UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10-KSB

Annual Report Under Section 13 or 15(d) of the  Securities  Exchange Act of 1934
[Fee Required]

                  For the fiscal year ended: December 31, 1999

                         Commission file number #1-13162


                              EMPIRIC ENERGY, INC.
                 (Name of small business issuer in its charter)

              Texas
 (State or other jurisdiction of                         75-2455467
  incorporation or organization)             (IRS Employer Identification No.)


   12750 Merit Drive, Suite 750
           Dallas, Texas                                    75251
 (Address of principal executive offices)                (Zip Code)


                                 (972) 387-4100
              (Registrant's telephone number, including area code)


         Securities registered under Section 12(b) of the Exchange Act:

  Title of each class on which registered                 Name of each exchange
       Common Stock ($.01 par value)                         Over the Counter


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     No  X
                                                              ---    ---

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not  contained in this form and no disclosure  will be contained,  to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. Yes  X  No
                                   ---    ---

As of April  7,  2000,  the  aggregate  market  value at  voting  stock  held by
non-affiliates,  computed by reference to the closing  price on the OTC Bullitin
Board, was $4,612,654.
As of April 7, 2000, the number of shares outstanding of the Registrants' common
stock was 9,132,102.

<PAGE>

                              EMPIRIC ENERGY, INC.

                              INDEX TO FORM 10-KSB


PART I.                                                                   PAGE #

  Item 1.   Description of Business.........................................1

  Item 2.   Description of Property.........................................2

  Item 3.   Legal Proceedings...............................................3

  Item 4.   Submission of Matters to a Vote of Security Holders.............3

PART II.

  Item 5.   Market for Common Equity and Related Stockholder Matters........4

  Item 6.   Management Discussion and Analysis of
               Financial Condition and Results of Operations................4

  Item 7.   Financial Statements............................................6

  Item 8.   Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure..........................6

PART III.

  Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act............7

  Item 10.  Executive Compensation..........................................8

  Item 11.  Security Ownership of Certain Beneficial Owners
               and Management...............................................9

  Item 12.  Certain Relationships and Related Transactions.................10

  Item 13.  Exhibits and Reports on Form 8-K...............................11

SIGNATURE PAGE.............................................................11


<PAGE>


                                     PART I.

ITEM I.    DESCRIPTION OF BUSINESS

Background - From Inception to Present
--------------------------------------

         The Company is an independent  oil and gas  exploration  and production
company with leasehold properties in the Hugoton Panhandle Field (the "Panhandle
Field"), Holmes County, Mississippi, Pennsylvania and South Texas.

         On March 21, 1996,  the Company signed an agreement with Westar Energy,
Inc.  ("Westar") to take part in a joint venture  drilling program to be drilled
in  "segments".  The number of wells to be drilled in each  "segment" were to be
mutually agreed upon between the parties.  The drilling program was accomplished
on leases owned by Westar in Indiana and  Westmoreland  Counties,  Pennsylvania.
Empiric received up to 55% working  interest in the eight wells,  seven of which
have been  successfully  completed  and were on production at December 31, 1999.
The Company  financed its portion of the drilling  and  completion  costs of the
first eight wells by obtaining  outside  investors and entered into an agreement
wherein  the Company  will retain 20% of the  revenues  and the  investors  will
receive 80% until the investors receive up to 117% of their investment, at which
time the revenues will be split 50/50 for the remaining  production  life of the
wells. The above formal agreement with Westar is no longer in effect.

         In April,  1998 the Company  acquired 16 producing wells and four newly
drilled wells located on  approximately  18,000 acres in Zavala  County,  Texas.
Initial  production rates and tests were very promising and the Company expected
to utilize a financial  commitment,  also received in April, to begin a drilling
program on the  remaining  acreage.  Unfortunately,  the  investor was unable to
fulfill his commitment and the drilling program did not materialize.  During the
year, rapid production  declines and falling prices required several wells to be
shut in until prices rebound and one well to be plugged and abandoned.

Offshore Well

         In April,  1999, the Company  participated with another  independent in
the drilling of an exploratory well on Vermilion Block 93/96, offshore Louisiana
in a water  depth of 18 ft.  The  prospect  was  developed  with the  latest 3-D
seismic  data and showed the  potential  for  substantial  gas reserves in three
separate  Miocene sands down to 8,400 ft. The Company  committed to and paid for
an estimated 10% of the geological,  seismic and drilling costs of the prospect.
The well was actually  drilled to a depth of  approximately  8,400 ft. The sands
were  encountered as projected.  Unfortunately,  the reservoirs  were not sealed
adequately  and the gas remaining in the sands was  non-commercial  and the well
was plugged and abandoned.

         The Company is also  actively  seeking the  acquisition  of  additional
producing  and  non-producing  oil  and  gas  leases  directly  or  through  the
acquisition of or business  combinations with all or a portion of energy-related
companies or properties. (See Planned Activities.)


                                        1

<PAGE>



ITEM 2.    DESCRIPTION OF PROPERTY

Oil and Gas Properties

         The  following  is a  description  of the  Company's  natural  resource
properties.  The  Company has no  agreement  for sales of oil and gas to foreign
governments or authorities.

         The  Company  has  interests  in oil and gas  leases  and  wells in the
Thornton (Smackover) Field located in Holmes County, Mississippi,  the Panhandle
Field of Texas,  primarily in Moore and Potter Counties,  and in Zavala and Frio
Counties, Texas, as well as in Indiana and Westmoreland Counties, Pennsylvania.

         HOLMES  COUNTY,  MISSISSIPPI.  The Company  acquired all of the working
interest of the Thomas E. Smith 9-2 Well No. 1 (the "Smith  Well"),  a producing
gas well in Mississippi. The Smith well is a gas well completed at 11,800 ft. in
the Smackover Formation in the Thornton Smackover Field.  Although not currently
producing,  the well produced gas and  condensate on a test run through a nearby
gas plant at rates up to 800 Mcf of gas and 30 Bbls of  condensate  per day. The
Company is not able to  accurately  predict  when it will  receive any cash flow
from the well but believes  production and cash flow will begin as soon as plans
are developed and placed into  operation to remove the 48 percent carbon dioxide
and the 3 percent  hydrogen-sulfide  which require  separation from the main gas
stream.  However,  there  is  no  assurance  that  this  processing  will  prove
economically feasible.

         PANHANDLE  FIELD AREA.  The  Panhandle  Field covers 19 counties in the
Texas and Oklahoma panhandles and in Western Kansas.

         In October 1997, the Company sold all its working  interest only in the
Baker lease of its West Texas Panhandle production properties (approximately 580
acres)  and  granted  a two  year  option  to sell  its  leasehold  interest  in
approximately   13,500   non-producing   acres   for  total   consideration   of
approximately $230,000. The option expired in October, 1999. The Company expects
to begin development of this property in the year 2000.

         PENNSYLVANIA PROPERTIES.  (See Westar Energy, Inc. above.)


         SOUTH TEXAS PROPERTIES. The Company owns interests, varying from 33% to
51%, in 12 producing wells in Zavala County,  Texas. The gas is gathered by Frio
Pipeline  Company and is sold into markets and  delivered  into the Houston Ship
Channel  area.  All  production  is shallow,  less than 3,000 feet and there are
additional locations on the properties available for drilling.

Planned Activities

         As described  elsewhere in this report,  the Company has developed many
contacts in the  industry and has been  presented  with many  opportunities  for
investments in acquisitions or combinations  with other companies and/or working
interest  participation in promising proved and undeveloped  acreage  prospects.
The Company is  negotiating  agreements  in  principal  to acquire  interests in
producing wells and leasehold  acreage with further  development  possibilities.
This program for  development,  expansion  and financial  growth  depends on the
Company's  obtaining adequate working capital although a substantial  portion of
the cost will be provided by the Company's equity securities.

                                        2

<PAGE>

Productive Well Summary

         The  following  table  sets forth  certain  information  regarding  the
Company's  ownership,  as of December 31, 1999, of productive wells in the areas
indicated.


