To the Shareholders of

Millstream Mines Ltd.

We have audited the Balance Sheet of Millstream Mines Ltd. as at August31, 1997 and August 31, 1996 and the Statements of Income and Deficit and Changes in Financial Position for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at August 31, 1997, and as at August 31, 1996 and the results of its operations and the changes in its financial position for the years then ended in accordance with generally accepted accounting principles.

The accompanying financial statements have been prepared on the basis of accounting principles applicable to a going concern which presumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business.

The Company is in the process of exploring its resource properties and has not yet determined whether the properties contain economically recoverable reserves. The recovery of the amounts shown for resource properties and the related deferred expenditures is dependent upon the existence of economically recoverable reserves, confirmation of the Company's interest in the underlying mining claims, the ability of the Company to obtain necessary financing to complete the development, and upon future profitable production and the support of the Company's trade creditors.

The financial statements do not give effect to any adjustments to the amount of assets and liabilities that might be necessary should the Company be unable to continue as a going concern arid therefore, be required to realize its assets and discharge its liabilities in other than the ordinary course of business,

Mining claims are carried at cost until they are brought into production at which time they are depleted on a unit-of-production basis.

Exploration expenditures relating to mining claims are deferred until the properties are brought into production at which time they are amortized on a unit-of-production basis.

The cost of claims abandoned or sold and the deferred exploration costs relating to claims abandoned or sold are charged to operations in the current year.

Administrative expenses are charged to operations in the year incurred.

The Company follows the successful efforts method of accounting for oil and gas interests whereby all costs relating to the acquisition, exploration and development of petroleum and natural gas reserves are capitalized until their economic status has been evaluated.

All costs of successful wells are amortized over their useful lives.

The Company holds a 6.25% interest in two producing wells in Canadian County, Oklahoma U.S.A. with royalty interests not exceeding 25%. The wells are recorded on the books of the Company at the nominal value of $1 each.

An officer and shareholder of the Company is also a shareholder of The Harrison Group of Companies.

These loans are non-interest bearing and due on demand.

During the year:

Options outstanding at August 31, 1997 are as follows:

Warrants outstanding at August 31.1997 are as follows: