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

                                   Form 10-QSB

|X|  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITITES
     EXCHANGE ACT OF 1934. For the quarter ended January 31, 2001

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




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

                                      Texas
                         (State or other jurisdiction of
                         incorporation or organization)

                                   76-0582614
                                (I.R.S. Employer
                               Identification No.)

                          11757 Katy Freeway, Suite 950
                              Houston, Texas 77079
                     (Address of principal executive office)

                                 (281) 589-2526
                           (Issuer's telephone number)



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by  Section  12, 13 or 15(d) of the  Exchange  Act after  distribution  of
securities under a plan confirmed by a court Yes |_| No |_|

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

At March 20, 2001 there were 30,322,786 shares of no par value common stock
outstanding.

Transitional Small Business Disclosure Format (Check one) Yes |_| No |X|

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





<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements

The unaudited financial  statements of the Company appearing at page F-1 through
F-11 hereof are incorporated by reference.

Item 2.     Management's Discussion and Analysis or Plan of Operation

On January 31, 2001, The Company had a working  capital  deficit of $ 5,116,049.
This is primarily due to net payables  assumed in the acquisition of oil and gas
properties, and the classification of the Company's secured debt as current. The
Company has begun to settle many of the assumed  payables for a  combination  of
cash and the Company's common stock.  Management believes that they will be able
to  continue  this.  On  November 4, 1998,  the  Company  entered  into an asset
acquisition  transaction  by which the Company  acquired the right,  title,  and
interest in certain  oil,  gas,  and mineral  leases and  working  interests  in
approximately fifteen producing oil and gas wells located in Oklahoma, Louisiana
and Texas. The transaction consisted of a purchase and sale agreement with Texas
Energy and  Environmental,  Inc. and Cougar Oil and Gas, Inc.  (collectively the
"Sellers").  In conjunction with the asset acquisition transaction,  the Company
executed an amended and restated  credit  agreement  with its lender whereby its
borrowing base was increased by $800,000.  On November 4, 1998, the Company drew
down the  additional  $800,000  and used the proceeds to repay the bank debt and
certain of the other liabilities  assumed in the asset acquisition  transaction.
In addition,  the Company borrowed $500,000 from a stockholder under a six-month
promissory note. Such note bears interest at 10% per annum and is subordinate to
the  Company's  credit  agreement.  The holder of the  promissory  note received
warrants to purchase  100,000  shares of the Company's  common stock at $.10 per
share.  Such warrants expire ten years from the date granted.  The holder of the
note is received  300,000  shares of the  Company's  common stock under  certain
provisions extending the term of the note.

Liquidity and Capital Resources

On October 19, 2000,  the Company sold 543,197  shares of common stock  together
with a warrant to purchase 543,197 shares of common stock at $0.50 per share and
an undivided 2.2% working  interest in two  nonproducing  oil and gas wells to a
private investor for a total  consideration of $100,000.00 in cash. The investor
is also  entitled to recoup his  investment  out of future  production  from the
wells,  if any. On October 19, 2000,  the closing  price of the common stock was
$0.24  per  share.  The  proceeds  of  this  transaction  will  be  used to fund
development of the Mustang Island Properties.

On October 27, 2000,  the Company sold 407,398  shares of common stock  together
with a warrant to purchase 407,398 shares of common stock at $0.50 per share and
an undivided 2.2% working  interest in two  nonproducing  oil and gas wells to a
private investor for a total  consideration of $100,000.00 in cash. The investor
is also  entitled to recoup his  investment  out of future  production  from the
wells,  if any. On October 27, 2000,  the closing  price of the common stock was
$0.155  per  share.  The  proceeds  of  this  transaction  will  be used to fund
development of the Mustang Island Properties.

Both of the transactions in October 2000 have be treated by the Company as loans
repayable out of production for accounting purposes. The stock issued was booked
at its fair  market  value and is being  treated as a loan cost to be  amortized
over the life of the loan.