                                                PRODUCTIVE WELLS
                           OIL             Gas                   Total
                      GROSS   Net     Gross     Net         Gross     Net
Texas
   Zavala County       4.0    1.6      8.0      3.9         12.0      5.5
Mississippi
   Smith (1)             0      0      1.0      1.0          1.0      1.0
Pennsylvania (2)         0      0      7.0      4.0          7.0      4.0

            Totals     4.0    1.6     16.0      8.9         20.0     10.5

(1) This well is currently  shut-in.  It is expected  that  production  will not
begin earlier than late 2000.
(2) Assumes  approximately  54% working  interest  remaining after all costs and
"back-ins".
Acreage

         The  following  table  sets forth  certain  information  regarding  the
Company's developed and undeveloped leasehold acreage as of December 31, 1998


                       DEVELOPED          Undeveloped             Total
                   GROSS       Net      Gross       Net      Gross       Net
South Texas          480       220     17,202     8,248     17,682     8,468
Richmond Acreage     -0-       -0-     21,535    13,211     21,535    13,211
Mississippi          320       320        -0-       -0-        320       320

         Total       800       540     38,737    21,459     39,537    21,999

NOTE:  Does not include  Pennsylvania  properties  in which Empiric owns working
interest in the well bores only.

ITEM 3.    LEGAL PROCEEDINGS

         The Company is involved in  litigation  in the  ordinary  course of its
business and operations.  The Company does not expect the outcome of any current
litigation  to have a material  impact on its  financial  position or results of
operations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters have been submitted to the vote of security  holders through
the date of this report.

                                        3

<PAGE>



                                    PART II.

ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The  Company's  Common  Stock and  Series A  Warrants  were  listed for
trading on the Boston Stock Exchange from October 24, 1994 to December 10, 1996,
at which time the securities were de-listed because of minimum unit prices being
bid on the Boston Stock  Exchange.  The Common  shares are now quoted on the OTC
Bulletin  Board  market.  The  following are the high and low bid prices for the
Company's  Common  Stock as reported by the NASDAQ OTC Bulletin  Board  (Symbol:
EMPE) for the  periods  indicated  in 1998,  1999 and the first  quarter of 2000
regarding the OTC market.


                                             High          Low            Close
                               VOLUME        Trade         Trade          Trade
1998
First Quarter                  477,600       0.7200        0.3400         0.6300
Second Quarter                 450,100       0.9400        0.5000         0.5000
Third Quarter                  285,000       0.5000        0.1700         0.1700
Fourth Quarter                 436,900       0.6900        0.1600         0.4500

1999
First Quarter                  128,000       0.5600        0.3800         0.3100
Second Quarter                 614,900       0.9375        0.2188         0.3125
Third Quarter                1,535,500       1.4375        0.2182         1.4375
Fourth Quarter                 884,700       1.6250        0.5312         0.9688

2000
First Quarter Thru 3/31/00     568,700       1.0625         .5938          .6084

         As of March 31,2000, there were approximately 606 record and beneficial
         holders of the Common Stock.

ITEM 6.    MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION AND
           RESULTS OF OPERATIONS


Comparison of 1999 to 1998

           The  following  schedule  sets  forth in summary  form the  financial
results of operations  of the Company for the years ended  December 31, 1998 and
1999.


      YEAR             REVENUES              PROFIT/LOSS             COMMENTS
      ----            ---------             ------------             --------
      1998            $ 201,102             $ (1,413,831)       See Note 1 below
      1999            $ 199,732             $   (967,710)

Note 1:  Includes  a special  non-cash  charge of  $716,401  to adjust the total
capitalized  value of oil and gas properties to the discounted  value of oil and
gas reserves at December 31, 1998 in accordance with reserve  evaluations.  This
adjustment  is required by the "full cost" method of  accounting as explained in
Notes of the Financial Statements.


                                        4

<PAGE>



         Revenues  of  $199,732  in 1999 were  $1,370 or 0.6% lower than  during
1998. The reduction was due to lower  production  even though average prices for
oil and gas were higher in 1999 than in 1998.

         Production  expense of $183,188 in 1999 was $97,763 or 114% higher than
1998.  The  increase  was due to  unforseen  repairs  to the  Smith  gas well in
Mississippi required to conform to Mississippi regulations.

         Depletion  and  depreciation  expenses of $163,207 were $12,017 or 6.9%
lower than 1998.  The  difference  was due  primarily to lower  depletion due to
lower  production  volumes  and higher  prices  used in the  preparation  of the
reserve reports in 1999 than 1998.

         There was no impairment  expense for 1999 compared to $716,401 in 1998.
The  difference is due to the higher oil and gas prices for 1999 that  prevented
any impairment of Company reserves.

         Bad debt expense of $24,244 was $8,213 or 25% lower than 1998. Bad debt
expense in 1999 was due a change in the sale of gas to a pipeline which has been
acquired by an unrelated third party  purchaser.  The  uncollected  revenue more
than 120 days old at December 31, 1999 was fully reserved.

         General  and  Administrative  expense of $784,344  was  $214,568 or 38%
higher than 1998.  The  difference  was primarily due to the expense  related to
stock  issued for public  relations  services  and a decision  to expense  major
portions of executive  salaries and  consulting  fees that were  capitalized  in
1998.

         Other  income of $64,130  was  $49,887 or 350%  higher  than 1998.  The
difference was due primarily to the Company collecting a note receivable in 1999
that had been previously reserved.

         Interest  expense of $76,589 was  $26,695 or 54% higher than 1998.  The
difference was due to a higher level of debt in 1999 than in 1998.

         As  noted  in  the  financial  statements,  the  Company  has  suffered
recurring losses from operations.  Future positive results are a function of the
Company's  ability to raise capital or utilize  securities to acquire  producing
properties or drill  developmental  wells in order to generate  profits.  In the
event the Company is not able to raise capital or acquire  properties,  there is
doubt about the Company's ability to continue as a going concern.

Liquidity

           Cash flows  provided an  increase of $61,854 for 1999  leaving a cash
balance of $62,575 at December 31, 1999.  Net cash used by operating  activities
was  $335,110  due  primarily  to the net loss of  $967,710,  offset by non cash
expenses and the increases in the accruals of current liabilities. Net cash used
by investing activities was $292,289 which was primarily for the purchase of oil
and gas properties.  Financing activities,  which included the net proceeds from
the  issuances  of long term debt and sales of common  stock,  provided  cash of
$689,253  which was used to  support  the  operating  and  investing  activities
described above.

            During the year 1999,  the Company  issued the following  securities
which were outstanding at the end of the year:

                                        5

<PAGE>


     1,420,674    Common Shares, par value $0.01


         299,490  Class 'D'  Warrants,  each allowing the purchase of one Common
                  Share at $1.50 until May 13, 2001

         200,000  Class 'E'  Warrants,  each allowing the purchase of one Common
                  Share at $2.00 until May 13, 2002.

         The Common  Shares  were  issued at prices from $0.37 to $1.06 and were
issued for cash, receivables, components of debt, services and interest. None of
the above securities were registered.

         As of December 31,  1999,  the Company had working  capital  deficit of
$718,218 and an equity-to- debt ratio of about  1.2-to-1.  The Company needs and
is  seeking  the  infusion  of  working   capital  for  expanded   drilling  and
developmental  programs,  for further  debt  reduction  and for  acquisition  of
production  properties to obtain  improved cash flow as set forth in the Planned
Activities section above.

Year 2000 Compliance

         The Company has not incurred any  significant  expense  related to Year
2000  compliance and  remediation.  Year 2000 compliance and remediation has not
had a  material  effect on the  financial  position,  cash  flows or  results of
operations  of the  Company.  There  can  be no  assurance,  however,  as to the
ultimate effect of the Year 2000 issue on the Company.

ITEM 7.    FINANCIAL STATEMENTS

         The following  financial  statements  are included as part of this Form
10-KSB following the signature page:

                                                                            Page

  Independent Auditors Report as of December 31, 1998 and 1999...............F-1
  Balance Sheet - December 31, 1999..........................................F-2
  Statements of Operations - Years ended December 31, 1999 and 1998..........F-3
  Statements of  Changes in Stockholder's Equity.............................F-4
  Statements of Cash Flow - Years ended December 31, 1999 and 1998...........F-5
  Notes to Financial Statements......................................F-6 to F-17


ITEM 8.    CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

         None.

                                        6

<PAGE>



                                    PART III.

