2004. The quotations set forth below reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

Common Stock:

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

Table 1.

Bid Information

Fiscal Quarter Ended
High Low

September 30, 2004 0.85 0.86
June 30, 2004 3.89 1.70
March 31, 2004 4.43 1.37

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

March 31, 2002 1.09 0.88

On December 13, 2004, the closing bid and closing ask prices for shares of our
common stock in the over-the-counter market, as reported by NASD OTC BB were
$0.65 and $0.69 per share, respectively.

We believe that there are presently 39 market makers for our common stock. When
stock is traded in the public market, characteristics of depth, liquidity and
orderliness of the market may depend upon the existence of market makers as well
as the presence of willing buyers and sellers. We do not know if these or other
market makers will continue to make a market in our common stock. Further, the
trading volume in our common stock has historically been both sporadic and
light.

As of November 30, 2004, we had an aggregate of 86 stockholders of record as
reported by our transfer agent, Signature Stock Transfer Co., Inc. Certain
shares are held in the "street" names of securities broker dealers and we
estimate the number of stockholders which may be represented by such securities
broker dealer accounts may exceed 1,500.

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.

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes our equity compensation plan information as of
December 31, 2004. Information is included for equity compensation plans not
approved by our security holders.

Table 1.

Equity Compensation Plan Information

Plan Category Number of Securities to Weighted-average Number of Securities
be issued upon exercise Exercise price of remaining available for
of outstanding options, outstanding options, future issuance under
warrants and rights warrants, and rights equity compensation
plans (excluding
securities reflected in
column (a)

(a) (b) (c)
--------------------------- ------------------------- ---------------------- -------------------------

Equity Compensation
Plans approved by security None None None
holders
--------------------------- ------------------------- ---------------------- -------------------------
Equity Compensation 500,000 (1) $ 0.125 None
Plans not approved by 5,000,000 (2) $ 0.287 210,122
security holders
--------------------------- ------------------------- ---------------------- -------------------------
Total 5,500,000 $0.272 210,122
--------------------------- ------------------------- ---------------------- -------------------------

(1) This plan registered shares issued for legal services rendered on behalf of
the Company and approved by our Board of Directors. These shares were issued in
lieu of cash legal fees for services rendered during 2002. (2) On May 27, 2003,
the Company adopted the 2003 Non-Qualified Stock Grant and Option Plan. The Plan
reserved 5,000,000 shares. The Plan is administered by our Board of Directors.
Directors, officers, employees consultants, attorneys, and others who provide
services to our Company are eligible participants. Participants are eligible to
be granted warrants, options, common stock as compensation.

BUSINESS
Business Overview

Tidelands Oil & Gas Corporation (the "Company"), formerly known as C2
Technologies, Inc., was incorporated under the laws of the State of Nevada on
February 25, 1997. C2 Technologies, Inc. changed its name to Tidelands Oil & Gas
Corporation on November 19, 1998. The Company has nine subsidiaries which it
directly and indirectly owns as follows: (1) Rio Bravo Energy LLC, (2) Sonora
Pipeline LLC, (3) Arrecefe Management LLC, (4) Marea Associates, L.P. , (5)
Terranova Energia, S.de R.L. de C.V. and (6) Sonterra Energy Corporation. We
also owns a 97% limited partnership interest in Reef Ventures, L.P.(7). Arrecefe
Management LLC owns a 1% general partner interest in Reef Ventures, L.P. Reef
Ventures, L.P. owns 100% of the member interest in Reef International LLC(8) and
Reef Marketing LLC(9).

The Company's products and services are primarily focused on development and
operation of transportation, processing, distribution and storage projects for
natural gas and liquids in the northeastern states of Mexico (Chihuahua,
Coahuila, Nuevo Leon and Tamaulipas) and the State of Texas.

Reef Ventures International Pipeline

Unitl September 30, 2004, we derived our revenue from sales of natural gas to
Conagas, the local distribution company in Piedras Negras, Coahuila, through the
pipeline owned by Reef Ventures, L.P. On September 1, 2004, we converted the
revenue source for this pipeline to a transportation fee. As a reseller of
natural gas we were obligated to restrict of use of $1,000,000 of cash in order
to fund a credit facility in favor of the seller of natural gas. We believe that
converting the revenue source to a transportation fee that we will double net
revenues based upon current gas volumes committed for delivery to the customer
in Piedras Negras, Coahuila. Additionally, Management is evaluating an expansion
of the pipeline in Coahuila to serve new markets along the state highway No. 57
corridor to Monclova, Coahuila. The planned Liquid Propane Gas ( LPG) line
between Eagle Pass, Texas and Piedras Negras, Coahuila is being re-evaluated in
light of new supply sources emerging in Nuevo Laredo and Reynosa, Tamaulipas. A

decision to proceed, modify or abandon the LPG project at this location is
expected in the future. The above projects were acquired in connection with the
buyout of the Impact general and limited partnership interests in Reef Ventures,
L.P.

Tidelands Oil & Gas Storage Enterprise

In December 2003, we entered into a Memorandum of Understanding (MOU) with PEMEX
to design, build and operate an underground natural gas storage facility in the
vicinity of Reynosa, Tamaulipas, Mexico, in the Burgos Basin area and eventually
at other regions in Mexico. The MOU provides for exclusivity in the development
of the projects and the related transportation and interconnecting pipelines to
and from the storage facilities.

We have completed the initial study of the Burgos facility and expect to
complete final contract negotiations with PEMEX and third party vendors for the
construction and operation of the facility before the end of 2005. A system of
two interconnecting pipelines is also proposed to enhance the overall pipeline
grid and the operational efficiency of the proposed storage facility. The
capital budget for these projects exceeds $200 Million Dollars and is expected
to be funded through issuance additional equity and debt financing. Marea
Associates, L.P. was formed to own the majority interest in Terranova Energia,
S. de R.L. de C.V., a Mexican company which will enter into all contracts for
business dealings in Mexico on behalf of Tidelands. Rio Bravo Energy LLC, an
existing wholly owned subsidiary owns the general partner interest in Marea
Associates, L.P. and a minority interest in Terranova Energia, S. de R.L. de
C.V.

Rio Bravo Energy, LLC

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 gas plant has the capability to fractionate natural
gas into commercial grade propane and butane. The maximum intake capacity of gas
plant is 10 million cubic feet of gas per day. Presently, we are evaluating
opening the plant for LPG production for our Sonterra Energy Corporation's
Austin propane business. The market for the products of plant operation could
include our future propane/butane terminal and pipeline crossing into Mexico,
and, or LPG supply to Sonterra's propane business in Austin, Texas.

Sonora Pipeline, LLC

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. This pipeline network was
acquired in conjunction with the Chittim Gas Processing Plant acquisition and,
when operational, could 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.

Sonterra Energy Corporation Business

On November 1, 2004, through our subsidiary, Sonterra Energy Corporation
subsidiary, we entered into an Asset Purchase and Sale Agreement with Oneok
Propane Distribution Company, a division of ONEOK Propane Company, a Delaware
corporation. We purchased the assets of this division for Two Million
($2,000,000). The assets consist of propane distribution systems, including gas
mains, yard lines, meters and storage tanks, serving the following residential
13 subdivisions in the Austin, Texas. Additionally, we provide gas to Arbolago
and Hills of Lakeway subdivisions. The 15 subdivisions include:

o Arbolago*
o Austin's Colony Phase II
o Costa Bella
o Hills of Lakeway
o Jacarandas
o Lake Pointe

o La Ventana
o Lakewinds Estates
o Northshore on Lake Travis Phase I
o Riverbend
o Rob Roy Rim
o Senna Hills
o Sterling Acres
o The Point
o The Preserve at Barton Creek

These subdivisions contain 1,333 lots. Presently, 850 of lots are metered for
use. There are 483 number of unmetered lots. As new homes are constructed on
these lots our customer base will grow. Presently, 100% of the subdivisions are
metered for propane consumption.

The propane distribution system is comprised of approximately 25 miles of gas
main pipe, 75,000 feet of yard lines, 850 meters, storage tanks with a combined
capacity of 156,000 gallons. Sonterra is the exclusive seller of propane in
these subdivisions and is not considered a regulated utility. Sonterra purchases
propane products from a number of distributors in Austin, Texas.

We financed the purchase of these assets by selling Four Million (4,000,000)
shares to ACH Securities, S.A., a company domiciled in Geneva, Switzerland, for
Two Million ($2,000,000) Dollars. On October 14, 2004, in connection with the
ACH Securities transaction, we issued Margaux Investment Group, S.A. common
stock warrants to purchase One Million (1,000,000) shares for Fifty ($0.50)
Cents per share and One Million (1,000,000) shares at $2.50 per share.

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

Competition

Reef Ventures, L.P. Eagle Pass Pipeline Crossing

Our Eagle Pass international pipeline crossing competes with a pipeline owned by
West Texas Gas, Inc. pipeline crossing which is located two miles north of Eagle
Pass. We believe that the West Texas Gas crossing will be able to compete with
us only marginally beginning in 2006 due to a very limited transmission
capability.

Sonterra Energy Corporation Propane Distribution

Our propane distribution business serving the 15 Austin subdivisions is not
subject to competition within the existing acquired subdivisions because we are
the sole propane supplier. The residential real estate development subdivisions
are subject to a propane supply covenant granting us the exclusive supply of
propane for each subdivision. In the future, we will compete in the bidding
process for new propane distribution systems as new residential subdivision are
developed. We may also be able to acquire additional existing propane
distribution systems from competitors.

Employees

Tidelands has seven full time employees including our corporate officers. Our
Sonterra Energy subsidiary, which operates the Austin propane gas distribution
company, has 9 full-time employees

PROPERTIES

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 97% limited partnership interest in this entity. We acquired
this interest from Impact International, LLC. Impact financed our purchase of
this system and we owe Impact $6,624,505.

Rio Bravo Energy, LLC owns and operates the Chittim Gas Processing Plant which
is located in Maverick, County, Texas. The plant is currently shut down. The gas

plant has the capability to fractionate natural gas into commercial grade
propane and butane. In the near future, we may activate this plant and produce
propane for our Sonterra propane business in Austin, Texas.

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.

Sonterra Energy Corporation operates a propane distribution systems providing
propane to 15 residential subdivisions in Austin, Texas. The propane
distribution system is comprised of approximately 25 miles of gas main pipe,
75,000 feet of yard lines, 850 meters, storage tanks with a combined capacity of
156,000 gallons of LPG.

We lease our San Antonio executive office. The lease term runs from August 1,
2003 to February 28, 2005 at $3,400 per month.

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATIONS

Business Overview

Our products and services are primarily focused on development and operation of
transportation, processing, distribution and storage projects for natural gas
and liquids in the northeastern states of Mexico (Chihuahua, Coahuila, Nuevo
Leon and Tamaulipas) and the state of Texas in the United States of America.