                                      -1-


<PAGE>


On December 27, 2000,  the Company sold certain  interest in 5 wells  located in
McClain,  Oklahoma and  undivided 10% interest in 6 wells located on the Mustang
Island Property to Old Jersey Oil Ventures, LLC. for $1,000,000.00.  The brother
of the President of the Company is a principal in Old Jersey Oil Ventures,  LLC.
At the same time Old  Jersey  Oil  Ventures  LLC,  as holder of  $591,849.41  in
indebtedness  owed by the  Company,  agreed to exchange  such  indebtedness  for
3,945,663  shares of the  Company's  common stock.  This  represented a price of
$0.15 per share. On December 27, 2000, the closing price of the common stock was
$0.125. Old Jersey Oil Ventures, LLC also exercised warrants to purchase 400,000
shares of the  Company's  common stock at $0.10 per share.  All shares issued to
Old Jersey Oil Ventures,  LLC. were issued in a private transaction and may only
be transferred in a private  transaction or pursuant to an applicable  exemption
to the registration requirements. The Company is under no obligation to register
such shares. The proceeds of this transaction were used as follows:  $250,000.00
to make payments to general  creditors;  $300,000.00 to make a principal payment
to the lender under the  Company's  secured  indebtedness  as a condition to the
lender's  agreement to enter into the fifth  amendment  to the credit  agreement
described below;  $50,000 reserved for capital investment on properties owned by
the Company in St. Mary's Parish, Louisiana; and $400,000.00 reserved to pay the
costs of this  registration  and to pay  principal  and  interest  due under the
Company's credit agreement.

On December 27, 2000, the company entered into the Fifth Amendment to its credit
agreement.  As a result of that agreement,  the Company's  indebtedness has been
reduced to $3,369,595.81.  This indebtedness is payable in (a) three (3) monthly
installments  of $31,250.00  from January 15, 2001 through  March 15, 2001;  (b)
seven (7)  monthly  installments  of  $125,000.00  from April 15,  2001  through
October 15, 2001 and (c) a final  installment of $2,400,845.81  due November 15,
2001. No further  borrowings  are available.  All financial  covenants have been
removed.  As a part of this amendment,  the Company issued 3,000 shares of Class
A-1  Cumulative  Convertible  Preferred  Stock to its  lender  in  exchange  for
$3,000,000 in outstanding  indebtedness  and pledged its interest in the Mustang
Island Properties as additional collateral to the lender. Under the terms of the
preferred  stock,  the holder of such stock is required to convert the preferred
stock into  shares of common  stock  immediately  upon the  registration  of the
common stock.  Each share of preferred  stock converts into an number of Initial
Shares  equal to $1,000  worth of common stock at a price equal to the lesser of
(i) $0.50 per share or (ii) ninety  percent  (90%) of the Average  Market Price.
The Average Market Price is defined as the average of the highest bid and lowest
asked prices of the common stock over a period of twenty-one consecutive Trading
Days ending on the Trading Day immediately  prior to the date of conversion.  In
addition,  following  conversion,  the holder of each  preferred  share prior to
conversion will also be entitled to receive a number of Contingent  Shares equal
to one hundred ten percent (110%) of the Liquidation Value of such share divided
by the Average  Market Price on the first  anniversary  of the  Conversion  Date
minus the number of Initial Shares.  The Liquidation Value is an amount equal to
all declared and unpaid  dividends and  distributions,  in any, on the preferred
stock plus $1,000.  The Company is required to register the resale of the common
stock with the  Securities  and  Exchange  Commission.  On December 27, 2000 the
closing price of the Common Stock,  which is quoted on the  Electronic  Bulletin
Board under the symbol "VECT", was $0.125 per share.

For the past  twelve  months,  the  Company's  oil and gas  revenues  have  been
sufficient  to satisfy its oil and gas  operating  expenses and a portion of the
interest   payments.   The  Company's  general  and   administrative   expenses,
development  costs and the  remainder of the interest  payments have been funded
primarily  from the  proceeds  from the sale of  stock.  Pursuant  to the  Fifth
Amendment to the Credit Agreement,  the Company has escrowed  $400,000.00 to pay
the costs of this registration statement and principal and interest due pursuant
to the Fifth Amendment.  The Company  anticipates this amount will be sufficient