ITEM 9.    DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND   CONTROL   PERSONS;
           COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         The Company has three executive officers and three directors,  James J.
Ling,  Chairman and Chief Executive Officer,  Renn Rothrock,  Jr., President and
Chief  Operating  Officer and Clyde E.  Skeen,  Secretary,  Treasurer  and Chief
Financial Officer.  Following is a brief summary of the business  background and
experience of Messrs.  Ling,  Rothrock and Skeen.  Robert L. Thomas  resigned as
Director of the Company in July, 1999 due to a potential conflict of interest.


                  James J. Ling,  age 77, is a co-founder of the Company and has
         been  Chairman  of the Board,  Chief  Executive  Officer and a Director
         since  inception  in  September,  1992.  Since 1985,  Mr. Ling has been
         President of Hill Investors,  Inc., a company organized to hold oil and
         gas investments  and to render  consulting  services.  Mr. Ling founded
         Ling   Electronics  in  1955  and  through  a  series  of  mergers  and
         acquisitions, which included Temco Aircraft Corporation, Chance Vought,
         Wilson & Co.,  Braniff  Airlines,  Jones & Laughlin,  and  National Car
         Rental,  guided the conglomerate,  LTV, to a position among the largest
         industrial  companies in the nation.  Mr. Ling  resigned his  positions
         with LTV in 1971 and disposed of all his stock in the Company.

                  R. Renn  Rothrock,  Jr.,  age 57,  has been  President  of the
         Company since December 1997. Mr.  Rothrock  served as President of both
         Hunter  Gas  Gathering,  Inc.  and Gruy  Petroleum  Management  Co. and
         Executive Vice President of Magnum Hunter Production, Inc. from January
         1994 to December  1997. He served as Executive Vice President and Chief
         Operating  Officer  of Gruy  from  May 1988  until  January  1994.  Mr.
         Rothrock  was  Executive  Vice  President  and General  Manager of Gruy
         Engineering  Corporation  from 1986  until May 1988.  Over his  33-year
         career,  Mr.  Rothrock  has also  served as a  reservoir  engineer  and
         operations  research  engineer  at Skelly  Oil  Company  and as an area
         engineer at Amerada Petroleum  Corporation;  the Engineering  Editor of
         Petroleum Engineer  International  Magazine;  Vice President and Energy
         Manager of the First National Bank of Mobile,  Alabama;  Executive Vice
         President of Energy Assets International  Corporation, a public company
         that  financed oil and gas  ventures;  and the producer and operator of
         his own gathering and  transportation  system. Mr. Rothrock earned a BS
         degree in Petroleum  Engineering  and an MS degree in Engineering  from
         the  University  of  Oklahoma.  He  is  a  member  of  the  Society  of
         Professional Engineers, the National Society of Professional Engineers,
         the National  Academy of Forensic  Engineers  and the Texas  Society of
         Professional  Engineers.  Mr.  Rothrock  is a  registered  Professional
         Engineer in Texas and Oklahoma.

                  Clyde E. Skeen, age 84, is a co-founder of the Company and has
         been a Director,  Secretary and Treasurer of the Company since November
         1992.  From January,  1987 to June,  1989, Mr. Skeen was Executive Vice
         President of Bell Textron, Inc. in charge of the V-22 Osprey Program of
         Bell Helicopter Company and Boeing Vertol Company.  From 1979 until his
         retirement in 1985,  Mr. Skeen was Senior Vice  President of The Boeing
         Company,  in charge of all government  business operations and a member
         of Boeing's senior management council. From 1985 to 1987, Mr. Skeen was
         a  full-time  consultant  to  Boeing  on a variety  of  government  and
         management  issues.  Mr.  Skeen  joined  Boeing in 1940 upon  earning a
         Bachelor's  Degree in Business  Administration  from  Pittsburgh  State
         College,  Kansas,  and  from  1949 to 1960  he held  various  corporate
         officer positions including Controller,  Vice President and Director of
         Program  Management for Boeing's space and  intercontinental  ballistic
         missile programs.  In 1960, Mr. Skeen joined Temco Aircraft Corporation
         as a Director,  Executive  Vice-President  and General  Manager and was
         instrumental in the formation of Ling-Temco-Vought, Inc. (LTV) in 1961.
         In 1964,  Mr.  Skeen was elected  President  of LTV, a position he held
         until his  resignation  in 1971.  Mr. Skeen is also  President of Clyde
         Skeen Business Consultants, Inc., a private business consulting firm, a
         majority of the stock of which is owned by Mr. Skeen.

                                        7

<PAGE>


ITEM 10.   EXECUTIVE COMPENSATION

         The following table sets forth the compensation  paid by the Company to
each of its  executive  officers  for  services  rendered  to the Company in all
capacities during the fiscal year ended December 31, 1997 and 1999.

                           SUMMARY COMPENSATION TABLE

NAME/POSITION          FISCAL YEAR   SALARY(1) (2) (3)   BONUS*    STOCK OPTIONS

James J Ling(1)           1998          $ 112,500         -0-         $ 121,000
                          1999          $ 120,000         -0-             -0-

Renn Rothrock, Jr.(2)     1998          $ 120,000      $ 20,000       $ 150,000
                          1999          $ 120,000      $ 20,000           -0-

Clyde E Skeen(3)          1998          $  42,000        -0-          $  40,000
                          1999          $  42,000        -0-              -0-

*See Employment Contract Summary.

(1) Mr. Ling does not receive compensation directly from the Company.  Under the
terms of a management  consulting agreement entered into between the Company and
Hill Investors,  Inc, Hill provides management consulting services for which the
Company paid Hill a monthly fee of $7,500 until April 1998 and $10,000 per month
until October 2001.

(2) Mr. Skeen does not receive  compensation  directly from the Company,  but is
paid through Clyde Skeen Business  Consultants,  Inc.,  which is paid $3,500 per
month by the Company.

(3) Because of the Company's working capital condition, neither Mr. Ling nor Mr.
Skeen have received full cash compensation  through their respective  associated
companies  for years  1998 and 1999.  They have  received  notes  payable  for a
portion of the consulting fees not paid in cash, which are or have been recorded
on the books of the Company.

         In the  opinion  of Mr.  Ling and Mr.  Skeen,  the fact  that  they are
compensated  through consulting  contracts rather than directly from the Company
has no adverse  effect on their duties and fiduciary  obligations to the Company
as officers and directors.  Both Mr. Ling and Mr. Skeen devote substantially all
of their time to the business of the Company and are not engaged in  significant
outside activities.

                                        8

<PAGE>



         Mr. R. Renn  Rothrock,  Jr. is employed under the term of an Employment
Agreement  effective  December  1,  1997 for a  period  of five  years  from the
original effective date. The term of the contract will automatically  extend for
an additional  period of five years from each full year  anniversary date unless
the Company  notifies Mr.  Rothrock to the contrary.  Mr. Rothrock may terminate
the contract at the third anniversary from the original effective date by giving
six months notice to the Company.

         The  employment  contract  provides  for a  minimum  annual  salary  of
$120,000 plus 50% of the fees billed to outsiders for Mr. Rothrock's  consulting
or expert witness  services.  Mr. Rothrock will also be entitled to a cash bonus
of up to 75% of  his  minimum  annual  salary  based  upon  his  performance  in
obtaining goals to be established yearly by the Compensation  Committee,  with a
minimum amount of $20,000.

         Mr.  Rothrock  was  granted  certain  fringe  benefits  including a car
allowance,  participation  in health,  dental and group life insurance plans and
will be reimbursed  for  reasonable  and  supportable  expenses  incurred in the
Company's interest.

1994 Stock Option Plan

         The Board of Directors of the Company,  on January 10, 1994,  adopted a
stock option plan (the "Plan") to provide for the grant of  non-qualified  stock
options to employees  and advisors of the Company.  A total of 1,950,000  shares
were authorized and reserved for issuance under the Plan,  subject to adjustment
to  reflect  changes  in the  Company's  capitalization  in the event of a stock
split, stock dividend or similar event. The Plan is administered by the Board of
Directors  who has the sole  authority to interpret  the Plan,  to determine the
persons to whom  options  will be granted,  the number of options  granted,  the
exercise  price,  duration and other terms of the options.  Stockholders  of the
Company approved the Plan on March 29, 1994.