We currently derive our revenue from sales of natural gas to Conagas, the local
distribution company in Piedras Negras, Coahuila, through the pipeline owned by
Reef Ventures, L.P. We converted the revenue source for this pipeline to a
transportation fee on September 1, 2004 with the execution of a new agreement
with Conagas. This contract arrangement freed up of use of $1,000,000 of our
"restricted cash" which we used to fund a credit facility in favor of the seller
of natural gas to Reef Ventures, L.P. We believe that the conversion of the
revenue source to a transportation fee, net revenues will be doubled based upon
current gas volumes committed for delivery to Conagas. . Management is
evaluating an expansion of the pipeline in Coahuila to serve new markets along
the state highway No. 57 corridor to Monclova, Coahuila. The planned natural gas
liquid line between Eagle Pass, Texas and Piedras Negras, Coahuila is being
re-evaluated in light of new supply sources emerging in, Texas and Mexico. The
above projects were acquired in connection with the buyout of the Impact general
and limited partnership interests in Reef Ventures, L.P. which is described in
further detail in Footnote 4 to the Condensed Consolidated Financial Statements
above.

We have completed the initial study of the Burgos facility and expect to
complete final contract negotiations with PEMEX and third party vendors for the
construction and operation of the facility shortly. A system of two
interconnecting pipelines is also proposed to enhance the overall pipeline grid
and the operational efficiency of the storage facility. Permit applications for
all these projects will be filed in 2005 with the Mexican Energy Regulatory
Commission. The capital budget for these projects exceeds $200 Million Dollars.
We anticipate funding these projects with new equity and , or debt financing.
Marea Associates, L.P. was formed during the fiscal quarter ended June 30, 2004
to own the majority interest in Terranova Energia, S. de R.L. de C.V., a Mexican
company which will enter into all contracts for business dealings in Mexico on
behalf of the Tidelands. Rio Bravo Energy LLC, an existing wholly owned
subsidiary owns the general partner interest in Marea Associates, L.P. and a
minority interest in Terranova Energia, S. de R.L. de C.V.

We are in the preliminary design phase for an LNG regasification terminal to be
located in offshore Mexican waters of the Gulf of Mexico near Matamoros,
Tamaulipas. The LNG Terminal would provide additional supply for Northeast
Mexico natural gas markets which are currently importing approximately 1 BCF per
day from the U.S. The capital cost to build the terminal and interconnecting
pipeline to the planned storage facility is expected to be slightly under $200
million USD.

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. We plan to reopen the plant in 2005 when
adequate volumes of LPG feedstock from third parties makes plant operations
economically attractive. We are evaluating the feasibility of opening the gas
plant for LPG production for our Sonterra LPG business in Austin, Texas.
Additionally, the market for the products of the Chittim plant operation could
include our future propane/butane terminal and pipeline crossing into Mexico. As
noted above, Rio Bravo Energy LLC owns a general partner interest in Marea
Associates, L.P. and the minority interest in Terranova Energia, S. de R.L. de
C.V.

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. Presently, the line is not
in use. The pipeline was acquired in conjunction with the Chittim Gas Processing
Plant acquisition. When operational, it would generate revenue from
transportation fees charged to third party gas producers shipping natural gas to
the Chittim Gas Plant owned by Rio Bravo Energy LLC.

Sonterra Energy Corporation, a wholly owned subsidiary of Tidelands entered into
the residential propane distribution business on November 1, 2004 with its
acquisition of 850 existing customers located in 15 subdivisions in the vicinity
of Austin, Texas. Sonterra's existing and future market area includes several
central Texas locations that do not have access to natural gas as a fuel for
home heating and appliance usage. Current expansion of over 400 lots within the
existing subdivisions is possible. Sonterra has also entered into a new
agreement with the developer of Northshore on Lake Travis to expand the
currently serviced lots by an additional 1,000 units. Up to 2,625 additional
lots may be available for installation of residential propane delivery in
developments currently in the planning stages in the nearly central Texas
vicinity.

RESULTS OF OPERATIONS

REVENUES: The Company reported revenues of $1,332,560 for the nine months ended
September 30, 2004 as compared with revenues from continuing operations of
$123,922 for the nine months ended September 30, 2003. The revenue increase
resulted from the acquisition of a 98% interest in Reef Ventures, L.P. which
owns and operates a natural gas pipeline serving the Piedras Negras, Coahuila
market.

TOTAL COSTS AND EXPENSES: Total costs and expenses from continuing operations
increased from $981,720 for the nine months ended September 30, 2003 to
$6,441,177 for the nine months ended September 30, 2004. Cost of sales increased
by $1,299,518 which is the purchase cost of gas resold thru our international
pipeline. This pipeline was not an operation during the period ending September
30, 2003 Operating expenses increased by $4,159,939 from the comparative quarter
ended September 30, 2003. Of this increase $104,056 was from additional
depreciation and $106,102 of interest expense from the new operation of our
international pipeline crossing. Officers and directors salaries have increased
by $294,983 due to the hiring of new officers and a compensation increase for
the CEO. Pipeline operating expenses decreased by $8,068 due to different
operating regulations for our new international pipeline crossing versus assets
previously operated in the nine months ending September 30, 2003. General &
Administrative Expenses increased by $3,662,866 for the nine months ended
September 30, 2004 versus the nine months ended September 30, 2003 due to an
increase in the issuance of common stock for consulting fees, legal fees, and
financing fees by $3,231,561 which are non-cash expenses accounting for all but
$431,305 of the increase in general and administrative expenses. The remaining
increase in G & A costs was primarily from cash paid for travel costs, insurance
premiums, entertainment, accounting fees and legal fees.

COST OF SALES: The cost of sales (purchases) from continuing operations
increased from -0- for the nine months ended September 30, 2003 to $1,299,518
for the nine months ended September 30, 2004. The increase was due to the
purchase cost of natural gas resold through the natural gas pipeline owned by
Reef Ventures, L.P.

OPERATING EXPENSES: Other operating expenses from continuing operations
increased from $981,720 for the nine months ended September 30, 2003 to
$5,141,659 for the nine months ended September 30, 2004 which is total increase
of $4,159,939. Depreciation increased by $104,056 due to the acquisition of the
natural gas pipeline owned by Reef Ventures, L.P. Interest expense increased by
$106,102 due to the debt incurred to acquire the natural gas pipeline owned by
Reef Ventures, L.P. Pipeline operating expenses decreased by $8,068 due to
different operating requirements of the assets owned during the respective nine
month periods. Officers and Directors Salaries & Fees increased by $294,983 for
the nine months ended September 30, 2004 versus the nine months ended September
30, 2003 due to hiring of additional officers and directors and an increase in

the compensation paid to the President of The Company. The non-cash component of
this increase was $197,691 due to issuance of common stock to officers and
directors. General & Administrative expenses increased substantially as detailed
below.

SELLING GENERAL AND ADMINISTRATIVE: General & Administrative Expenses increased
by $3,662,866 for the nine months ended September 30, 2004 versus the nine
months ended September 30, 2003 due to an increase in the issuance of common
stock for consulting fees, legal fees, and financing fees by $3,231,561 which
are non-cash expenses accounting for all but $431,305 of the increase in general
and administrative expenses. The remaining increase in G & A costs was primarily
from cash paid for travel costs, insurance premiums, entertainment, accounting
fees and legal fees.

NET LOSS FROM OPERATIONS: Net loss of ($857,798) for the nine months ended
September 30, 2003 increased to ($5,108,617) for the nine months ended September
30, 2004, an increase in the amount of loss of $4,250,819. The non- cash
component of the increase in loss was $3,747,066.

LIQUIDITY AND CAPITAL RESOURCES: Capital expenditures during the nine months
ended September 30, 2004 totaled $6,829,125 as compared with $95,360 for the
nine months ended September 30, 2003. The increase of $6,733,765 was due to
acquisition of the Reef Ventures, L.P. natural gas pipeline ($6,113,255),
increased equipment and leasehold cost of $19,946, higher pre-construction costs
regarding potential international pipeline crossings and storage facilities in
Mexico ($580,564), and additional equipment for our gas processing plant
($20,000).

Total debt increased from $1,138,905 at December 31, 2003 to $7,062,336 at
September 30, 2004. The increase in total debt is due to the acquisition
indebtedness created in the acquisition of the Reef Ventures, L.P. partnership
interests from Coahuila Pipeline LLC and Impact International LLC as described
in Note 4 to the Condensed Consolidated Financial Statements for the period
ended September 30, 2004. Total debt as of September 30, 2004 and December 30,
2003 expressed as a percentage of the sum of total debt and shareholders' equity
was 56.85% and 70.15% respectively.

Net loss for the nine months ended September 30, 2004 was ($5,091,877) a
decrease of 854% from the net income of $675,083 for the nine months ended
September 30, 2003. Diluted net loss per common share increased 500% to ($0.10).
The net loss per share calculation for the nine months ended September 30, 2004
included an increase in actual and equivalent shares outstanding. As detailed
above costs of Sales & Operating expenses increased substantially. In addition,
the period ended September 30, 2003 included a one time gain of partial sale of
a subsidiary in the amount of $1,533,731 which heavily influenced the difference
in net income (loss) per share for the periods ending September 20, 2003 vs
September 30, 2004

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.

SELLING SHAREHOLDERS

The following table provides certain information about the selling shareholder's
beneficial ownership of our common stock as of November 30, 2004 and as adjusted
to give effect to the sale of all of the shares being offered by this
prospectus.

The number of shares that the Mercator Momentum Fund, LP, Mercator Momentum Fund
III, LP, Monarch Pointe Fund, Ltd., Mercator Advisory Group, LLC will own at any
time are subject to limitation in the governing agreements for the 7%
Convertible Debentures and warrants, respectively, so that the aggregate number
of shares of common stock of which such selling stockholder and all persons
affiliated with such selling stockholder (calculated pursuant to Rule 13d-3 of
the Securities Exchange Act of 1934, as amended) does not at any time exceed
9.99% of our then outstanding common stock.

The following table identifies the selling stockholders and indicates (i) the
nature of any position, office or other material relationship that each selling
stockholder has had with us during the past three years (or any of our
predecessors or affiliates) and (ii) the number of shares and percentage of our
outstanding shares of common stock owned by the selling stockholder prior to the
offering, the number of shares to be offered for the selling stockholder's
account and the number of shares and percentage of outstanding shares to be
owned by the selling stockholder after completion of the offering.

The percentage interest of each selling stockholder is based on the beneficial
ownership of such selling stockholder divided by the sum of the current
outstanding shares of common stock plus the additional shares, if any, which
would be issued to such selling stockholder (but not any other selling
stockholder) when exercising warrants or other rights in the future. Applicable
percentage of ownership is based on 60,603,359 shares of common stock
outstanding as of November 30, 2004 together with securities exercisable or
convertible into shares of common stock within 60 days of November 30, 2004, for
each stockholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject to
securities exercisable or convertible into shares of common stock that are
currently exercisable or exercisable within 60 days of November 30, 2004 are
deemed to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person. Note that affiliates are subject to Rule 144 and Insider
trading regulations and percentage computation is for form purposes only.