                                      -2-

<PAGE>


to pay all such amounts through March 2001. The company  anticipates  that wells
currently  being  brought  into  production  will  be  sufficient  to  meet  its
obligations after March 2001. However,  there can be no assurance that this will
occur. It may be that an additional  equity funding will be required to meet the
current needs of the Company.  Any inability of the Company to raise  additional
capital under such  circumstances  will limit the development of most of its oil
and  gas   properties  and  may  prevent  the  Company  from  meeting  its  cash
requirements.  In any event,  it will be necessary for the Company to obtain new
financing  prior to November 15, 2001. If the wells currently being brought into
production  perform as expected such  financing  should be  available;  however,
there is no assurance  that such financing will in fact be available or that the
wells  will,  in  fact,  perform  as  expected.  In the  absence  of  such  well
performance  or financing,  the company will not be able to meet the payment due
under its credit agreement on November 15, 2001.

The Company is currently negotiating with many of the vendors for which accounts
payable were assumed in the asset acquisition transactions,  and believes that a
significant  portion of these payables can be satisfied  through the issuance of
common stock. If the Company is unsuccessful in these  negotiations,  additional
equity  funding may be needed in order to comply with the terms of the revolving
credit note.

The Company is aggressively  seeking additional property  acquisitions with near
term revenue generating capability and future development potential. The Company
is currently  evaluating  several potential  acquisitions  which would utilize a
combination  of the  issuance  of its  equity  securities  and  additional  debt
financing.


                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings

The  Company is  involved  from time to time in  various  claims,  lawsuits  and
administrative  proceedings  incidental  to  its  business.  In the  opinion  of
management,  the  ultimate  liability  thereunder,  if  any,  will  not  have  a
materially adverse effect on the financial condition or results of operations of
the Company

Item 2.     Changes in Securities and Use of Proceeds

The  information  required by this item is  provided  in the Notes to  Financial
Statements  appearing at pages F-7 through F-11 hereof and are  incorporated  by
reference.

Item 3.     Defaults Upon Senior Securities

None

Item 4.     Submission of Matters to a Vote of Security Holders

None.

Item 5.     Other Information

None

Item 6.     Exhibits and Reports on Form 8-K

None

                                      -3-


<PAGE>



                                   SIGNATURES

In  accordance  with the Exchange Act, the  registrant  caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.


                                        VECTOR ENERGY CORPORATION
                                        (Registrant)


                                        By  /S/ Randal B. McDonald, Jr,
                                            ------------------------------------
                                            Randal B. McDonald, Jr.
                                            Chief Financial Officer
                                            Principal Financial and Accounting
                                            Officer

                                            Date: March 22, 2001


                                        By  /S/ Stephen F. Noser,
                                            ------------------------------------
                                            Stephen F. Noser
                                            President
                                            Principal Executive Officer

                                            Date: March 22, 2001



                                      -4-



<PAGE>





















                            Vector Energy Corporation

                              FINANCIAL STATEMENTS

                                January 31, 2001

                                   (Unaudited)
















                                      F-1



<PAGE>
















                                    CONTENTS



                                                              Page
                                                              ----

UNAUDITED CONSOLIDATED BALANCE SHEET                          F-3 to F-4

UNAUDITED CONSOLIDATED STATEMENT OF INCOME                    F-5

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS                F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    F-7 to F-11









                                      F-2


<PAGE>


                            Vector Energy Corporation
                           CONSOLIDATED BALANCE SHEET
                                January 31, 2001
                                   (Unaudited)






ASSETS

CURRENT ASSETS
  Cash                                                       $    956,207
  Revenue accounts receivable                                     517,527
  JIB accounts receivable                                         128,538
                                                             ------------
     Total current assets                                       1,602,272
                                                             ------------
PROVED OIL AND GAS PROPERTIES, USING THE
  FULL COST METHOD OF ACCOUNTING                               16,405,269


Less accumulated depreciation, depletion, amortization
  and impairment                                                  538,905
                                                             ------------
Net oil and gas properties                                     15,866,364
                                                             ------------
OTHER ASSETS
  Other property and equipment, less accumulated
    depreciation of $42,213                                        52,681
  Long term accounts receivable                                   197,235
  Deferred loan costs - net                                       132,015
  Other assets                                                      6,926
                                                             ------------
     Total other assets                                           388,857
                                                             ------------
                                                             $ 17,857,493
                                                             ============

    The accompanying notes are an integral part of the financial statements


                                      F-3

<PAGE>



                            Vector Energy Corporation
                           CONSOLIDATED BALANCE SHEET
                                JANUARY 31, 2001
                                   (Unaudited)



LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Line of Credit                                             $  3,338,346
  Notes payable                                                    90,083
  Production payments payable                                   1,250,000
  Accounts payable - trade                                        798,544
  Royalties payable                                               508,196
  Working interest revenues payable                               315,150
  Taxes payable                                                   143,840
  Advances from related party                                     152,992
  Accrued payroll                                                 106,883
  Accrued interest                                                 14,287
                                                             -------------
     Total current liabilities                                  6,718,321
                                                             -------------
STOCKHOLDERS' EQUITY
  Preferred stock class A-1, cumulative convertible;
    $1,000 par value per share, 3,000 shares authorized;
    issued and outstanding                                      3,000,000
  Preferred stock class B, noncumulative nonconvertible;
    $1 par value per share, 500,000 shares authorized;
    500,000 shares issued and outstanding                          50,000
  Preferred stock class C, 5% cumulative convertible;
    $100 par value per share, 10,000 shares authorized;
    no shares issued and outstanding                                 -
  Common stock, no par value; 100,000,000
    shares authorized; 30,219,215 shares issued and
    outstanding at January 31, 2001                             2,468,461
  Additional paid-in capital                                   18,324,239
  Retained earnings                                           (12,703,528)
                                                             -------------
     Total stockholders' equity                                11,139,172
                                                             -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 17,857,493
                                                             =============

    The accompanying notes are an integral part of the financial statements

                                      F-4


<PAGE>


                            Vector Energy Corporation
                        CONSOLIDATED STATEMENT OF INCOME
                                Nine Months Ended
                                January 31, 2001
                                   (Unaudited)





REVENUES

  Oil sales                                                  $     185,494
  Gas sales                                                      1,395,620
  Production byproducts                                             27,872
  Interest income                                                    1,857
                                                             --------------
      Total revenues                                             1,610,843
                                                             --------------
EXPENSES

  Production taxes                                                  56,262
  Lease operating expense                                          568,406
  Depletion of oil and gas properties                               92,343
  Interest expense                                                 527,112
  General and administrative expense                             1,911,841
                                                             --------------
      Total expenses                                             3,155,964
                                                             --------------
 NET LOSS                                                    $  (1,545,121)
                                                             ==============

 NET LOSS PER COMMON SHARE
   Basic                                                           $ (0.07)
                                                                   ========

 WEIGHTED AVERAGE NUMBER SHARES OUTSTANDING                     23,743,768
                                                             ==============


    The accompanying notes are an integral part of the financial statements

                                      F-5


<PAGE>


                            Vector Energy Corporation
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                Nine Months Ended
                                January 31, 2001
                                   (Unaudited)





CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                   $  ( 1,545,121)
  Adjustments to reconcile net loss to
    net cash used by operating activities:
      Depletion of oil and gas properties                            92,343
      Amortization expense                                          359,583
      Depreciation expense                                           15,189
      Stock issued for consulting fees                            1,057,670
      Increase in accounts receivable                              (251,834)
      Decrease in accounts payable                                 (134,912)
      Increase in royalties and revenues payable                    440,383
      Increase in other current liabilities                          61,799
                                                             ---------------
         Net cash provided by operating activities                   95,100
                                                             ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Sales of oil and gas properties                                    30,000
  Development Costs Incurred                                       (255,582)
  Purchase of fixed assets                                          (16,349)
                                                             ---------------
         Net cash used by investing activities                     (241,931)
                                                             ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Payment on Line of Credit                                        (391,250)
  Note repayments                                                   (98,398)
  Borrowings under notes payable                                     58,668
  Borrowings under production payments                            1,250,000
  Advances from related party                                         7,000
  Stock Sales                                                       171,000
                                                             ---------------
         Net cash provided by financing activities                  997,020
                                                             ---------------
NET INCREASE IN CASH
  AND CASH EQUIVALENTS                                              850,189