         During 1999 the Board of Directors  authorized  an  additional  300,000
shares to be set aside for issuance  under the Plan  bringing to  2,250,000  the
total shares  authorized  for the Stock Option Plan.  No options were awarded in
1999.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth the number of shares of Common Stock held by
the principal Officers and Directors of the Company as of December 31, 1999:





   Name                    Shares Beneficially         % of Class
   ----                    ------ ------------         ----------
                                Owned
                                -----

James J. Ling(1)               861,105                     9.5%

Clyde E. Skeen(2)              385,750                     4.3%

Renn Rothrock, Jr.(3)          505,000                     5.6%



                                       9

<PAGE>


(1)  Includes  369,525  shares of Common  Stock  held by the  Dorothy  Ruth Ling
     Trust,  of which Mr. Ling is Trustee;  and,  486,580 shares of Common Stock
     held by Hill Investors,  Inc.,  owned by the DRL Trust of which Mr. Ling is
     President.

(2)  Clyde  Skeen  Business  Consultants,  Inc. is a  corporation,  of which the
     majority of the stock is owned by Mr. Skeen.

(3)  Includes 425,000 shares of Common Stock held by Susan J. Rothrock,  wife of
     Renn Rothrock, Jr.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Company entered into a three year management  consulting  agreement
with Hill  Investors,  Inc.  ("Hill") dated October 1, 1992 (renewed for another
three year period in October  1998),  whereby Hill  provides the services of Mr.
Ling as  Chairman  and Chief  Executive  Officer of the  Company  for which Hill
received  a  monthly  fee of  $7,500  until  April  1998 and  $10,000  per month
thereafter.  In the event of the death or disability of Mr. Ling during the term
of the agreement, the agreement shall automatically terminate or, in the case of
a reorganization of the Company during the term of the agreement,  the agreement
may be  terminated  at Mr.  Ling's  option.  Upon any such  termination  for the
foregoing  reasons such  payments s hall continue for a period of 36 months from
the date of such  termination.  Mr. Ling  presently  devotes the majority of his
working  time and efforts to the business and affairs of the Company and expects
to  continue  doing  so for the  foreseeable  future.  Under  the  terms  of the
agreement the Company is obligated to provide to Hill suitable office facilities
and to  reimburse  it for  expenses  incurred in  connection  with Hill's or Mr.
Ling's  services to the  Company,  including,  without  limitation,  the cost of
providing an automobile and health and life insurance for Mr. Ling.  Pursuant to
the agreement,  Hill is obligated to certain  covenants of  confidentiality  and
non-competition  and is  entitled to receive  the  benefits  of  indemnification
against  damages  and cost of defense of  litigation  or claims  resulting  from
certain acts in the course of performance of its or Mr. Ling's management duties
as provided for in the Company's  By-Laws.  This contract will  automatically be
extended for an additional period of three years from each full year anniversary
date unless the Company notifies Mr. Ling to the contrary.

         Hill is a Delaware  corporation  which currently owns 486,580 shares or
about 8 percent of the Company's  outstanding Common Stock. Mr. Ling is the sole
officer and director of Hill, and under existing SEC regulations, the beneficial
owner of 100 percent of its outstanding capital stock.

         On May 13, 1998, the R. Renn Rothrock Trust, a Trust for the benefit of
Dorothy Rothrock,  Trustee, Thomas Rothrock,  purchased a $50,000 three (3) year
note,  50,000  shares of Common  stock and  12,500  Series  "B"  Warrants  for a
consideration  of  approximately  $80,000  in cash and New York  Stock  Exchange
securities. Dorothy Rothrock is a stepmother and Thomas Rothrock is a brother to
Renn  Rothrock,  Jr.,  President of the Company.  Mr.  Rothrock,  Jr. is not the
beneficial owner of any of these securities.



                                       10

<PAGE>


ITEM 13.   EXHIBITS AND REPORTS ON FORM 8-K

         None

SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
hereunto duly authorized.


                               /s/  James J. Ling
                              -------------------------------------------
                                    James J. Ling
                                    Chairman and Chief Executive Officer


                               /s/  R. Renn Rothrock, Jr.
                              -------------------------------------------
                                    R. Renn Rothrock, Jr.
                                    President and Chief Operating Officer


                               /s/  Clyde E. Skeen
                              -------------------------------------------
                                    Clyde E. Skeen
                                    Secretary and Treasurer and
                                    Chief Financial Officer





                                       11

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT




Board of Directors and Stockholders
Empiric Energy, Inc.
Dallas, Texas

We have audited the  accompanying  balance sheet of Empiric  Energy,  Inc. as of
December  31,  1999,  and the  related  statements  of  operations,  changes  in
stockholders'  equity and cash flows for the years ended  December  31, 1999 and
1998.  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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Empiric  Energy,  Inc. as of
December 31, 1999,  and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, in conformity  with  generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has defaulted on several notes payable,  and future working capital requirements
are dependent on the Company's  ability to generate  profitable  operations,  to
restructure its financing  arrangements,  and to continue its present short-term
financing,  or obtain  alternative  funding.  These conditions raise substantial
doubt about the Company's  ability to continue as a going concern.  Management's
plans in  regard  to  these  matters  are  described  in Note 1.  The  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

The value of the Company's  oil and gas  properties  are primarily  supported by
non-producing petroleum reserves which will require significant capital costs to
realize. At December 31, 1999, the Company does not currently have the resources
required to realize these reserves.




HEIN + ASSOCIATES LLP

Dallas, Texas
March 31, 2000

                                       F-1

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                                  BALANCE SHEET

                                DECEMBER 31, 1999


                                     ASSETS
                                     ------

<S>                                                                              <C>
CURRENT ASSETS:
  Cash                                                                           $    62,575
  Oil and gas sales receivable, net of allowance for doubtful accounts
      of $24,244                                                                      45,047
                                                                                 -----------
                  Total current assets                                               107,622

PROPERTY AND EQUIPMENT:
  Oil and gas properties (full cost method):
      Unproved leasehold costs                                                       179,609
      Proved leasehold costs and well equipment                                    4,658,398
  Less accumulated depletion, depreciation and impairment                         (2,603,395)
                                                                                 -----------
                  Net property and equipment                                       2,234,612

OTHER FURNITURE AND EQUIPMENT, net of accumulated
    depreciation of $26,861                                                            7,649

DEPOSITS                                                                               3,281
                                                                                 -----------
                           Total assets                                          $ 2,353,164
                                                                                 ===========

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

CURRENT LIABILITIES:
  Current portion of long-term debt, including related parties                   $   371,602
  Accounts payable and accrued expenses                                              254,599
  Payroll taxes payable                                                               43,651
  Accrued interest payable, including related parties                                 29,486
  Oil and gas revenues payable                                                        11,962
  Due to related parties                                                             114,540
                                                                                 -----------
                  Total current liabilities                                          825,840

LONG -TERM DEBT, net of current portion, including related parties                   223,849

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY:
  Series A convertible preferred stock, no par value, $575,000 liquidation
      preference                                                                      43,168
  Common stock, $.01 par value, 20,000,000 shares authorized; 9,046,027 shares
      issued and outstanding                                                          90,461
  Common stock subscribed, 46,875 shares                                                 469
  Additional paid-in capital                                                       5,882,146
  Receivables                                                                        (99,061)
  Obligation to repurchase treasury stock                                            (11,875)
  Accumulated deficit                                                             (4,601,833)
                                                                                 -----------
CURRENT LIABILITIES:
                  Total stockholders' equity                                       1,303,475
                                                                                 -----------

                  Total liabilities and stockholders' equity                     $ 2,353,164
                                                                                 ===========

</TABLE>

             See accompanying notes to these financial statements.


                                       F-2

<PAGE>


                              EMPIRIC ENERGY, INC.

                            STATEMENTS OF OPERATIONS


                                            YEARS ENDED DECEMBER 31,
                                              1999           1998
                                          -----------    -----------
REVENUE -
   Oil and gas sales                      $   199,732    $   201,102

COSTS AND EXPENSES:
   Production expense                         183,188         85,425
   Depletion and depreciation                 163,207        175,224
   Impairment of oil and gas properties          --          716,401
   Bad debt expense                            24,244         32,457
   General and administrative                 784,344        569,776
                                          -----------    -----------
         Total costs and expenses           1,154,983      1,579,283

OTHER INCOME (EXPENSE):
   Other income                                64,130         14,243
   Interest expense                           (76,589)       (49,894)
                                          -----------    -----------
         Total other income (expense)         (12,459)       (35,651)
                                          -----------    -----------

NET LOSS                                  $  (967,710)   $(1,413,832)
                                          ===========    ===========

BASIC AND DILUTED LOSS PER SHARE          $     (0.12)   $     (0.21)
                                          ===========    ===========

WEIGHTED AVERAGE SHARES OUTSTANDING         8,318,679      6,855,574
                                          ===========    ===========



             See accompanying notes to these financial statements.