Table 1.

Name of Selling Shares Beneficially Percent of Class of Maximum Number of Shares Beneficially Percent of Class of
Shareholder Owned Before Shares Owned Before Shares to be Sold in Owned After the Shares Owned After
Offering the Offering (A) this Offering Offering

Impact International, 9,829,500 16.22% 9,829,500 -0- -0-
LLC (1)

Carl Allers 1,914,729 3.16% 1,914,729 -0- -0-
Etablissement (2)

Margaux Group(3) 3,988,889 6.58 3,988,889

ACH Securities(4) 4,000,000 6.60% 4,000,000 -0- -0-

Mercator Momentum 3,657,748 6.03% 3,657,748 -0- -0-
Fund, LP (5)

Mercator Momentum 2,520,102 4.16% 2,520,102 -0- -0-
Fund III, LP (6)

Monarch Pointe Fund, 8,222,735 13.57% 8,222,735 -0- -0-
LP (7)

Mercator Advisory 3,289,474 5.43% 3,289,474 -0- -0-
Group, LLC (8

Michael Ward (9(i) 500,000 0.82% 500,000 -0- -0-

Royis Ward (10i) 500,000 0.82% 500,000 -0- -0-

James B. Smith (11(i) 500,000 0.82% 500,000 -0- -0-

Ahmed Karim (12(i) 500,000 0.82% 500,000 -0- -0-

Samuel Simon (13 500,000 0.81% 500,000 -0- -0-

Total 39,923,177 65.87% 39,923,177 -0- -0-

(A) Based on 60,603,359 of common stock issued and outstanding on November 30,
2004.
(B) Assumes that the selling shareholder will sell all of the shares of the
common stock offered by this prospectus. We cannot assure you that the selling
shareholders will sell all or any of these shares.

(1) Represents up to 8,500,000 shares of common stock issuable upon exercise of
common stock warrants and 1,329,500 shares of common stock presently issued and
outstanding.
(2) Represents 1,914,729 shares of common stock presently issued and
outstanding.
(3) Represents 1,988,889 shares of common stock presently issued and outstanding
and 2,000,000 shares of common stock issuable upon exercise(a)1,000,000 shares
at $0.50 per share, and 1,000,000 shares at $2.50 per share.
(4) Represents 4,000,000 shares of common stock issued and outstanding.
(5) Represents up to 835,526 shares of common stock issuable upon exercise of
common stock warrants and 2,822,222 shares issuable upon conversion of the 7%
Debenture calculated at the "Floor Price". Mercator Advisory Group is the
general partner of Monarch Pointe Fund, Ltd. David Firestone, as managing member
of Mercator Advisory Group, LLC, and as a member of Mercator Group LLC, has
voting and investment control over the shares held by Monarch Pointe Fund, Ltd.
The selling stockholder has agreed not to convert the Debentures or to exercise
warrants to the extent such stockholder's beneficial ownership of our common
stock would exceed 9.99% of our common stock then outstanding.
(6) Represents up to 575,658 shares of common stock issuable upon exercise of
common stock warrants and 1,944,444 shares issuable upon conversion of the 7%
Debenture calculated at the "Floor Price". Mercator Advisory Group is the
general partner of Monarch Pointe Fund, Ltd. David Firestone, as managing member
of Mercator Advisory Group, LLC, and as a member of Mercator Group LLC, has
voting and investment control over the shares held by Monarch Pointe Fund, Ltd.
The selling stockholder has agreed not to convert the Debentures or to exercise
warrants to the extent such stockholder's beneficial ownership of our common
stock would exceed 9.99% of our common stock then outstanding.
(7) Represents up to 1,878,290 shares of common stock issuable upon exercise of
common stock warrants and 6,344,445 shares issuable upon conversion of the 7%
Debenture calculated at the "Floor Price". Mercator Advisory Group is the
general partner of Monarch Pointe Fund, Ltd. David Firestone, as managing member
of Mercator Advisory Group, LLC, and as a member of Mercator Group LLC, has
voting and investment control over the shares held by Monarch Pointe Fund, Ltd.
The selling stockholder has agreed not to convert the Debentures or to exercise
warrants to the extent such stockholder's beneficial ownership of our common
stock would exceed 9.99% of our common stock then outstanding.
(8) Represents up to 3,289,474 shares of common stock issuable upon exercise of
common stock warrants. Mercator Advisory Group is the general partner of Monarch
Pointe Fund, Ltd. David Firestone, as managing member of Mercator Advisory
Group, LLC, and as a member of Mercator Group LLC, has voting and investment
control over the shares held by Monarch Pointe Fund, Ltd. The selling
stockholder has agreed not to convert the Debentures or to exercise warrants to
the extent such stockholder's beneficial ownership of our common stock would
exceed 9.99% of our common stock then outstanding.
(9) Represents 500,000 common shares owned by Michael Ward. Mr. Ward is the
Company's CEO, President and member of the board of directors.
(10) Represents 500,000 common shares owned by Royis Ward.
(11) Represents 500,000 common shares owned by James B. Smith. Mr .Smith is the
Company's CFO and Vice President.
(12)Represents 500,000 common shares owned by Ahmed Karim. Mr. Karim is the
Company's Vice President and member of the board of directors.
(13) Represents 500,000 common shares owned by Samuel Simon. Mr. Simon is employ
by the Company as an accountant.

PLAN OF DISTRIBUTION

In this section of the prospectus, the term "selling stockholder" means and
includes: (1) the persons identified in the tables above as the selling
stockholders; and (2) any of their donees, pledgees, distributees, transferees
or other successors in interest who may (a) receive any of the shares of our
common stock offered hereby after the date of this prospectus and (b) offer or
sell those shares hereunder.

The shares of our common stock offered by this prospectus may be sold from time
to time directly by the selling stockholders. Alternatively, the selling
stockholders may from time to time offer such shares through underwriters,
brokers, dealers, agents or other intermediaries. The distribution of the common
stock by the selling stockholders may be effected: in one or more transactions
that may take place on the OTCBB (including one or more block transaction)
through customary brokerage channels, either through brokers acting as agents
for the selling stockholders, or through market makers, dealers or underwriters
acting as principals who may resell these shares on the OTCBB; in
privately-negotiated sales; by a combination of such methods; or by other means.
These transactions may be effected at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at other negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the selling stockholders in connection with sales of
our common stock.

The Mercator group of selling stockholders have agreed not initiate short sales
of our common stock. The selling stockholders also may lend or pledge shares of
our common stock to a broker-dealer. The broker-dealer may sell the shares of
common stock so lent, or upon a default the broker-dealer may sell the pledged
shares of common stock pursuant to this prospectus. Any securities covered by
this prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus. We are not aware of any
underwriter or coordinating broker acting in connection with the proposed sale
of shares of common stock the selling stockholders.

Although the shares of common stock covered by this prospectus are not
currently being underwritten, the selling stockholders or their underwriters,
brokers, dealers or other agents or other intermediaries, if any, that may
participate with the selling stockholders in any offering or distribution of
common stock may be deemed "underwriters" within the meaning of the Securities
Act and any profits realized or commissions received by them may be deemed
underwriting compensation thereunder.

Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of shares of the common stock offered hereby
may not simultaneously engage in market making activities with respect to the
common stock for a period of up to five days preceding such distribution. The
selling stockholders will be subject to the applicable provisions of the
Exchange Act and the rules and regulations promulgated thereunder, including
without limitation Regulation M, which provisions may limit the timing of
purchases and sales by the selling stockholders.

In order to comply with certain state securities or blue sky laws and
regulations, if applicable, the common stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In certain
states, the common stock may not be sold unless they are registered or qualified
for sale in such state, or unless an exemption from registration or
qualification is available and is obtained.

We will bear all costs, expenses and fees in connection with the
registration of the common stock offered hereby. However, the selling
stockholders will bear any brokerage or underwriting commissions and similar
selling expenses, if any, attributable to the sale of the shares of common stock
offered pursuant to this prospectus.

We have agreed to indemnify certain of the selling stockholders against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments to which any of those stockholders may be required to
make in respect thereof.

DIRECTORS AND EXECUTIVE OFFICERS

Date became
Name Age Position director or officer
--------------------------------------------------------------------------------

Michael Ward 49 Director, President October 21, 1998
James B. Smith, C.P.A. 51 Chief Financial Officer, V.P. August 16,2003
Ahmed Karim 32 Director, Vice President October 21, 1998
Carl Hessel 41 Director January 28, 2004
Robert Dowies 54 V.P. October 18, 2004

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

JAMES B. SMITH: On August 16, 2003, we employed James B. Smith to act as an
Senior Vice President and Chief Financial Officer. 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 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 agr-business.

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

CARL HESSEL: On January 28, 2004, Mr. Hessel joined our board of directors. Mr.
Hessel founded Margaux Investment Management Group, S.A. which is located in
Geneva, Switzterland in 2001. Prior to 2001, he served as Vice President of
MerrillLynch were he was responsible for creating global high net worth
management platform. He began his career at Goldman Sachs and help build the
Scandinavian ultra-high net worth market. Mr. Hessel received his M.B.A. from
Wharton Business School and a degree in Finance and Management from the
University of Pennsylvania. He was awarded the Marcus Wallenberg Foundation's
Scholarship.

ROBERT W. DOWIES: On October 18, 2004, we employed Robert W. Dowies as our Vice
President of Gas Markets and Supply. Mr. Dowies has 30 years experience in the
energy marketing. Ten years as the owner of a natural gas trading company and 20
years with a public utility. Until his employment with Tidelands Oil & Gas
Corporation, since 1998, Mr. Dowies worked for Trebor Energy Resources, Inc. in
Houston, Texas. His principal responsibilities were the development of financial
alliances with various energy merchants and producers providing a $50 million
dollar credit support for gas marketing activities, financial trading accounts,
pipeline transportation agreements, storage strategies and capital projects. He
developed and implemented marketing strategies which resulted in $40 million
dollars of annual revenue. He designed and coordinated the construction and
implementation of a natural gas gathering system. We entered into a three year
employment contract paying him an annual salary of $100,000 which includes an
annual stock grant of 100,000 shares.

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 officer 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 seven 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.

Executive Officer 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 Position Year Salary Bonus Options

Michael Ward, Pres. 2003 $120,000 -0- 500,000
Royis Ward, Sec/Trea.(1) 2003 $120,000 $25,000(4) 500,000
James Smith, V.P,CFO 2003 $ 80,000 -0- 500,000
Ahmed Karim, V.P.(2) 2003 $ -0- -0- 500,000
Robert Dowies (3) 2003 $ -0- -0- -0-

(1) Mr. Royis Ward resigned as an officer and director on October 1, 2003. (2)
Mr. Karim received compensation as a director during 2003. (3) Mr. Dowies joined
the company on October 18, 2004. (4) Mr. Royis Ward's severance payment.