CASH AND CASH EQUIVALENTS,
  BEGINNING OF PERIOD                                               106,018
                                                             ---------------
CASH AND CASH EQUIVALENTS,
  END OF PERIOD                                              $      956,207
                                                             ===============


    The accompanying notes are an integral part of the financial statements

                                      F-6


<PAGE>


                            Vector Energy Corporation
              Notes to Unaudited Consolidated Financial Statements
                                January 31, 2001

Management's Representation of Interim Financial Information

The  accompanying  financial  statements  have been  prepared  by Vector  Energy
Corporation (The Company) without audit pursuant to the rules and regulations of
the  Securities  and  Exchange  Commission.  Certain  information  and  footnote
disclosure normally included in the financial  statements prepared in accordance
with generally accepted accounting  principles have been condensed or omitted as
allowed  by such  rules  and  regulations,  and  management  believes  that  the
disclosures are adequate to make the information presented not misleading. These
financial  statements  include all of the  adjustments  which, in the opinion of
management,  are  necessary to a fair  presentation  of  financial  position and
results of operations.  These financial statements should be read in conjunction
with the audited financial  statements included in the Company's Form 10-KSB, as
of April 30, 2000.

Business and Organization

Vector Energy  Corporation,  a Texas corporation  (together with its subsidiary,
Vector Exploration,  Inc.,  collectively,  "the Company") was formed on June 18,
1998 as a result of an  agreement  and plan of  reorganization.  The  Company is
primarily engaged in the acquisition, development, production and exploration of
oil and natural gas properties in the United States.

Summary of Significant Accounting Policies

Principles of Consolidation

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

Oil and Gas Properties

The  Company  follows  the full cost  method of  accounting  for its oil and gas
properties.  All costs associated with property  acquisition,  exploration,  and
development  activities are capitalized in a single,  United States cost center.
Internal  costs  directly  identified  with  the  acquisition,  exploration  and
development  activities of the Company are also  capitalized.  Capitalized costs
are amortized on the unit-of-production basis using proved oil and gas reserves.
Capitalized  costs are  limited to the  present  value of  estimated  future net
revenues  less  estimated  future  expenditures  using a discount  factor of ten
percent.  Sales  and  abandonments  of oil and gas  properties  are  treated  as
reductions of the capitalized cost pool. At January 31,2001, there were no costs
of unproved properties or major development projects included in the capitalized
cost pool.

Other Property and Equipment

Other  property  and  equipment  of the Company  consists  primarily of computer
equipment,  vehicles and  furniture  and fixtures,  which are  depreciated  over
estimated  useful lives,  ranging from three to seven years,  on a straight-line
basis.

Loss Per Share

Loss per share has been calculated  using the weighted  average number of shares
outstanding. Outstanding warrants and other potentially dilutive securities have
been excluded from the  calculation of loss per share,  as their effect would be
anti-dilutive.

                                      F-7

<PAGE>


                           Vector Energy Corporation
        Notes to Unaudited Consolidated Financial Statements (Continued)
                                January 31, 2001

Organizational Costs

Certain  organizational  costs incurred by the Company have been capitalized and
are being amortized over a sixty-month period.

Statement of Cash Flows

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with an original  maturity of three months or
less to be cash equivalents.

The following is a summary of all  significant  noncash  investing and financing
activities  and payments made for interest and income taxes for the period ended
January 31, 2001:

Noncash activities:
     Common stock issued for consulting fees                    $ 1,057,670
     Common stock issued for development of properties          $    58,329
     Common stock issued in settlement of accounts payable      $   281,764
     Common stock issued for oil and gas properties             $    38,047
     Common stock issued in settlement of notes payable         $   591,850
     Common stock issued for deferred loan costs                $   193,514
     Line of credit converted into preferred class A-1 stock    $ 3,000,000
Cash payments:
     Interest                                                   $   528,295