                                       F-3

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

            FOR THE PERIOD FROM JANUARY 1, 1998 TO DECEMBER 31, 1999



                                                       Common Stock            Common Stock Subscribed     Preferred     Additional
                                                --------------------------    -------------------------      Stock        Paid-In
                                                   Shares         Amount         Shares        Amount      Series A       Capital
                                                -----------    -----------    -----------   -----------   -----------   -----------
<S>                                             <C>            <C>            <C>           <C>           <C>           <C>
BALANCES, January 1, 1998                         5,859,776    $    58,598           --     $      --     $      --     $ 4,286,661

Agreement to repurchase treasury stock                 --             --             --            --            --            --

Equity instruments issued in the purchase of
  oil and gas properties                            992,577          9,926           --            --          39,414       314,149

Common stock issued for services                    243,000          2,430           --            --            --         114,715

Warrants and options issued for services               --             --             --            --            --          31,382

Equity instruments issued for debt or by
  purchase                                          300,000          3,000           --            --           3,754       128,277

Conversion of notes payable to common stock         230,000          2,300           --            --            --         112,700

Reclass of receivable to equity                        --             --             --            --            --            --

Net loss for year                                      --             --             --            --            --            --
                                                -----------    -----------    -----------   -----------   -----------   -----------

BALANCES, December 31, 1998                       7,625,353         76,254           --            --          43,168     4,987,884

Equity instruments issued in the purchase of
  oil and gas properties                             75,000            750           --            --            --          50,790

Cancellation of common stock issued for
  purchase of oil and gas properties                (61,500)          (615)          --            --            --            --

Common stock issued for services and interest       220,000          2,200           --            --            --         184,206

Common stock issued for cash                        943,100          9,431           --            --            --         444,368

Common stock issued for receivable                   50,000            500           --            --            --          24,500

Conversion of notes payable to common stock         194,074          1,941           --            --            --         140,867

Common stock subscribed                                --             --           46,875           469          --          49,531

Net loss for the year                                  --             --             --            --            --            --
                                                -----------    -----------    -----------   -----------   -----------   -----------

BALANCES, December 31, 1999                       9,046,027    $    90,461         46,875   $       469   $    43,168   $ 5,882,146
                                                ===========    ===========    ===========   ===========   ===========   ===========


                                                Obligation to
                                                 Repurchase                   Accumulated
                                               Treasury Stock  Receivables      Deficit        Total
                                                -----------    -----------    -----------   -----------

BALANCES, January 1, 1998                       $      --      $      --      $(2,220,291)  $ 2,124,968

Agreement to repurchase treasury stock              (11,875)          --             --         (11,875)

Equity instruments issued in the purchase of
  oil and gas properties                               --             --             --         363,489

Common stock issued for services                       --             --             --         117,145

Warrants and options issued for services               --             --             --          31,382

Equity instruments issued for debt or by
  purchase                                             --             --             --         135,031

Conversion of notes payable to common stock            --             --             --         115,000

Reclass of receivable to equity                        --          (74,061)          --         (74,061)

Net loss for year                                      --             --       (1,413,832)   (1,413,832)
                                                -----------    -----------    -----------   -----------

BALANCES, December 31, 1998                         (11,875)       (74,061)    (3,634,123)    1,387,247

Equity instruments issued in the purchase of
  oil and gas properties                               --             --             --          51,540

Cancellation of common stock issued for
  purchase of oil and gas properties                   --             --             --            (615)

Common stock issued for services and interest          --             --             --         186,406

Common stock issued for cash                           --             --             --         453,799

Common stock issued for receivable                     --          (25,000)          --            --

Conversion of notes payable to common stock            --             --             --         142,808

Common stock subscribed                                --             --             --          50,000

Net loss for the year                                  --             --         (967,710)     (967,710)
                                                -----------    -----------    -----------   -----------

BALANCES, December 31, 1999                     $   (11,875)   $   (99,061)   $(4,601,833)  $ 1,303,475
                                                ===========    ===========    ===========   ===========

</TABLE>

             See accompanying notes to these financial statements.

                                      F-4

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                            STATEMENTS OF CASH FLOWS


                                                                           YEARS ENDED DECEMBER 31,
                                                                              1999           1998
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                $  (967,710)   $(1,413,832)
  Adjustments to reconcile to net cash used by operating activities:
     Depletion, depreciation and impairment                                   163,207        891,625
     Bad debt expense                                                          24,244         32,457
     Common stock, warrants and  options issued for services                  186,406        148,527
     Changes in assets and liabilities:
         Accounts receivable                                                  (23,062)        16,996
         Other assets                                                            --           (1,205)
         Accounts payable and accrued expenses                                185,996         62,327
         Oil and gas revenues payable                                           3,000          8,962
         Due to related parties                                                92,809          3,750
         Other                                                                   --            3,748
                                                                          -----------    -----------
            Net cash used by operating activities                            (335,110)      (246,645)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of oil and gas properties                                        (288,598)      (349,995)
   Purchase of furniture and equipment                                         (3,691)       (10,626)
   Advances to Texoil                                                            --          (43,061)
                                                                          -----------    -----------
            Net cash used by investing activities                            (292,289)      (403,682)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term debt                                               325,066        537,960
   Repayments of long-term debt                                              (139,612)          (102)
   Proceeds from sales and subscription of common stock                       503,799         94,379
                                                                          -----------    -----------
            Net cash provided by financing activities                         689,253        632,237
                                                                          -----------    -----------
NET INCREASE (DECREASE) IN CASH                                                61,854        (18,090)
CASH, beginning of the year                                                       721         18,811
                                                                          -----------    -----------
CASH, end of the year                                                     $    62,575    $       721
                                                                          ===========    ===========
SUPPLEMENTAL INFORMATION -
   Cash paid during the year for interest                                 $    22,170    $    17,390
                                                                          ===========    ===========

NON-CASH INVESTING AND FINANCING ACTIVITY:
   Purchase of oil and gas properties with equity securities, including
      convertible notes payable                                           $    50,925    $   455,989
                                                                          ===========    ===========
   Obligation to repurchase treasury stock                                $      --      $    11,875
                                                                          ===========    ===========
   Conversion of notes payable to common stock                            $   142,808    $    26,930
                                                                          ===========    ===========
   Common stock issued for receivable                                     $    25,000    $      --
                                                                          ===========    ===========

</TABLE>

              See accompanying notes to these financial statements.

                                      F-5

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

     Organization and Nature of Operations
     -------------------------------------
     Empiric Energy, Inc. (the "Company") was incorporated under the laws of the
     state of  Delaware  in 1992.  The  Company is  engaged in the  acquisition,
     operation and development of oil and gas  properties,  which are located in
     Texas,  Mississippi  and  Pennsylvania as of December 31, 1999. The Company
     also has working  interests  in unproved  leasehold  acreage in Texas as of
     December 31, 1999.

     Continued Operations
     --------------------
     The accompanying  consolidated financial statements have been prepared on a
     going concern  basis,  which  contemplates  the  realization  of assets and
     liquidation of  liabilities  in the normal course of business.  The Company
     has suffered significant recurring losses from operations, has defaulted on
     several  notes  payable,   and  future  working  capital  requirements  are
     dependent on the Company's ability to generate  profitable  operations,  to
     restructure  its  financing  arrangements,  and  to  continue  its  present
     short-term  financing,  or obtain alternative  funding.  These issues raise
     substantial  doubt  about the  Company's  ability  to  continue  as a going
     concern.  Management is currently  attempting  to raise  capital  through a
     private  placement of equity securities or debt in order to complete one or
     more  acquisitions  of oil and gas  properties  in an  attempt  to  improve
     operating  results.  Additionally,  management is currently in  discussions
     with a third party to fund the  development  costs  required to realize the
     Company's proved non-producing reserves.

     Cash and Cash Equivalents
     -------------------------
     The Company considers all highly liquid debt instruments  purchased with an
     original maturity of three months or less to be cash equivalents.