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. Messrs. Ward and
Smith have new and different employment agreements for 2004 discussed below in
the Employment Agreement paragraph.
During 2003, we paid Michael Ward 1,506,272 shares of common stock in lieu of
accrued executive compensation totaling $331,380. We also paid Royis Ward
2,089,897shares of common stock in lieu of accrued executive compensation
totaling $459,777.

(1) We hired Robert Dowies on October 18, 2004 as Vice President. He will work
in the area of gas marketing, supply and distribution. We entered into a three
year employment contract paying him an annual salary of $100,000 which includes
an annual stock grant of 100,000 shares.

Director Compensation

On April 11, 2001, the Company agreed to compensate a Ahmed Karim, 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. On June 30, 2003, we paid Mr. Karim all of
his accrued director compensation by issuing him 340,909 shares in lieu of
$75,000. 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 and Samuel Simon common stock options to
purchase 500,000 shares each at $0.22 per share. These options expire March 5,
2005.

Committees of The Board Of Directors

Tideland's does not have a Compensation committee. The Board of Directors acts
as the Compensation Committee. Tideland's has no compensation policies outlining
factors and criteria underlying awards or payments in relation to executive
officers. Michael Ward abstained from voting on his Employment Agreement.

Employment and Consulting Agreements With Management

The Company has entered into employment agreements with the following officers:

MICHAEL WARD - Under the terms of Mr. Ward's employment agreement, commencing
January 1, 2004, he was employed as the Company's President and Chief Executive
Officer for a term of five (5) years. His base annual salary is $252,000. The
annual salary may be increased from year to year, as determined by our board of
directors acting as the Compensation Committee, by at least the Consumer Price
Index. As additional compensation, Mr. Ward will be entitled to an annual stock
grant of One Million (1,000,000) shares. Stock grant dates are June 30 and
December 31 each year. As incentive compensation, Mr. Ward will be entitled to
additional compensation equal to two percent of our net profits and one percent
of the increase in sales over a previous year's sales, effective with the fiscal
year ending 2004. Mr. Ward is entitled to all employee benefits as provided by
the Company. He is entitled to four weeks paid vacation and an annual automobile
allowance of $12,000.

JAMES B. SMITH: Under the terms of Mr. Smith's employment agreement, commencing
October 1, 2004, he was employed as the Company's Senior Vice President and
Chief Financial Officer for a term of four (4) years. His base annual salary is
$168,000. The annual salary may be increased from year to year, as determined by
our board of directors acting as the Compensation Committee, by at least the
Consumer Price Index. As additional compensation, Mr. Smith will be entitled to
an annual stock grant of Five Hundred (500,000) shares. Stock grant dates are
October 1 during the four year term. The first year stock grant was paid October
1, 2004. As incentive compensation, Mr. Smith will be entitled to additional
compensation equal to two percent of our net profits and one percent of the
increase in sales over a previous year's sales, effective with the fiscal year
ending 2004. Mr. Smith is entitled to all employee benefits as provided by the
Company. He is entitled to four weeks paid vacation and an annual automobile
allowance of $12,000.

ROBERT W. DOWIES: We employed Mr. Dowies on October 26, 2004 as our Vice
President of Gas Markets and Supply. His employment agreement is for a term of
three (3) years. His annual salary is $100,000. He is entitled to an annual
stock grant of 100,000 common shares. The first 50,000 shares will vest and be
payable April 18, 2005. Thereafter, stock grants will be payable every six
months, October 18 and April 18 for the term of the employment agreement. Mr.
Dowies is entitled to two (2) weeks paid vacation and all employee benefits as
provided by the Company.

Code of Ethical Conduct

Our board of directors adopted a Code of Ethical Conduct which applies to all
our Company directors, officers and employees, including our principal executive
officer and principal financial officer, principal accounting officer or
comptroller, or other persons performing similar functions.

PRINCIPAL SHAREHOLDERS

The following table sets forth the Common Stock ownership information as of
November 30, 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. This information as to
beneficial ownership was furnished to the Company by or on behalf of the persons
named. Unless otherwise indicated, we believe that each has sole voting and
investment power with respect to the shares beneficially owned. The percentages
are based on 60,603,359 shares of our common stock issued and outstanding as of
November 30, 2004.

(a) Beneficial Ownership of more than 5% based on 60,603,359 common shares.

Beneficial Ownership of 5%.

Table 1.

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

Common Mercator Momentum
Fund, LP (1) 2,789,372 (2)(7) 4.60%(8)
555 S. Flower St. Shared Voting and
Suite 4500 Dispositive Power
Los Angeles, CA 90071

Common Mercator Momentum 1,921,811(3)(7) 3.17%
Fund III, LP(1) Shared Voting and
555 S. Flower St. Dispositive Power
Suite 4500
Los Angeles, CA 90071

Common Monarch Pointe 6,270,597 (4)(7) 9.99% (8)
Fund, Ltd. (1) Shared Voting and
c/o Bank of Ireland Dispositive Power
Securities Services Ltd.
New Century House
International Fin. Ser.Ctr.
Mayor Street Lower
Dublin 1
Republic of Ireland

Common Mercator Advisory 6,558,009 (5) 9.99% (8)
Group, LLC (1) Shared Voting and
555 S. Flower St. Dispositive Power
Suite 4500
Los Angeles, CA 90071

Common David F. Firestone (1) 6,558,009 (6)(7) 9.99% (8)
555 S. Flower St. Shared Voting and
Suite 4500 Dispositive Power
Los Angeles, CA 90071

Common ACH Securities, S.A. 4,000,000 (9) 6.60%
30 Quai Gustave Ador
P.O. Box 6235
Geneva, Switzerland

Common Impact International, LLC (1) 9,829,500(10) 16.22%
111 W. 5th St. Ste.720
Tulsa, OK 74103

Common Margaux Group 3,988,889 6.58%
9 Rue de Commerce
CH 1211 Geneva 11
Switzerland

Common Michael Ward 6,317,038(11) 10.42%
1862 W. Bitters Rd.
San Antonio, TX78248

Total 49.81% (13)

Notes:

(1) Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe
Fund, Ltd., Mercator Advisory Group, LLC and David F. Firestone are referred to
"Reporting Persons". Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP,
Monarch Pointe Fund, Ltd. and the Mercator Advisory Group, LLC each own warrants
to purchase shares of our common stock. Mercator Momentum Fund, LP, Mercator
Momentum Fund III, LP, Monarch Pointe Fund, Ltd. each own 7% Convertible
Debentures (the "Debentures") issued by us which are convertible into our common
stock. Each Debenture is convertible into the number of shares of common stock
determined by dividing the principal balance of the Debenture by the Conversion
Price at the time of the conversion. The Conversion Price is defined as 85% of
the "Market Price", which is defined as the average of the lowest four intra-day
trading prices of our common stock during the ten trading days preceding the
conversion, however, the Conversion Price may not be less than $0.45 or more
than $0.76, adjusted for stock splits and similar events. Upon the occurrence of
certain events specified in the Debentures, including any Event of Default, as
defined in the Debentures, the Conversion Price will be reduced from 85% of the
Market Price to 75% of the Market Price, but in no event higher than $0.76 or
lower than $0.45 per share. The documentation governing the terms of the
warrants and Debentures contains provisions prohibiting any exercise of the
warrants or conversion of the Debentures that would result in the Reporting
Persons owning beneficially more than 9.99% of the outstanding common stock as
determined under Section 13(d) of the Securities Exchange Act of 1934. The
Reporting Persons have never had beneficial ownership of more than 9.99% of our
outstanding common stock.

(2) Mercator Momentum Fund, LP is a private investment limited partnership
organized under California law. Mercator Advisory Group, LLC, a California
limited liability company, is its general partner. David F. Firestone is the
Managing Member of the Mercator Advisory Group, LLC. Mercator Momentum Fund, LP
owns Debentures with a principal balance of $1,270,000 and warrants to purchase
up to 835,526 shares of our common stock. The number of shares beneficially
owned have been determined using a Conversion Price of $0.65 with respect to the
Debentures.

(3) Mercator Momentum Fund III, LP is a private investment limited partnership
organized under California law. Mercator Advisory Group, LLC, a California
limited liability company, is its general partner. David F. Firestone is the
Managing Member of the Mercator Advisory Group, LLC. Mercator Momentum Fund III,
LP owns Debentures with a principal balance of $835,000 and warrants to purchase
up to 575,658 shares of our common stock. The number of shares beneficially
owned have been determined using a Conversion Price of $0.65 with respect to the
Debentures.

(4) Monarch Pointe Fund, Ltd. is a corporation organized under of the British
Virgin Islands. Mercator Advisory Group controls the investments of Monarch
Pointe Fund. Monarch Pointe Fund owns Debentures with a principal balance of
$2,855,000 and warrants to purchase up to 1,878,290 shares of our common stock.
The number of shares beneficially owned have been determined using a Conversion
Price of $0.65 with respect to the Debentures.

(5) Mercator Advisory Group, LLC owns warrants to purchase up to 3,289,474
shares of our common stock.

(6) David F. Firestone does not own any of our securities.

(7) The right to vote and the right to dispose of the shares beneficially owned
by Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, and Monarch
Pointe Fund, Ltd. are, in each case, shared among either of the three funds, as
applicable, and both Monarch Advisory Group, LLC and David F. Firestone.

(8) The agreements governing the terms of the 7% Debentures and the warrants
contain provisions prohibiting any conversion of the Debentures or exercise of
the warrants that would result in the Mercator Momentum Fund, LP, the Mercator
Momentum Fund III, LP; the Monarch Pointe Fund, Ltd. , or Mercator Advisory

Group, LLC; collectively owning beneficially more than 9.99% of the outstanding
shares of our common stock as determined under Section 13(d) of the Securities
Exchange Act of 1934. As a result of these provisions, the entities disclaim
beneficial ownership in excess of 9.99% of the outstanding shares of our common
stock.

(9) Represents 4,000,000 common shares issued and outstanding.

(10) Represents 8,500,000 shares issuable upon the exercise of warrants at the
exercise price of $0.335 per share and 1,329,500 shares of common stock.

(11) Mr. Ward is the President, Chief Executive officer and Chairman of our
Board of Directors.

(12) This total does not reflect the summation of the percentages of beneficial
ownership of Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch
Pointe Fund, Ltd., Mercator Advisory Group, LLC and David F. Firestone for the
reason set forth in footnote 8. We have included 9.99% once in the summation for
all Mercator related entities.

(13) Mercator Group totals only include 9.99%.

(b) Security Ownership of Management. Based on 60,603,359 shares as set forth in
(a) above as of November 30, 2004.

Table 2.