Acquisitions of Oil and Gas Properties

On May 8, 1998, the Company  acquired  various working and royalty  interests in
wells located in Texas,  Louisiana and Oklahoma. To effect the transaction,  the
Company issued 30,000 shares of class AA preferred stock,  valued at $3,000,000,
and 313,124 shares of common stock, valued at $939,372. In addition, the Company
assumed  $6,100,000  in bank  debt and  $511,465  in  accounts  payable,  net of
accounts receivable and cash acquired.  The Company has capitalized  $251,704 in
expenses  incurred  in  conjunction  with this  transaction.  Subsequently,  the
Company  issued  116,014  shares  of  common  stock,  valued  at  $163,065,  for
additional working interests in certain of the properties acquired.

On November 4, 1998, the Company  acquired  various  working  interests in wells
located in Louisiana, Texas and Oklahoma. To effect the transaction, the Company
issued  1,226,667 shares of common stock,  valued at $1,840,000,  and a $120,000
non-interest  bearing  note payable to the  sellers.  In  addition,  the Company
assumed $690,522 in bank debt and $600,954 in accounts payable.  The Company has
capitalized  $15,145 in expenses  incurred in conjunction with this transaction.
The  Company  was also  required  to expend a minimum  of  $500,000  in  capital
investment on the properties  acquired within nine months.  Because such capital
investment  was not made,  the sellers  were  entitled to receive an  additional
500,000 shares of common stock. Subsequently,  the Company exchanged the working
interests  acquired in certain  properties  in Texas and $30,000 for  additional
working interests in the properties acquired in Louisiana.

On March 7, 2000,  the  Company  closed a  purchase  and sale  agreement  with a
company,  which is a debtor in possession in a Chapter 11 Bankruptcy.  Under the
agreement, the Company acquired all of the Bankrupt Debtor's interest in a block
located in the Offshore Texas,  Mustang Island Area for 550,000 shares of common
stock  valued  at  $550,000.  In  accordance  with the  agreement,  the  Company
immediately  repurchased 16,667 shares of common stock at $3.00 per share, for a
total of $50,000. Under the terms of the agreement,  in the event that the daily
rate of production from the properties  acquired averages at least 5,000 Mcf per
day over a  complete  calendar  month the  seller  has the right to put  150,000
shares of common stock to the Company at $3.00 per share. If the seller fails to

                                      F-8

<PAGE>


                            Vector Energy Corporation
        Notes to Unaudited Consolidated Financial Statements (Continued)
                                January 31, 2001

exercise such right,  the Company has the right to call 150,000 shares of common
stock at $3.00 per share.  In  addition,  the Company may be required to issue a
maximum of 370,000  additional  shares of common  stock to the seller based upon
the required future development costs associated with the properties acquired

Line of Credit

The  Company  has a $10  million  revolving  credit  note with the  First  Union
National  Bank  which  terminates  on March 15,  2001.  Interest  on the note is
payable  monthly at a floating  rate which was 9.89% at January  31,  2001.  The
borrowing  base  under  the  note is  determined  periodically  based  upon  the
collateral  value  assigned  to  the  mortgaged  properties,  and  is  currently
$3,338,346.   The  borrowing  base  may  be  redetermined  at  the  Bank's  sole
discretion.  Principle  payments  were  scheduled  at  $125,000  per  month.  In
addition,  the note places certain  restrictions on the use of the revenues from
the mortgaged  properties.  The Company does not  anticipate  that the borrowing
base under the note can be increased without  incurring  development costs which
are significantly greater than those required under the terms of the note.