     Oil and Gas Properties
     ----------------------
     The  Company  uses the full cost method of  accounting  for its oil and gas
     properties.  The Company's  properties  are all located in the  continental
     United States, and therefore, its costs are capitalized in one cost center.
     Under  the  full  cost  method,  all  costs  related  to  the  acquisition,
     exploration or development of oil and gas properties are  capitalized  into
     the  "full  cost  pool".   Such  costs   include  those  related  to  lease
     acquisitions,  drilling and  equipping  of  productive  and  non-productive
     wells, delay rentals,  geological and geophysical work and certain internal
     costs directly associated with the acquisition,  exploration or development
     of oil and gas  properties.  During the years ended  December  31, 1999 and
     1998, internal costs capitalized into the full cost pool were approximately
     $63,000 and $237,000, respectively. Upon the sale or disposition of oil and
     gas properties,  no gain or loss is recognized,  unless such adjustments of
     the full cost pool  would  significantly  alter  the  relationship  between
     capitalized  costs and proved  reserves.  Unproved  properties are assessed
     periodically for possible  impairment.  Any impaired amounts are charged to
     the full cost pool. The Company had no impaired  unproved  properties as of
     December 31, 1999.

     Under the full-cost  method of  accounting,  a "full-cost  ceiling test" is
     required  wherein net  capitalized  costs of oil and gas properties  cannot
     exceed the present  value of estimated  future net revenues from proved oil
     and gas reserves,  discounted at 10%, less any related  income tax effects.
     During the year ended December 31, 1998, the Company recorded impairment of
     the full cost pool in the amount of $716,401 based on the full-cost ceiling
     test.  There was no  impairment  recorded  for the year ended  December 31,
     1999.

     Depletion,  depreciation,  and  amortization  of oil and gas  properties is
     computed using the unit-of-production  method based on estimated proved oil
     and gas  reserves.  Depletion,  depreciation  and  amortization  expense of
     $158,817 and  $147,418  was recorded for the years ended  December 31, 1999
     and  1998,  respectively.  Depletion,  depreciation  and  amortization  per
     equivalent  mcf of natural  gas was  approximately  $1.13 and $1.35 for the
     years ended December 31, 1999 and 1998, respectively.


                                      F-6


<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


     Other Property
     --------------
     Other assets  classified as property and  equipment  are  primarily  office
     furniture and equipment and vehicles, and are carried at cost. Depreciation
     is provided  using the  straight-line  method over  estimated  useful lives
     ranging  from three to five years.  Gain or loss on  retirement  or sale or
     other  disposition  of  assets  is  included  in  income  in the  period of
     disposition.  Depreciation  expense for other  property and  equipment  was
     $4,390  and  $2,297  for the  years  ended  December  31,  1999  and  1998,
     respectively.

     Loss Per Share
     --------------
     Basic loss per share is computed  based on the weighted  average  number of
     shares of common  stock  outstanding  during the period.  Diluted  loss per
     share takes common stock  equivalents  (such as options and  warrants)  and
     convertible  securities  into  consideration.  As of December 31, 1999, the
     Company  had  convertible  notes  payable,   convertible  preferred  stock,
     outstanding  warrants for 542,490  shares of common  stock and  outstanding
     options for 1,170,000  shares of common stock which are not included in the
     dilutive calculation of loss per share as the effect would be antidilutive.

     Income Taxes
     ------------
     Income taxes are provided for the tax effects of  transactions  reported in
     the financial  statements and consist of taxes  currently due, if any, plus
     net deferred taxes related  primarily to  differences  between the bases of
     assets and liabilities for financial and income tax reporting. Deferred tax
     assets and  liabilities  represent  the future tax return  consequences  of
     those  differences,  which will  either be taxable or  deductible  when the
     assets and  liabilities  are  recovered  or  settled.  Deferred  tax assets
     include recognition of operating losses that are available to offset future
     taxable  income and tax credits that are  available to offset future income
     taxes. Valuation allowances are recognized to limit recognition of deferred
     tax  assets  where  appropriate.  Such  allowances  may  be  reversed  when
     circumstances  provide  evidence  that the  deferred  tax assets  will more
     likely than not be realized.

     Stock-Based Compensation
     ------------------------
     The Company applies Statement of Financial  Accounting Standards (SFAS) No.
     123 "Accounting for Stock- Based Compensation",  which requires recognition
     of the  value of stock  options  and  warrants  granted  based on an option
     pricing model.  However, as permitted by SFAS 123, the Company continues to
     account for stock  options and warrants  granted to directors and employees
     pursuant to Accounting  Principles  Board Opinion No. 25,  "Accounting  for
     Stock Issued to Employees", and related interpretations. See Note 7.

     Use of Estimates and Certain Significant Estimates
     --------------------------------------------------
     The  preparation of the Company's  financial  statements in conformity with
     generally accepted accounting  principles requires the Company's management
     to make estimates and assumptions that affect the amounts reported in these
     financial  statements and accompanying  notes.  Actual results could differ
     from those estimates. Significant assumptions are required in the valuation
     of proved oil and gas  reserves,  which as  described  above may affect the
     amount  at  which  oil and gas  properties  are  recorded.  It is at  least
     reasonably  possible those  estimates could be revised in the near term and
     those revisions could be material.


                                       F-7

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


2.   ACQUISITION AND DIPOSITION OF OIL AND GAS PROPERTIES
     ----------------------------------------------------

     In  April  1998,  the  Company  acquired  interests  in  certain  producing
     properties  in  Texas  and  unproved  leasehold  properties  in  Texas  and
     Louisiana for total consideration of approximately $456,000.  Consideration
     paid by the Company for the acquisition included common stock,  convertible
     notes payable,  convertible  preferred stock, 300,000 Series B warrants and
     200,000 Series C warrants.  The following  unaudited pro forma  information
     for 1998 is presented as if the interests in the property had been acquired
     as of Januar 1, 1998.

          Revenues                                        $      251,664
          Net income (loss)                               $   (1,421,007)
          Net income (loss) per share                     $           (0

     In October 1997, the Company sold its producing  properties on the Baker 39
     lease in the Texas  Panhandle for $220,000 in cash and granted an option to
     sell its leasehold  interest in approximately  13,500 acres for $540,000 of
     which the Company's net interest is approximately  $378,000. The balance of
     the  interest  has been  pledged to cover prior  indebtedness.  The Company
     received  $50,000  in cash  for the  option  which is  non-refundable.  The
     optionee  had the right to exercise  the option at any time before  October
     1999. This option was not exercised during 1999.

3.   RELATED PARTY TRANSACTIONS
     --------------------------

     Hill Investors, Inc., an affiliate of the chairman of th Company's board of
     directors,  has a  consulting  agreement  with the  Company  that calls for
     monthly  payments  of  $10,000  for  management  consulting  services.  The
     agreement expires in October 2001. During the years ended December 31, 1999
     and 1998, the Company incurred expense under this agreement of $120,000 and
     $112,500 respectively.

     Clyde Skeen Business Consultants, an affiliate of a member of the Company's
     board  of  directors  and an  officer  of  the  Company,  has a  consulting
     agreement  with the Company  that calls for monthly  payments of $3,500 for
     management consultant services.  The agreemen is on a month to month basis.
     During the years ended  December  31, 1999 and 1998,  the Company  incurred
     expense under this agreement of $42,000 in each year.

     At December  31,  1999,  the Company had a liability  to two members of its
     board of  directors of $102,168 for  unreimbursed  expenses and  management
     fees.

     At December 31, 1999, the Company had notes payable to members of its board
     of  directors  and  certain  family  members  for  $191,941  (net of $8,559
     discount) as described in Note 4.