Title of ClassName and Address Amount and Nature Percent of Class

Common Michael Ward 6,317,038 10.42%
1862 W. Bitters Rd.
San Antonio, TX 78248

Common James B. Smith 1,042,668(1) 1.70%
1862 W. Bitters Rd.
San Antonio, TX 78248

Common Ahmed Karim 502,500 0.83%
1532 Woods Dr.
N. Vancouver, B.C.
Canada V7R 1A9

Common Robert W. Dowies 10,000 0.0165%
1862 W. Bitters Rd.
San Antonio, TX 78248

Common Carl Hessel (2) 3,992,211 6.58%
c/o Margaux Investment
Management Group, S.A.
9 Rue de Commerce
CH 1211 Geneva 11
Switzerland

Total 11,854,417 19.56%

Notes:
(1) Includes 500,000 shares in the name of Aigle Partners, Ltd.
(2) Mr. Hessel is a partner in Margaux Investment Management Group, S.A. and as
such beneficial ownership reflects 2,000,000 common stock warrants and 1,988,889
shaes owned by Margaux and 3,322 shares owned personally by Mr. Hessel.

TRANSACTIONS WITH MANAGEMENT AND OTHERS

On November 9, 2004, we issued 500,000 common shares to James B. Smith which
represents the annual stock grant under the terms of his employment agreement.

On October 18, 2004 we entered into an employment agreement with Robert Dowies.
Mr .Dowies became a Company Vice President. His annual salary is $ 100,000
including an annual stock grant of 100,000 shares.

On October 13, 2004, we sold Four Million (4,000,000) Tidelands Oil & Gas common
shares to ACH Securities, S.A., a company domiciled in Geneva, Switzerland, for
Two Million ($2,000,000) Dollars. On October 14, 2004, in connection with the
ACH Securities transaction, we issued Margaux Investment Group, S.A. common
stock warrants to purchase One Million (1,000,000) Tidelands Oil & Gas common
shares for Fifty ($0.50) Cents per share and One Million (1,000,000) shares for
$2.50 per share. Mr. Carl Hessel, a company director, is a partner in Margaux
Investment Management Group, S.A. and, as such he has an indirect financial
interest in the common stock warrants.

On September 14, 2004, we issued 500,000 shares of common stock to Michael Ward
as a stock grant under his employment agreement. The shares were valued at
$106,875.

On September 14, 2004, the following individuals exercised common stock options:

Michael Ward, the Company's President and Director, exercised his common stock
option to purchase 500,000 common shares for $110,000 payable on a promissory
note bearing interest at the rate of 5% payable in full on, or before September
14, 2005. The shares are subject to a security agreement.

Ahmed Karim, the Company's Vice President and Director, exercised his common
stock option to purchase 500,000 common shares for $110,000 payable on a
promissory note bearing interest at the rate of 5% payable in full on, or before
September 14, 2005. The shares are subject to a security agreement.

James Smith, the Company's Chief Financial Officer, exercised his common stock
option to purchase 500,000 common shares for $110,000 payable on a promissory
note bearing interest at the rate of 5% payable in full on, or before September
14, 2005. The shares are subject to a security agreement.

On January 29, 2004, the Company executed an agreement with Royis Ward, the a
former officer and director and the father of Michael Ward, our President and
CEO, to provide charter air transportation for our Company employees, customers
and contractors to job sites and other business related destinations. We made a
prepayment of $300,000 to secure a block of six hundred hours of air time based
on industry standard rates. As of September 30, 2004, $275,600 air time is
available to the Company.

On January 8, 2004, we authorized the issuance of 300,000 common shares to Carl
Hessel for services valued at $450,000. These shares were issued before Mr.
Hessel joined our Board of Directors.

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. 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. We paid 1,506,272 common shares in lieu of
$331,380 accrued wages owed to Michael Wards in 2003. We paid 2,089,897 common
shares in lieu of $459,777 accrued wages to Royis Ward in 2003. These shares
were issued as stock grants in lieu of compensation under the 2003 Non-Qualified
Stock Grant and Option Plan.

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 June 30, 2003, we paid Mr. Karim all of his accrued director compensation by
issuing him 340,909 shares in lieu of $75,000.

On June 30, 2004, we issued 3,322 common shares to Carl Hessel for $ 4,983. Carl
Hessel was a member of our board of directors at the time of issuance.

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

LEGAL PROCEEDINGS

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

On May 24 and June 16, 2004 respectively, Betty Lou Sheerin filed her first and
second amended original answer, affirmative defenses, special exceptions and
second amended original counterclaim, second amended original third party
cross-actions and requests for disclosure. In these amended pleadings, she sued
Michael Ward, Royis Ward, James B. Smith, Carl Hessel and Ahmed Karim in their
individual capacities. Her claims against these individuals are for fraud,
breach of the Uniform Commercial Code, breach of duty of good faith and fair
dealing and conversion. These claims are being vigorously defended.

DESCRIPTION OF SECURITIES

Common Stock

The Company is authorized to issue One Hundred Million (100,000,000) shares of
common stock, par value $0.001 per share. As of November 30, 2004, there were
60,603,359 shares of common stock issued and outstanding. The holders of the
common stock are not entitled to pre-emptive or preferential rights to subscribe
to any unissued stock or other securities. The shareholders are not entitled to
cumulative voting rights. The common stock is not assessable and not subject to
the payment of any corporate debts. The holders of our common stock are entitled
to one vote for each share on all matters submitted to the shareholders for
vote. Holders are entitled to share ratably in any dividends which may be
declared, from time to time, by the board of directors in its discretion, from
legally available funds. If we are liquidated, dissolved, or wound up, the
holders of common shares are entitled to share pro rata all assets remaining
after full payment of all liabilities. There are no conversion rights or
redemption or sinking fund provisions for the common stock.

Common Stock Warrants

Impact Warrants
---------------

We amended the Stock Purchase Warrant Agreement dated April 16, 2003 between
Tidelands and Impact International, LLC in connection with our purchase of Reef
Ventures, LLC. We issued Impact International, LLC a stock warrant for Ten
Million (10,000,000) shares of Tideland's common stock, plus such additional
shares of common stock which may be issued upon the occurrence of an untimely
registration event, less the 500,000 shares we issued to Impact on April 13,
2004. The cash exercise price is $0.335 per share. The expiration date of the
warrant is April 16, 2006.

We have agreed to use our best efforts to register the shares issuable upon
exercise of the Impact warrant with the SEC so that Impact will be permitted to
publicly resell the common shares. We have agreed to use our best efforts to
keep the registration statement effective as long as it is necessary for Impact
to sell the shares.

If the registration statement is declared effective (i) by April 7, 2005, if the
registration is on Form S-3, or (ii) July 7, 2005 if the registration statement
is on Form SB-2 or any other registration form, the registration statement will
be deemed timely (a "Timely Registration"). In the event of a Timely
Registration, Impact will exercise the warrant for all of the remaining shares
under the warrant on a cash basis payable by Impact through the execution of a
promissory note payable to Tidelands (the "Impact Note"), as of the effective
date of the Registration Statement. In the event that we do not accomplish a
Timely Registration, then Impact may exercise the warrant at any time after the
date which is the last date for a Timely Registration, at its option on a cash
basis or pursuant to Section 1.2 of the warrant agreement on a net exercise
cashless basis for all the remaining shares under the warrant. If Impact elects
to exercise the warrants on a net exercise cashless basis, we will increase the
number of shares available for issuance under the warrant, regardless of whether
issued for cash or on a net exercise basis so that the total number of shares
issued would total 10,000,000 shares.

Until the Registration Statement is declared effective, we are obligated issue
500,000 common shares under the cashless exercise provisions of the Amended
Stock Purchase Warrant each 90days period commencing July 14, 2004, until the
Registration Statement is declared effective by the SEC.

Mercator Warrants

As part of our November 18, 2004 financing with Mercator Momentum Fund, LP,
Mercator Momentum Fund III, LP, Monarch Pointe Fund, Ltd., and the Mercator
Advisory Group, LLC ("Mercator Group"), we issued 3 year warrants to purchase up
to 3,289,474 shares of our common stock at $0.80 per share and up to 3,289,474
shares of our common stock at $0.87per share. The shares issuable upon exercise
of these warrants have been registered in this registration statement on Form
SB-2, of which this prospectus is a part.

o Mercator Momentum Fund, LP 417,763 warrants exercisable at $0.87 and
417,763 warrants exercisable at $0.80;
o Mercator Momentum Fund III, LP 287,829 warrants exercisable at $0.87
and 287,829 warrants exercisable at $0.80;
o Monarch Pointe Fund, LP 939,145 warrants exercisable at $0.87 and
939,145 warrants exercisable at $0.80.
o Mercator Advisory Group, LLC 1,644,737 warrants exercisable at $0.87
and 1,644,737 warrants exercisable at $0.80.

The agreements governing the terms of the warrants contain provisions
prohibiting any exercise of the warrants that would result in Mercator Momentum
Fund, LP, the Mercator Momentum Fund III, LP; the Monarch Pointe Fund, Ltd., or
Mercator Advisory Group, LLC; collectively owning beneficially more than 9.99%
of the outstanding shares of our common stock as determined under Section 13(d)
of the Securities Exchange Act of 1934. As a result of these provisions, such
entities disclaim beneficial ownership in excess of 9.99% of the outstanding
shares of our common stock.

7% Convertible Debentures

As a part of our November 18, 2004 financing with the Mercator Group, we issued
7% Convertible Debentures in the aggregate principal amount of $5,000,000. The

Debentures mature May 18, 2006. We are required to pay interest monthly. The
aggregate monthly interest payment is $29,166.67. The allocation of the
debentures is as follows:

o Mercator Momentum Fund, LP acquired $1,270,000 7% Convertible
Debentures;
o Mercator Momentum Fund III, LP acquired $875,000 7% Convertible
Debentures;
o Monarch Pointe Fund, LP acquired $2,855,000 7% Convertible Debentures.

The payment of funds for the debentures is structured in two tranches. On
November 19, 2004, we received a total of $3,250,000 which represents 65% of the
funds due. We will receive $1,750,000 balance on the 7% Convertible Debentures
within two (2) trading days after we file this Registration Statement with the
SEC.

Each Debenture is convertible into the number of shares of common stock
determined by dividing the principal balance of the Debenture by the Conversion
Price at the time of the conversion. The Conversion Price is defined as 85% of
the "Market Price", which is defined as the average of the lowest four intra-day
trading prices of our common stock during the ten trading days preceding the
conversion, however, the Conversion Price may not be less than $0.45 or more
than $0.76, adjusted for stock splits and similar events. Upon the occurrence of
certain events specified in the Debentures, including any Event of Default, as
defined in the Debentures, the Conversion Price will be reduced from 85% of the
Market Price to 75% of the Market Price, but in no event higher than $0.76 or
lower than $0.45 per share.