On December 27, 2000, the company entered into the Fifth Amendment to its credit
agreement. As a result of that agreement, the Company's note was been reduced by
$3,000,000.  The note,.  As amended is payable in three monthly  installments of
$31,250.   from  January  15,  2001  through  March  15,  2001;   seven  monthly
installments  of $125,000.  from April 15, 2001  through  October 15, 2001 and a
final installment of $2,400,846 due November 15, 2001. No further borrowings are
available.  All  financial  covenants  have  been  removed.  As a part  of  this
amendment,  the Company issued 3,000 shares of Class A-1 Cumulative  Convertible
Preferred  Stock  to its  lender  in  exchange  for  $3,000,000  in  outstanding
indebtedness  and pledged  its  interest in the  Mustang  Island  Properties  as
additional collateral to the lender. Under the terms of the preferred stock, the
holder of such stock is required to convert the  preferred  stock into shares of
common stock  immediately upon the registration of the common stock.  Each share
of preferred  stock  converts  into an number of Initial  Shares equal to $1,000
worth of common  stock at a price  equal to the lesser of (i) $0.50 per share or
(ii) ninety percent (90%) of the Average Market Price.  The Average Market Price
is defined as the  average of the  highest  bid and lowest  asked  prices of the
common stock over a period of twenty-one  consecutive Trading Days ending on the
Trading Day immediately prior to the date of conversion. In addition,  following
conversion,  the holder of each preferred share prior to conversion will also be
entitled  to receive a number of  Contingent  Shares  equal to one  hundred  ten
percent  (110%) of the  Liquidation  Value of such share  divided by the Average
Market Price on the first anniversary of the Conversion Date minus the number of
Initial  Shares.  The  Liquidation  Value is an amount equal to all declared and
unpaid dividends and distributions,  in any, on the preferred stock plus $1,000.
The  Company is required  to  register  the resale of the common  stock with the
Securities  and Exchange  Commission.  On December 27, 2000 the closing price of
the Common Stock,  which is quoted on the  Electronic  Bulletin  Board under the
symbol "VECT", was $0.125 per share.

Notes Payable

The Company was obligated under a 10%, unsecured  promissory note payable to the
brother of the  Company's  president.  In  conjunction  with the issuance of the
note, the Company  issued a warrant to purchase  100,000 shares of the Company's
common stock at $0.10 per share.  Such warrant  expires on October 30, 2008. The
note had an original  maturity date of April 30, 1998, which was extended by the
Company until October 30, 1999 by the issuance of 100,000 shares of common stock
to the holder.  Under the terms of the note,  the Company  issued an  additional
200,000  shares of common  stock to the  holder  due to its  failure  to pay the
balance due by the extended  maturity date. The balance of principal and accrued
interest at January 31, 2001, $500,000 and $91,850,  respectively, was exchanged
for 3,645,663 shares of the Company's common stock.

                                      F-9

<PAGE>

                           Vector Energy Corporation
        Notes to Unaudited Consolidated Financial Statements (Continued)
                                January 31, 2001

The Company is obligated under unsecured installment notes, which were issued to
various  vendors in  settlement  of  accounts  payable.  The  notes,  which bear
interest at rates ranging from 0% to 13.6%,  call for monthly payments  totaling
$10,650 at January 31, 2001. The outstanding  principal balances totaled $90,083
at January 31, 2001.

Stockholder's Equity

Preferred Stock

The Company has 20,000,000 authorized shares of preferred stock.

The  Company  is  authorized  to issue  3,000  shares  of Class  A-1  Cumulative
Convertible  Preferred  Stock (Class A-1 Preferred  Stock).  Class A-1 Preferred
Stock was issued for $1,000 per share and is entitled to receive cumulative cash
dividends  at the annual  rate of 8%  payable  annually  in  arrears  commencing
December 1, 2001 when and as declared by the Board of  Directors.  All shares of
Class A-1  Preferred  Stock  were  issued  to the  Company's  secured  lender on
December 27, 2000 as  consideration  for the reduction in the Company's  secured
indebtedness by $3,000,000.00  and remain  outstanding.  The Class A-1 Preferred
Stock will convert to common stock upon the effective date of this registration.
Each  share of Class  A-1  Preferred  Stock  will  convert  into  shares  of the
Company's  number of shares of common  stock equal to $100.00 per share plus all
accumulated and unpaid dividends (the "Liquidation Value") divided by the lesser
of $0.50 or 90% of the average of the highest bid and lowest asked prices of the
Common Stock over a period of twenty-one  consecutive Trading Days ending on the
Trading Day  immediately  prior to the date of conversion.  In addition,  on the
first  anniversary  of the  conversion,  each  holder may be entitled to receive
additional shares  ("Contingent  Shares") equal to 110% of the Liquidation Value
divided by the average of the highest bid and lowest  asked prices of the Common
Stock over a period of twenty-one consecutive Trading Days ending on the Trading
Day immediately prior to the first anniversary date of such conversion minus the
shares  received by such  holder  upon the  conversion.  If the  computation  of
Contingent  Shares results in a negative number then no Contingent  Shares shall
be issued.  Each share of Class A-1 Preferred Stock is entitled to cast a number
of votes equal to the number of shares of common  stock into which the Class A-1
Preferred Stock is convertible.