4.   LONG-TERM DEBT
     --------------

     Long-term debt at December 31, 1999 consisted of the following:

          Third Party Notes Payable:
          -------------------------

          Unsecured note payable to a finance company,  interest  at
               10.0% monthly payments of interest with principal due
               at maturity in July 1998. This note is in default  as
               of December 31, 1999.                                  $  100,000

          Unsecured notes  payable to an individual, interest at 8%,
               monthly payments of  interest  with  principal due at
               maturity of July and September 2001.                      100,000


                                         F-8

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


          Unsecured  notes  payable  to  a  company, interest at 8%,
               monthly payments of  interest  with  principal due at
               maturity in  December  1998.  This note is in default
               as of December 31, 1999.                                   52,500

          Note  payable  to an individual, interest at 8%, quarterly
               payments of interest with principal due  at  maturity
               in February 2001. This note was collateralized by the
               potential  proceeds  from  the exercise of the option
               for the Panhandle property (Note 2).                       50,000

          Unsecured  note payable to a bank, interest at 7%, monthly
               payments of interest with  principal  due at maturity
               in March 2000.                                             40,000

          Unsecured  notes  payable  to individuals, interest at 8%,
               principal and interest due at  maturity of July 1999.
               These notes are in default as of December 31, 1999.        30,000

          Unsecured  note  payable to a finance company, interest at
               8%,principal and interest due on demand.                   30,000

          Unsecured  notes payable to an individual, interest at 8%,
               principal  and  interest  due at maturity in December
               1999.  This  note  was  not  paid  upon  maturity and
               subsequently defaulted in 2000.                            15,000

          Unsecured note payable to an individual, interest  at  8%,
               principal and interest due on demand.                      11,875

          Notes  payable  to a commercial lender, interest at 14.5%,
               monthly  payments  of  principal  and interest  until
               maturity   in   November   2001.  These   notes   are
               collateralized by computer equipment.                       5,307

          Related Parties Notes Payable:
          -----------------------------

          Notes  payable  to  family  members of the chairman of the
               board, interest at 8%, quarterly payments of interest
               with principal due at maturity in January 2001. These
               notes were  collateralized  by the potential proceeds
               from  the  exercise  of  the option for the Panhandle
               property (Note 2).                                         50,000

          Unsecured  note  payable  to a trust of a family member of
               the  president  of  the  Company,  interest  at   8%,
               quarterly payments of interest with principal due  at
               maturity in June 2003.                                     50,000

          Unsecured  note  payable  to  a  board member and officer,
               interest at 8%, quarterly  payments  of interest with
               principal due at maturity in December 1999. This note
               is convertible into common stock at $0.60 per share.       34,500

          Unsecured notes payable to an affiliate of the chairman of
               the  board,  interest  at  8%, quarterly  payments of
               interest  with  principal due at maturity in December
               1999 and July 1999.  Principal  amount  of $21,000 is
               convertible into common stock at $0.60. This note was
               in default as of December 31, 1999.                        31,000

          Unsecured notes payable to a family member of the chairman
               of the board, interest  at 8%, principal and interest
               due at maturity in January 2001.                           12,500

          Note  payable  to  a board member and officer, interest at
               8%, quarterly payments of interest with principal due
               at  maturity  in  January   2001.   This   note   was
               collateralized  by the  potential  proceeds  from the
               exercise of the option  for  the  Panhandle  property
               (Note 2).                                                  12,500

          Unsecured notes payable to a family member of the chairman
               of the board, interest at 8%,  principal and interest
               due at maturity of December 1999.  This note  was not
               repaid  upon  maturity  and subsequently defaulted in
               2000.                                                      10,000
                                                                       ---------

                                       F-9

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS



         Total notes payable                                635,182
         Discounts on notes payable (net of                 (39,731)
          accumulated amortization of $43,613)            ---------
         Net notes payable                                  595,451
         Less current portion                              (371,602)
                                                          ---------
                                                          $ 223,849
                                                          =========

     The discounts on notes payable  resulted  because certain notes included an
     agreement to issue shares of common stock along with the face amount of the
     related notes payable.  The discount represents the amount of cash received
     that was  allocated to  stockholders'  equity.  The discounts are amortized
     using the effective interest method over the terms of the related notes.

     Maturities  of long-term  debt based on  contractual  requirements  for the
     years ending December 31, 2000 through 2003 are as follows:

                        2000            $ 371,602
                        2001              213,580
                        2003               50,000
                                        ---------
                                        $ 635,182
                                        =========

5.   INCOME TAXES
     ------------

     The  Company's  deferred tax assets and  (liabilities)  are composed of the
     following at December 31, 1999:


      Deferred tax assets:
         Difference in bases of oil and gas properties           $  381,000
         Net operating loss carryforward                          2,415,000
         Other                                                        9,000
                                                                 ----------
      Total deferred tax asset before valuation allowance         2,805,000
      Valuation allowance                                        (2,805,000)
         Net asset                                               $    --
                                                                 ==========

     As of December 31, 1999, the Company has a net operating loss  carryforward
     for federal  income tax  purposes of  approximately  $6,700,000  which will
     expire from 2007 to 2019.

6.   STOCKHOLDERS' EQUITY
     --------------------

     During 1998,  the Company  issued Series A convertible  preferred  stock in
     connection  with the  acquisition  of oil and gas  properties and for cash.
     Series A preferred stock is denominated in face amounts rather than shares,
     has no par value, no interest rate, no dividend rate, no voting privileges,
     a liquidation  preference  equal to the face amount and is convertible into
     common  stock  at a rate of  $3.33  per  share of  common  stock.  There is
     $1,150,000 of face amount authorized for the Series A convertible preferred
     stock,  of which  $575,000  is  issued at  December  31,  1999.  Due to the
     features of the Series A convertible  preferred stock, the Company recorded
     its value  based on the fair  market  value of the  underlying  convertible
     shares of common stock at the time of issuance of $43,168.

     During 1998, the Company  entered into an agreement and a note payable with
     a former  employee  to  repurchase  the  common  stock  held by the  former
     employee for total consideration of $11,875. This amount is reflected as an
     obligation  to  repurchase  treasury  stock in the  accompanying  financial
     statements as of December 31, 1999.


                                      F-10

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS



     As of December  31, 1999,  the Company has a  receivable  of $74,061 from a
     related  entity located in Canada.  The Canadian  entity has no significant
     assets or operations other than its holding of approximately 130,000 shares
     of common stock of the Company.  Management  anticipates that the amount of
     the  receivable  will be used by the Company to purchase  the common  stock
     held by the  Canadian  entity  and the  common  stock  will be placed  into
     treasury during 2000.

     During 1998, the Company  designated two new series of warrants to purchase
     common  stock.  The Series B warrants  have an exercise  price of $2.50 per
     share of common  stock and expire  three years from the date of grant.  The
     Series C warrants have an exercise price of $3.00 per share of common stock
     and expire  four years from the date of grant.  As of  December  31,  1999,
     there are  28,000  and  15,000  warrants  outstanding  for the Series B and
     Series C warrants, respectively. There wer no Series B warrants or Series C
     warrants  exercised  during the year ended December 31, 1999.  During 1999,
     299,490  and  200,000 of the  Series B and Series C warrants  respectively,
     were canceled as described below.

     During May 1998,  the Company  granted  15,000 Series B warrants and 15,000
     Series C warrants to a consultant in exchange for services.  The fair value
     of these warrants, as determined by the Black-Scholes option pricing model,
     of $13,758 was  recorded as an expense  during the year ended  December 31,
     1998.

     During 1999, the Company  designated two new series of warrants to purchase
     common  stock.  The Series D warrants  have an exercise  price of $1.50 per
     share of common  stock and can be  exercised  until May 2001.  The Series E
     warrants  have an exercise  price of $2.00 pe share of common stock and can
     be exercised until May 2002.  These warrants may be called by the Company a
     $0.10 (Series D) and $0.15  (Series E) per warrant if the Company's  common
     stock  trades for $1.88  (Series D) and $2.50  (Series E) per share for ten
     consecutive days.

     During  1999,  299,490  and  200,000 of the Series B and Series C warrants,
     respectively,  issued on the  property  acquisition  in 1998 (Note 2), were
     canceled by the Company.  The warrant holders were given identical  amounts
     of  Series  D and  Series  E  warrants.  The  fair  value  of  the  warrant
     modification,  as determined by the Black-Scholes options pricing model, of
     $23,415 was  recorded to the full cost pool during the year ended  December
     31, 1999.

     During 1999,  the Company issued 140,000 shares of common stock in exchange
     for public  relations  services.  The fair market  value of those shares of
     $111,250  was  recorded as an expense  during the year ended  December  31,
     1999.

7.   STOCK BASED COMPENSATION
     ------------------------

     Stock Option Plans
     ------------------
     In  1994,  the  Company  established  a Stock  Option  Plan  to  compensate
     directors,  employees,  advisors and consultants. All options granted under
     the plan are  exercisable at $1.00 per share and expire five years from the
     date of grant.  The exercise price for all options  granted under this plan
     was subsequently repriced in March 1999 to $0.50 per share. At December 31,
     1999,  there are 1,080,000  stock options  reserved and available for grant
     under the plan.