The agreements governing the terms of the 7% Convertible Debentures contain
provisions prohibiting any conversion of the Debentures that would result in
Mercator Momentum Fund, LP, the Mercator Momentum Fund III, LP; the Monarch
Pointe Fund, Ltd. , or Mercator Advisory Group, LLC; collectively owning
beneficially more than 9.99% of the outstanding shares of our common stock as
determined under Section 13(d) of the Securities Exchange Act of 1934. As a
result of these provisions, these entities disclaim beneficial ownership in
excess of 9.99% of the outstanding shares of our common stock.

Other Warrants

Margaux Investment Management Group owns 2,000,000 common stock warrants
1,000,000 warrants with an exercise price of $0.50 per share and an expiration
date of August 14, 2006 and another 1,000,000 with an exercise price of $2.50
with an expiration date October 26, 2007.

Penny Stock Rules

Our common stock is covered by the Securities and Exchange Commission's penny
stock rules. These rules include a rule that imposes additional sales practice
requirements on broker-dealers who sell our securities to persons other than
established customers and accredited investors. Accredited investors are
generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouses. For transactions covered by the rule, the
broker-dealer must make a special suitability determination for the purchaser
and transaction prior to the sale. The rule may affect the ability of broker-
dealers to sell our securities and may also affect the availability ability of
purchasers of our stock to sell their shares in the secondary market. It may
also cause fewer brokers to be willing to make a market in our common stock and
it may affect the level of news coverage we receive.

Stock Transfer Agent

Our Stock Transfer Agent is Signature Stock Transfer Co., Inc. located at One
Preston Park, 2301 Ohio Dr., Suite 100, Plano, Texas 75093. The agent's
telephone number is (972) 612-4120.

LEGAL MATTERS

The legality of the securities offered hereby has been passed upon by Gregory M.
Wilson, Attorney at Law. Mr. Wilson is a shareholder of our Company.

EXPERTS

Our balance sheet as of December 31, 2002 and 2003 and the statements of our
operations, shareholders' equity and cash flows for the years then ended, have
been included in this prospectus in reliance on the report of Baum & Company,
P.A., certified public accountants, given on the authority of that firm as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference room.

We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act covering the sale of the securities offered under this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information in the registration
statement. Certain items of the registration statement are omitted in accordance
with the rules and regulations of the SEC. Statements contained in this
prospectus as to the contents of any contract or other documents are not
necessarily complete and in each instance where reference is made to the copy of
such contract or documents filed as an exhibit to the registration statement,
statements about the document are qualified in all respects by that reference
and the exhibits and schedules to the exhibits. For further information
regarding Tidelands Oil & Gas Corporation and the securities offered under this
prospectus, we refer you to the registration statement and those exhibits and
schedules, which may be obtained from the SEC at its principal office in
Washington, D.C. upon payment of the fees prescribed by the SEC.

TIDELANDS OIL & GAS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Auditors...............................................F-2

Consolidated Balance Sheets at December 31, 2003 and
September 30, 2004 (Unaudited)...............................................F-3

Consolidated Statement of Operations for the Years Ended
December 31, 2003 and 2002 and the Nine Months Ended
September 30, 2004 and 2003 (Unaudited)......................................F-4

Consolidated Statement of Changes in Stockholders' Equity
for the Years Ended December 31, 2003 and 2002 and the
Nine Months Ended September 30, 2004 and 2003(Unaudited.....................F5-6

Consolidated Statement of Cash Flows for the Years Ended
December 31, 2003 and 2002 and the Nine Months Ended
September 30, 2004 and 2003(Unaudited).......................................F-7

Notes to Consolidated Financial Statements................................F-9-27

F-1

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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates 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-2

TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED BALANCE SHEETS

ASSETS

December 31, 2003 September 30, 2004
------------------ ------------------
(Unaudited)

Current Assets:
Cash $ 894,457 $ 1,284,241
Cash - Restricted 0 1,025,000
Accounts Receivable 228 39,890
Stock Subscriptions Receivable 0 2,000,000
Prepaid Expenses 22,209 144,891
------------------ ------------------
Total Current Assets 916,894 4,494,022
------------------ ------------------

Property Plant and Equipment, Net 604,192 7,004,041
------------------ ------------------

Investment - Reef Ventures, L.P. 98,629 0
------------------ ------------------

Other Assets:
Goodwill 0 673,992
Deposits 3,800 4,108
Deferred Charges 0 245,600
------------------ ------------------

Total Other Assets 3,800 923,700
------------------ ------------------

Total Assets $ 1,623,515 $ 12,421,763
================== ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts Payable and
Accrued Expenses $ 813,905 $ 388,563
Current Maturities of Long-Term Debt 325,000 150,000
------------------ ------------------

Total Current Liabilities 1,138,905 538,563
------------------ ------------------

Long-Term Debt 0 6,523,773
------------------ ------------------

Total Liabilities 1,138,905 7,062,336
------------------ ------------------

Commitments and Contingencies -- --

Stockholders' Equity:
Common Stock, $.001 Par Value Per Share,
100,000,000 Shares Authorized;
59,028,647 Shares Issued and Outstanding
September 30, 2004, 44,825,302 Shares
Issued and Outstanding December 31, 2003 44,826 59,029
Additional Paid-in Capital 11,072,987 21,557,478
Subscriptions Receivable (18,000) (550,000)
Accumulated (Deficit) (10,615,203) (15,707,080)
------------------ ------------------

Total Stockholders' Equity 484,610 5,359,427
------------------ ------------------

Total Liabilities and
Stockholders' Equity $ 1,623,515 $ 12,421,763
================== ==================

F-3

TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended Nine Months Ended
December 31, September 30,
2003 2002 2004 2003
------------ ------------ ------------ ------------

Revenues:
Gas Sales $ 0 $ 702,086 $ 1,323,459 $ 0
Pipeline Fees 0 0 9,101 0
Management Fees and Other 178,856 7,576 0 123,922
------------ ------------ ------------ ------------
Total Revenues 178,856 709,662 1,332,560 123,922
------------ ------------ ------------ ------------

Expenses:
Purchases 0 529,332 1,299,518 0
Operating Expenses 27,767 234,229 18,416 26,484
Depreciation and Amortization 43,006 41,185 136,529 32,473
Interest 53,163 90,825 149,418 43,316
Litigation Settlement 0 492,000 0 0
Officers and Directors Salaries and Fees 313,000 300,000 513,983 219,000
Impairment of Goodwill 0 52,910 0 0
General and Administrative 2,624,132 2,713,606 4,323,313 660,447
------------ ------------ ------------ ------------
Total Expenses 3,061,068 4,454,087 6,441,177 981,720
------------ ------------ ------------ ------------

Net (Loss) From Continuing Operations (2,882,212) (3,744,425) (5,108,617) (857,798)
Extraordinary Item - Gain on Partial Sale
of Subsidiary 1,533,731 0 0 1,533,731
Loss From Asset Abandonment 0 0 0 (850)
Interest Income 0 0 16,740 0
Loss From Discontinued Operations 0 (316,347) 0 0
Net Income (Loss) $ (1,348,481) $ (4,060,772) $ (5,091,877) $ 675,083
============ ============ ============ ============

Net Income (Loss) Per Common Share:

Basic and Diluted
Loss From Continuing Operations $ (0.07) $ (0.13) $ (0.10) $ (0.02)
Gain - Extraordinary Item 0.04 (0.00) (0.00) 0.04
Loss From Discontinued Operations 0.00 (0.01) 0.00 0.00
------------ ------------ ------------ ------------
Total $ (0.03) $ (0.14) $ (0.10) $ 0.02
============ ============ ============ ============

Weighted Average Number of Common
Shares Outstanding, Basic 39,254,316 28,919,115 51,926,974 38,040,218
============ ============ ============ ============

F-4

TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2003 AND 2002 AND NINE MONTHS ENDED SEPTEMBER 30, 2004

Total
Additional Stock Stockholders'
Common Stock Paid-In Subscription Accumulated Equity/
Shares Amount Capital Receivable (Deficit) (Deficit)
------------ ------------ ------------ ------------ ------------ ------------

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

F-5

TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2003 AND 2002 AND NINE MONTHS ENDED SEPTEMBER 30, 2004
(CONTINUED)

Common Stock
Issued for Cash 2,725,545 2,725 4,085,592 -- -- 4,088,317

Common Stock
Issued for Services
Regarding $4,088,317
Sale of Common Stock 300,000 300 449,700 -- -- 450,000

Common Stock Issued for
Services Regarding Sale
of Common Stock -- -- (450,000) -- -- 450,000

Issuance of Common Stock
For Services 4,602,800 4,603 3,742,463 -- -- 3,747,066

Issuance of Common Stock
For Conversion of Note
Payable and Accrued
Interest 75,000 75 113,236 -- -- 113,311

Write Off of Stock
Subscriptions Receivable -- -- -- 18,000 -- 18,000

Common Stock Issued for
Stock Subscription
Receivable 4,000,000 4,000 1,996,000 -- -- 2,000,000

Common Stock Issued
For Promissory Notes 2,500,000 2,500 547,500 (550,000) -- 0

Net Loss for Nine
Months Ended
September 30, 2004 -- -- -- -- (5,091,877) (5,091,877)
------------ ------------ ------------ ------------ ------------ ------------

Balance -
September 30, 2004 59,028,647 $ 59,029 $ 21,557,478 $ (550,000) $(15,707,080) $ 5,359,427
============ ============ ============ ============ ============ ============

F-6

TIDELANDS OIL & GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended Nine Months Ended
December 31, September 30,
2003 2002 2004 2003
----------- ----------- ----------- -----------

Cash Flows Provided (Required) By
Operating Activities:
Net Income (Loss)
Continuing Operations $(1,348,481) $(3,744,425) $(5,091,877) $ 675,083
Discontinued Operations 0 (316,347) 0 0
Adjustments to Reconcile Net Income (Loss)
Income (Loss) to Net Cash Provided
(Required) by Operating Activities:

Depreciation and Amortization
Continuing Operations 43,006 41,185 136,529 32,473
Discontinued Operations 0 26,527 0 0
Write Off of Subscriptions Receivable 18,000 0
Loss on Disposed of Oil & Gas Properties 0 1,600 0 0
Provision for Impaired Assets 0 52,910 0 0
Issuance of Common Stock:
For Services Provided 2,191,597 1,868,265 3,747,066 317,814
For Litigation Settlement 0 492,000
Officers' Salaries Accrual 185,000 240,000 0 100,000
Changes in:
Accounts Receivable 16,078 51,369 (39,662) 15,419
Inventory 12,155 (4,640) 0 0
Prepaid Expenses 21,392 260,643 (122,682) 15,124
Deposits (1,805) (308) (308) (1,805)
Deferred Charges 0 0 (245,600) 0
Accounts Payable and Accrued Expenses (677,815) 608,541 (387,031) (552,191)
----------- ----------- ----------- -----------

Net Cash Provided (Required) by Operating Expenses 441,127 (422,680) (1,985,565) 601,917
----------- ----------- ----------- -----------