The Company is authorized to issue  500,000  shares of Class B Preferred  Stock,
par value $1.00 per share. Class B Preferred Stock is subordinate to Class AA 6%
Preferred  Stock in  priority,  both of which are senior to any and all  capital
stock.  The holders of Class B Preferred  Stock are not  entitled to receive any
dividends.  As of January 31, 2001 500,000 shares of the Class B Preferred Stock
were issued and outstanding. The Class B Preferred Stock is redeemable in whole,
but  not in  part,  at  the  option  of the  Corporation  by  resolution  of the
Corporation's  Board of Directors  at anytime at $1.00 per share.  Each share of
Class B  Preferred  Stock  has the  voting  rights  equal to 100  shares  of the
Company's  common stock.  The holders of Class B shares are entitled to elect at
least two directors to the Board of Directors of the Corporation. The holders of
Class B Preferred  Stock voting as a class will have the right to remove without
cause at any time and replace any director such holders have elected.

Stock Options and Warrants

In December  1998,  the Company  granted  options to certain  key  employees  to
purchase  500,000 shares of the Company's  common stock at the purchase price of
$1.00 per share.  These  options  were  exercisable  at anytime from May 1, 1999
until their expiration on May 1, 2007 and were non-transferable.  In March 2000,
the Company  granted  options to certain  key  employees  to purchase  1,242,000
shares of the Company's  common stock at the purchase  price of $0.50 per share.
These  options  were  exercisable  at anytime  from  April 1, 2000  until  their
expiration  on March 2,  2005 and were  non-transferable.  In August  2000,  all
options  previously  granted were forfeited and the Company  granted  options to
purchase 1,880,000 shares of The Company's common stock at the purchase price of
$0.23 per share.  These options may be exercised at any time from  September 25,
2000 until their  expiration  on August 25, 2005 and are  non-transferable.  The
options,  which were issued at a price equal to or exceeding the market value of

                                      F-10

<PAGE>

                           Vector Energy Corporation
        Notes to Unaudited Consolidated Financial Statements (Continued)
                                January 31, 2001

the  underlying  stock on the date of the grant,  are not intended to qualify as
incentive  stock  options under  Internal  Revenue Code Section 422. The Company
applied  Accounting  Principles  Board No. 25,  Accounting  for Stock  Issued to
Employees,  and related interpretations in accounting for options granted during
the years ended April 30, 2000 and 1999. In August 2000, the Company implemented
the  provisions  of  Statement  of  Financial   Accounting  Standards  No.  123,
Accounting  for Stock Based  Compensation  (SFAS No. 123) using a Black  Scholes
option  pricing  model.   Accordingly,   the  Company   recognized   $69,160  in
compensation  cost  during the nine  months  ended  January 31, 2001 for options
granted.  The table following  presents the assumptions  used in calculating the
fair value of the options  granted and the pro forma  effect on net loss for the
years  ended  April 30,  2000 and 1999 had the  provisions  of SFAS No. 123 been
implemented:

                                 2001            2000            1999
                                 ----            ----            ----
Assumptions Used:
   Expected Life (Years)           3               3               3
   Stock Volatility              285%             66%             47%
   Dividends                     None            None            None
   Risk Free Interest Rate       6.37%           6.75%           6.50%

Net Loss:
   As Reported                   N/A            $ (8,417,837)   $ (2,405,704)
   Pro Forma                     N/A            $ (8,579,327)   $ (2,595,704)

Also  outstanding  at January 31, 2001 are  warrants for the purchase of 400,000
shares of the Company's common stock at a purchase price of $0.10 per share. The
warrants expire in May and November of 2008.

                                      F-11