F-7

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

Year Ended Nine Months Ended
December 31, September 30,
2003 2002 2004 2003
------------ ------------ ------------ ------------

Cash Flows Provided (Required)
by Investing Activities:
(Increase) Decrease in Investments (98,629) 0 98,629 (98,629)
Acquisition of Property, Plant and Equipment (134,505) (353,820) (686,597) (98,360)
Proceeds From Disposal of Property, Plant
and Equipment 598,924 0 0 697,285
------------ ------------ ------------ ------------

Net Cash Provided (Required) by
Investing Activities 365,790 (353,820) (587,968) 500,296
------------ ------------ ------------ ------------

Cash Flows Provided (Required) by
Financing Activities
Proceeds From Issuances of Common Stock
Net of Subscriptions Receivable 1,050,000 100,000 4,088,317 50,000
Repayment of Notes and Loans Payable (302,924) (256,799) (100,000) (302,924)
Proceeds of Short-Term Loans 0 45,600 0 0
Proceeds of Loans From Related Parties 80,349 683,877 0 19,300
Repayment of Loans, Fees and
Accrued Salaries Due to Related Parties (933,554) 0 0 (848,597)
------------ ------------ ------------ ------------

Net Cash (Required) Provided by
Financing Activities (106,129) 572,578 3,988,317 (1,082,221)
------------ ------------ ------------ ------------

Net Increase (Decrease) in Cash 700,788 (203,822) 1,414,784 19,992

Cash at Beginning of Period 193,669 397,491 894,457 193,669
------------ ------------ ------------ ------------

Cash at End of Period $ 894,457 $ 193,669 $ 2,309,241 $ 213,661
============ ============ ============ ============

Supplemental Disclosure of Cash
Flow Information:
Cash Payments for Interest $ 38,773 $ 36,551 $ 22,011 $ 33,143
============ ============ ============ ============

Cash Payments for Income Taxes $ 0 $ 0 $ 0 $ 0
============ ============ ============ ============

Non-Cash Financing Activities:
Issuance of Common Stock:
Operating Activities $ 2,191,597 $ 1,868,265 $ 3,747,066 $ 317,814
Repayment of Loans 198,767 -- 75,000 198,767
Payment of Accounts Payable 62,500 508,000 38,311 62,500
Prepayment of Legal Fees -- -- -- 18,750
Payment of Accrued Salaries and
Directors Fees Due to Related Parties 866,157 -- -- 866,157
Repayment of Loans From Related Parties -- 738,620 -- --
Litigation Settlement -- 492,000 -- --
Acquisition of Property, Plant, Equipment,
and Goodwill for Note Payable -- -- 6,523,773 --
------------ ------------ ------------ ------------

Total Non-Cash Financing Activities $ 3,319,021 $ 3,306,885 $ 10,384,150 $ 1,463,988
============ ============ ============ ============

F-8

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

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.

Cash and Equivalents
--------------------

Cash and cash equivalents includes all cash balances and highly liquid
investments with a maturity of three months or less. During the normal
course of business, the Company may maintain cash balances at financial
institutions in excess of the FDIC limit of $100,000.

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 144 (SFAS No. 144),
"Accounting For The Impairment or Disposal of Long-Lived Assets",
requires that long-lived assets to be disposed of by sail be measured
at the lower of the carrying amount or fair value less cost to sell
whether rebated in continuing operations or in discontinued operations.
SFAS 144 also expands the reporting of discontinued operations to
include components of an entity that have been or will be disposed of
rather than limiting such discontinuance to a segment of a business.
The requirements of SFAS 144 is not expected to have a material impact
on the consolidated financial position or results of consolidated
operations.

F-10

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

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

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

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect for the years in which the
differences are expected to reverse. The temporary differences on these
financial statements related primarily to accrued officers salaries and
net operations loss carry/forwards. A valuation allowance is provided
for deferred tax assets if it is uncertain as to the future realization
of these benefits.

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.

Goodwill
--------

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

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

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

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

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

Property, plant and equipment are as follows at December 31:

2003 2002
---------- ----------
Pre-Construction Costs-
International Crossings to Mexico $ 133,308 $ 505,151
Equipment and
Leasehold Improvements 19,449 236,606
Pipelines 431,560 5,016,521
Processing Plant 166,410 166,410
---------- ----------
Total 750,727 5,924,688
Less Accumulated Depreciation 146,535 297,613
---------- ----------
Total $ 604,192 $5,627,075
========== ==========

Depreciation expense for the years ended December 31, 2003 and 2002 is
$43,006 and $67,712 respectively.

F-13

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.

F-14

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

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

Notes payable are as follows at December 31:

2003 2002
---------- ----------

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

Note Payable, Unsecured, 10% Interest,
Original Maturity Date of June 30, 2003,
Subsequently Amended to December 31, 2004 250,000 250,000

Note Payable, Unsecured, 6% Interest Payable
on Demand -- 37,000

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

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

325,000 826,691

Less: Current Maturing 325,000 826,691
---------- ----------

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

F-15

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

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

Income tax expense (benefit) has been computed by applying the United
States federal income tax rate of 34% to income. The Company is not
liable for state income taxes. At December 31, 2003, the Company had
net operating loss carryforwards of $9,778,847 and deductible temporary
difference of $336,164.

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

Net Operating Loss $ 9,778,847
Accrued Officers' Salaries (336,164)
-----------

Total 9,442,683
-----------

Deferred Tax Asset (34%) 3,210,512
Less: Valuation Allowance 3,210,512
-----------
Net Deferred Tax Asset $ 0
===========

Net operating loss carryforwards expire as follows:

Tax Year Amount
-------- ------------
2017 $ 256,136
2018 122,042
2019 641,595
2020 722,941
2021 2,431,560
2022 3,826,221
2023 1,778,352
------------
$ 9,778,847

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-16

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-17

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 year 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

Canceled 0 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-18

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-19

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. Accordingly, the Company's financial statements reflect that
position.

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-20

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-21

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-22

You should rely only on the information
contained in this document or to which we
have referred you. We have not authorized
anyone to provide you with information that
is different. This document may only be used
where it is legal to sell these securities.
The information in this document may only be
accurate on the date of this document. Common Stock

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

TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
PROSPECTUS SUMMARY
RISK FACTORS
USE OF PROCEEDS
MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
DIVIDENDS AND DIVIDEND POLICY _________________
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS PROSPECTUS
BUSINESS _________________
PROPERTIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS
PLAN OF DISTRIBUTION
DIRECTORS AND EXECUTIVE OFFICERS
PRINCIPAL SHAREHOLDERS
TRANSACTIONS WITH MANAGEMENT Dated December ___, 2004
AND OTHERS
LEGAL PROCEEDINGS
DESCRIPTION OF SECURITIES
LEGAL MATTERS
EXPERTS
AVAILABLE INFORMATION
INDEX TO FINANCIAL STATEMENTS
WHERE YOU CAN FIND MORE INFORMATION
EXHIBITS

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

Tidelands Oil & Gas Corporation

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

The Nevada Corporation Law and the Company's Certificate of
Incorporation and Bylaws authorize indemnification of a director, officer,
employee or agent of the Company against expenses incurred by him or her in
connection with any action, suit, or proceeding to which such person is named a
party by reason of having acted or served in such capacity, except for
liabilities arising from such person's own misconduct or negligence in
performance of duty. In addition, even a director, officer, employee or agent of
the Company who was found liable for misconduct or negligence in the performance
of duty may obtain such indemnification if, in view of all the circumstances in
the case, a court of competent jurisdiction determines such person is fairly and
reasonably entitled to indemnification. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.

Item 25. Other Expenses of Issuance and Distribution

SEC Registration Fee $ 3,389.00
Blue Sky Fees and Expenses $
Accounting Fees and Expenses $
Legal Fees and Expenses $
Miscellaneous $

Total $

Item 26. Recent Sales of Unregistered Securities

During the period the preceding three years we issued the following securities
in exempt transactions not requiring registration:

On December 31, 2001, the Company authorized for issuance to Guernsey J.V.
Partners 563,809 shares of restricted common stock to settle a contract dispute
at a value of $259,352.

On December 31, 2001, the Company authorized for issuance to Stanley Merdinger
250,000 shares of restricted common stock at a value of $118,000 as a additional
consideration for a $250,000 loan.

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

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

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

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

On May 30, 2002, the Company issued 173,913 shares to a company director as a
directors fee. The transaction was valued at $60,000.

On September 10, 2002, we entered into a Settlement and Release Agreement with
Swartz Private Equity, LLC. This Agreement settled the litigation between
Tidelands and Swartz. On September 16, 2002, we authorized the issuance and
issued 1,200,000 common shares to Swartz Private Equity, LLC in connection with

Swartz's cashless exercise of common stock warrants based on Rule 144(d)(3)(ii)
and (k). We had originally issued common stock warrants to Swartz based on the
Section 4(2), and, or Regulation D Rule 506 Securities Act transaction exemption
for its financing commitment on September 7, 2000. The warrants, among other
items, were the subject matter of the litigation. This transaction was valued at
$492,000.

On September 16, 2002, we authorized the issuance of 280,000 common shares for
conversion of a $56,000 promissory note obligation representing $50,000 of
accrued legal fees and $6,000 accrued interest expense. The shares were issued
pursuant to securities transaction exemption Section 3(a)9 of the Securities
Act.

On September 26, 2002, we issued 487,500 common shares to Stanley Merdinger for
consulting services valued at $69,225. The shares were issued pursuant to
securities transaction exemption Section 4(2) of the Securities Act.

On September 5, 2002, we authorized the issuance of 1,000,000 shares of our
common stock in connection with the ZG Gathering pipeline transaction. The
shares were issued to Aztec Energy Corporation (250,000), E.C. Partnership Ltd.
(100,000), Stephen R. West (50,000)shares, William B. Kingman (50,000) shares,
Shiloh Parterns (50,000) shares, and Betty Lou Sheerin (500,000). The company
has taken the position that these shares issued in the ZG Gathering transaction
were void and placed a stop transfer order with the stock transfer agent,
Signature Stock Transfer Co., Inc. (See Legal Proceedings and Note 12 to the
Financial Statements)

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

On February 4, 2003, we sold 200,000 common shares to S. Merdinger for $50,000.

On February 24, 2003, we authorized the issuance of 163,500 common shares to S.
Simon as bonus compensation for professional services valued at $15,697.

On March 31, 2003, we authorized the issuance of 600,000 common shares to S.
Merdinger for consulting services valued at $93,600.

On June 30, 2003, we issued 1,300,000 common shares as full payment for an
outstanding promissory note obligation to Guernsey Partners. The transaction
value was $198,767, representing unpaid principal. Unpaid interest was waived.
The shares were issued to nine individuals.

On September 2, 2003, we authorized the issuance of 13,200 common shares to Jim
Smith valued at $6,667. This represents his September salary.

On September 10, 2003, we issued 600,000 common shares to 34479 Yukon, Inc., for
consulting services valued at $62,400.

On September 12, we issued 500,000 common shares to C. Siddons for consulting
services valued at $52,000.

On September 22, 2003, we issued 300,000 common shares to Marcello Kochen for
consulting services valued at 31,200.

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 Zirilnikoff for
consulting services valued at $198,000.

On November 1, 2003, we issued 200,000 common shares to Marcello Kochan 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.

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 sold Carl Aller Etablissement, a private Danish
company, 581,395 common shares for $1,000,000.

On January 8, 2004, we authorized the issuance of 300,000 common shares to Carl
Hessel for services valued at $450,000.

On January 8, 2004, we authorized the issuance of 300,000 common shares to
Stanley Merdinger for services valued at $450,000.

On January 8, 2004, we authorized the issuance of 400,000 common shares to Milo
Resources for consulting services valued at $600,000.

On January 8, 2004, we authorized the issuance of 75,000 common shares to Jerome
Tannenbaum and Elizabeth Tannenbaum in payment of a $75,000 promissory note,
including $38,311 of accrued interest.

On January 23, 2004, we sold Carl Allers Etablissement 1,333,334 shares of our
common stock for $2,000,000 Dollars.

On January 28, 2004, we sold Margaux Group shares 2,389,889 for $2,083,333.

On April 12, 2004, we issued 500,000 shares of common stock to Impact
International, Inc. valued at $497,000 in a cashless exercise of their common
stock warrants.

On April 15, 2004, we issued 700,000 common shares to Majestic Holdings, LLC.
for consulting services valued at $728,000.

On April 15, 2004, we issued 450,000 common shares to New Age Group, LLC for
consulting services valued at $468,000.

On June 30, 2004, we issued 3,322 common shares to Carl Hessel for $ 4,983. Carl
Hessel is a member of our board of directors.

On July 2, 2004, we issued 500,000 shares of common stock to Impact
International, LLC. valued at $250,625 in a cashless exercise of their common
stock warrants.

On August 1, 2004, we issued 1,000,000 shares of common stock to L.L. Capital
Group, LLC pursuant to a Consulting Services Agreement. We also issued L.L.
Capital Group 500,000common stock warrants exercisable at $1.45 per share. The
warrants expire August 9, 2006. The transaction was valued at $383,750.

On September 14, 2004, the following individuals exercised common stock options:

Michael Ward, the Company's President and Director, exercised his
common stock option to purchase 500,000 common shares for $110,000
payable on a promissory note bearing interest at the rate of 5% payable
in full on, or before September 14, 2005. The shares are subject to a
security agreement.

Ahmed Karim, the Company's Vice President and Director, exercised his
common stock option to purchase 500,000 common shares for $110,000
payable on a promissory note bearing interest at the rate of 5% payable
in full on, or before September 14, 2005. The shares are subject to a
security agreement.

James Smith, the Company's Chief Financial Officer, exercised his
common stock option to purchase 500,000 common shares for $110,000
payable on a promissory note bearing interest at the rate of 5% payable
in full on, or before September 14, 2005. The shares are subject to a
security agreement.

Samuel Simon exercised his common stock option to purchase 500,000
common shares for $110,000 payable on a promissory note bearing
interest at the rate of 5% payable in full on, or before September 14,
2005. The shares are subject to a security agreement.

On September 14, 2004, we issued 500,000 shares of common stock to Michael Ward
as a stock grant under his employment agreement. The shares were valued at
$106,875.

On October 26, 2004, we issued ACH Securities, S.A. common stock warrants to
purchase One Million (1,000,000) Tidelands Oil & Gas common shares for Two
Dollars Fifty ($2.50) Cents per share.

On November 1, 2004, we issued James Blackwell, P.E. 574,712 Tidelands Oil & Gas
common shares in a stock purchase transaction where we acquired 500 shares of
Sonterra Energy Corporation. The transaction was valued at $120,689.

On October 1, 2004, we authorized the issuance to Impact International, LLC of
500,000 shares of common stock valued at $110,000 in a cashless exercise of
their common stock warrants.

On November 18, 2004, we entered into Securities Purchase Agreement with
Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, Monarch Pointe Fund,
LP, (collectively, "the Funds") and Mercator Advisory Group, LLC. ("Mercator").
We issued the Funds 7% Convertible Debentures in the aggregate principal amount
of $5,000,000. The Debentures mature May 18, 2006. We are required to pay
interest monthly. The aggregate monthly interest payment is $29,166.67. The
allocation of the debentures is as follows: (a) Mercator Momentum Fund, LP
acquired $1,270,000 7% Convertible Debentures; (b) Mercator Momentum Fund III,
LP acquired $875,000 7% Convertible Debentures; and (C)) Monarch Pointe Fund, LP
acquired $2,855,000 7% Convertible Debentures.

In connection with this financing we issued 6,578,948 common stock warrants
which expire November 18, 2007. We issued the warrants as follows:

We believe all of the above described common stock were issued in private
transactions pursuant to Regulation D Rule 506, Regulation S, and, or Section
4(2) of the Securities Act of 1933, as amended, and are deemed restricted
securities.

Item 27. Exhibits

Exhibit Description Location of Exhibit
------- ----------- -------------------

2.0 Amendment No. 2 to the Asset Purchase and Sale and between Incorporated by reference to
Sonterra Energy Corporation and Oneok Propane Distribution Exhibit 10.1
Company. 8-K filed November 15, 2004

2.1 Amendment No. 1 to the Asset Purchase and Sale and between
Sonterra Energy Corporation and Oneok Propane Distribution Incorporated by reference to
Company. Exhibit 10.2
8-K filed November 15, 2004
2.3 Asset Purchase and Sale Agreement by and between Sonterra Energy Incorporated by reference to
Corporation and Oneok Propane Distribution Company. Exhibit 10.3
8-K filed November 15, 2004
2.4 Purchase and Sale Agreement for Reef Ventures, L.P. by and Incorporated by reference
between Impact International, LLC ("Impact") and Coahuila Exhibit 10 to 8-K filed
Pipeline, LLC, ("Coahuila"), (jointly "Seller") and Tidelands June 25, 2004
Oil & Gas Corporation ("Tidelands") and Arrecefe
Management, LLC ("Arrecefe"), (jointly "Buyer") dated
May 25, 2004 with Exhibits.
2.5 Purchase and Sale Agreement for Reef Marketing, L.L.C. Incorporated by reference
and Reef International, L.L.C. by and between Tidelands Exhibit 10.1 to 8-K filed
Oil & Gas Corporation and Impact International, L.L.C. May 8, 2003
and Coahuila Pipeline, L.L.C. dated April 16, 2003.
2.6 Agreement of Limited Partnership of Reef Ventures, L.P. "
2.7 Stock Purchase Warrant Impact "
2.8 Registration Rights Agreement Impact "

3.0 Restated Articles of Incorporation of Tidelands Oil Included with this filing
& Gas Corporation., a Nevada corporation.
3.1 Restated Bylaws of Tidelands Oil & Gas Corporation. Included with this filing
4.0 7% Convertible Debenture Mercator Momentum Fund, LP Incorporated by reference to
Exhibit 10.2 to 8-K filed on
December 3, 2004
4.1 7% Convertible Debenture Mercator Momentum Fund III, LP Incorporated by reference to
Exhibit 10.3 to 8-K filed on
December 3, 2004
4.2 7% Convertible Debenture Monarch Pointe Fund, LP Incorporated by reference to
Exhibit 10.4 to 8-K filed on
December 3, 2004
5 Opinion of Wilson Law Offices Included with this filing
10.0 Employment Agreement with Michael Ward Included with this filing
10.1 Employment Agreement with James B. Smith Included with this filing
10.2 Employment Agreement with Robert Dowies Included with this filing
10.3 2003 Non-Qualified Stock Grant and Option Plan Incorporated by reference to
Form S-8 filed on June 11, 2003
10.4 Securities Purchase Agreement Incorporated by reference to
10.5 Warrant Margaux Included in this filing
10.6 Warrant Margaux Included in this filing
10.7 Amended Stock Purchase Warrant Impact International Incorporated by reference
Exhibit 10 to 8-K filed
June 25, 2004
10.8 Registration Rights Agreement with Mercator Group Incorporated by reference to
Exhibit 10.5 to 8-K filed on
December 3, 2004
10.9 Warrant to Purchase Common Stock Mercator Momentum Incorporated by reference to
Fund, LP. $0.87 Exhibit 10.6 to 8-K filed on
December 3, 2004

10.10 Warrant to Purchase Common Stock Mercator Momentum Incorporated by reference to
Fund, LP $0.80 Exhibit 10.7 to 8-K filed on
December 3, 2004
10.11 Warrant to Purchase Common Stock Mercator Momentum Incorporated by reference to
Fund, III, LP $0.87 Exhibit 10.8 to 8-K filed on
December 3, 2004
10.12 Warrant to Purchase Common Stock Mercator Momentum Incorporated by reference to
Fund III, LP $0.80 Exhibit 10.9 to 8-K filed on
December 3, 2004
10.13 Warrant to Purchase Common Stock Monarch Pointe Incorporated by reference to
Fund, LP $0.87 Exhibit 10.10 to 8-K filed on
December 3, 2004
10.14 Warrant to Purchase Common Stock Monarch Pointe Incorporated by reference to
Fund, LP $0.80 Exhibit 10.11 to 8-K filed on
December 3, 2004
10.15 Warrant to Purchase Common Stock Mercator Advisory Incorporated by reference to
Group, LLC. $0.87 Exhibit 10.12 to 8-K filed on
December 3, 2004
10.16 Warrant to Purchase Common Stock Mercator Advisory Incorporated by reference to
Group, LLC $0.80 Exhibit 10.13 to 8-K filed on
December 3, 2004
21 List of Subsidiaries Included with this filing
23.1 Consent of Wilson Law Offices Included in Exhibit 5
23.2 Consent of Independent Auditor Included with this filing
99 Code of Ethical Conduct Incorporated by reference to
Form 10-KSB filed May 12, 2003

Item 28. Undertakings

The undersigned registrant hereby undertakes to:

(1) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(2) File, during any period in which it offers or sells securities, a
post effective amendment to this registration statement to:

(i) Include any prospectus required by section 10(a)(3) of the
Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.

For determining liability under the Securities, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b) (1) or (4) or 497 (h)
under the Securities Act as part of this registration statement as of the time
the Commission declared it effective.

(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of San
Antonio, Texas on December 15, 2004.

Tidelands Oil & Gas Corporation

By: /s/ Michael Ward
-----------------------
Michael Ward, President

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and as of the dates indicated.

Signature Title Date

/s/ Michael Ward CEO, Director December 15, 2004
--------------------------------
Michael Ward

/s/ Carl Hessel Director December 15, 2004
--------------------------------
Carl Hessel

/s/ Ahmed Karim V.P./Director December 15, 2004
--------------------------------
Ahmed Karim