                                      F-11

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


     In April 1998, the Company granted 25,000 stock options under the 1994 plan
     to a consultant in exchange for services.  The options are  exercisable  at
     $.50 per share until  expiration  in April 2003.  The fair market  value of
     these options, as determined by the Black-Scholes  option pricing model, of
     $17,624 was recorded as an expense during the year ended December 31, 1998.

     The  following is a summary of activity for the stock  options  granted for
     the years ended December 31, 1999 and 1998:




                                             DECEMBER 31, 1999             DECEMBER 31, 1998
                                        -------------------------     -------------------------
                                                        WEIGHTED                      WEIGHTED
                                                        AVERAGE                       AVERAGE
                                           NUMBER       EXERCISE         NUMBER       EXERCISE
                                         OF SHARES       PRICE         OF SHARES       PRICE
                                        -----------   -----------     -----------   -----------
<S>                                     <C>           <C>             <C>           <C>
     Outstanding, beginning of year       1,285,000   $      1.00         675,000   $      1.00
     Canceled or expired                   (115,000)  $      1.00         (30,000)  $      1.00
     Granted                                      -             -         640,000   $      1.00
     Exercised                                    -             -               -             -
     Repriced - previous                 (1,170,000)  $     (1.00)              -             -
     Repriced - new                       1,170,000   $      0.50               -             -
                                        -----------   -----------     -----------   -----------


     Outstanding, end of year             1,170,000   $      0.50       1,285,000   $      1.00
                                        ===========   ===========     ===========   ===========
     Exercisable, end of year             1,120,000   $      0.50       1,095,000   $      1.00
                                        ===========   ===========     ===========   ===========

</TABLE>

     If not previously exercised,  options outstanding at December 31, 1999 will
     expire as follows:


                                                                 Weighted
                                                                 Average
                                                   Number        Exercise
                                                 of Shares         Price
                                                -----------    ------------
                 December 31, 2001                  115,000    $       0.50
                 December 31, 2002                  415,000    $       0.50
                 December 31, 2003                  640,000    $       0.50
                                                -----------    ------------
                                     Total        1,170,000    $       0.50
                                                ===========    ============


                                      F-12

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS

     Presented below is a comparison of the weighted average exercise prices and
     fair values of the Company's  common stock on the measurement  date for the
     stock options granted during 1998. No options were granted in 1999.


                                                Number       Exercise       Fair
                                               of Shares      Price        Value
                                               ---------     --------     ------
     Exercise price greater than market price   640,000      $ 1.00       $ 0.42

     Pro Forma Stock-Based Compensation Disclosures
     As discussed in Note 1, the Company  applies APB Opinion No. 25 and related
     interpretations  in  accounting  for its  stock  options.  Accordingly,  no
     compensation  cost has been  recognized  for grants of options to employees
     since the  exercise  prices  were not lower than the  market  prices of the
     Company's  common stock on the measurement  dates.  Had  compensation  been
     determined  based on the estimated fair value at the measurement  dates for
     awards under those plans consistent with the method  prescribed by SFAS No.
     123, the Company's December 31, 1999 and 1998 income and earnings per share
     would have been changed to the pro forma amounts indicated below.


                                                   1999                1998
                                              ------------        ------------
          Net loss:
               As reported                    $   (891,710)       $ (1,413,832)
               Pro forma                      $   (961,710)       $ (1,800,586)
          Net loss per common share:
               As reported                    $      (0.11)       $      (0.21)
               Pro forma                      $      (0.12)       $      (0.26)

     The  estimated  fair value of each officer and director  option and warrant
     granted  during  fiscal year 1998 was  estimated on the date of grant using
     the Black-Scholes  option-pricing model with the following weighted average
     assumptions:


                                                             1998
                                                            ------
          Expected volatility                               153.2%
          Risk-free interest rate                             6.0%
          Expected dividends                                   -
          Expected terms (in years)                           5

8.   ENVIRONMENTAL ISSUES
     --------------------

     The Company is engaged in oil and gas  exploration  and  production and may
     become subject to certain liabilities as they relate to environmental clean
     up of well  sites or other  environmental  restoration  procedures  as they
     relate to the drilling of oil and gas wells and the operation  thereof.  In
     the Company's acquisition of existing or previously drilled well bores, the
     Company may not be aware of what environmental safeguards were taken at the
     time such wells were  drilled or during such time the wells were  operated.
     Should  it be  determined  that a  liability  exists  with  respect  to any
     environmental  clean  up or  restoration,  the  liability  to  cure  such a
     violation  could fall upon the Company.  No claim has been made, nor is the
     Company aware of any liability which the Company may have, as it relates to
     any  environmental  clean up,  restoration or the violation of any rules or
     regulations relating thereto.



                                      F-13

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


9.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

     The Company has an employment agreement with its president that calls for a
     minimum annual salary of $120,000 and expires in December 2002. In addition
     to the minimum  salary,  the  agreement  provides for a guaranteed  minimum
     annual bonus of $20,000.  The bonus could potentially be significantly more
     based  on the  Company  meeting  certain  goals  outlined  by its  board of
     directors.

     The Company has a  non-cancellable  sublease  for office  space.  The lease
     requires minimum monthly rental payments of $3,281 until expiration in July
     2000.

     The  Company  incurred  rent  expense of $41,680  and $45,959 for the years
     ended December 31, 1999 and 1998, respectively.

     The Company has guaranteed the value of 113,500 shares of common stock held
     by one  stockholder  to be  worth  at  least  the  amount  borrowed  by the
     stockholder  from a bank to purchase the shares plus any accrued  interest.
     At December 31, 1999, the amount guaranteed by the Company is approximately
     $75,000  and the  underlying  fair  market  value  of the  common  stock is
     approximately $110,000. If the stockholder decides to sell the common stock
     subject to the  guarantee,  the Company  would be required to reimburse the
     stockholder  for any  deficiency.  As of December 31, 1999, the stockholder
     has not sold any of the  common  stock  subject  to the  guarantee  and any
     potential  loss for the Company due to this guarantee is not accrued in the
     accompanying financial statements.

10.  FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
     --------------------------------------------------------------------

     The  Company's  financial  instruments  are cash,  amounts  receivable  and
     payable and long-term  debt.  Management  believes the fair values of these
     instruments,  with the exception of the  long-term  debt,  approximate  the
     carrying  values,   due  to  the  short-term  nature  of  the  instruments.
     Management  believes  the fair  value of  long-term  debt  also  reasonably
     approximates its carrying value,  based on expected cash flows and interest
     rates.

     Financial  instruments  that  subject the  Company to credit  risk  consist
     principally of receivables. The receivables are primarily from companies in
     the oil and gas business or from  individual oil and gas  investors.  These
     parties  are  primarily  located in the  Southwestern  region of the United
     States.  The Company does not ordinarily  require  collateral.  The Company
     believes  the  allowance  for  doubtful  accounts at  December  31, 1999 is
     adequate.

11.  SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
     -----------------------------------------------------------------------

     The following table sets forth certain  information with respect to the oil
     and gas producing activities of the Company:


                                                                           YEAR ENDED DECEMBER 31,
                                                                            1999           1998
                                                                           ----------   ----------
<S>                                                                        <C>          <C>
     Costs incurred in oil and gas producing activities:
          Acquisition of unproved properties                               $        -   $  151,905
          Exploration costs                                                   130,283        2,504
          Acquisition of proved properties                                     63,123      304,084
      Development costs                                                       146,117      347,491
                                                                           ----------   ----------

                  Total costs incurred                                     $  339,523   $  805,984
                                                                           ==========   ==========

     Net capitalized costs related to oil and gas producing activities:
          Unproved leasehold costs                                         $  179,609   $  179,609
          Proved leasehold costs                                            4,658,398    4,318,875
          Less accumulated depletion, depreciation and impairment          (2,603,395)  (2,444,578)
                                                                           ----------   ----------
                  Net oil and gas property costs                           $2,234,612   $2,053,906
                                                                           ==========   ==========

</TABLE>



                                      F-14

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


     The following  table for 1999 is based on  information  prepared by Company
     management  using  reserve  estimates  previously  prepared by  independent
     petroleum  engineers.  The table  for 1998 is  primarily  based on  reserve
     estimates prepared by independent  petroleum  engineers and supplemented by
     Company  management.  The tables summarize  changes in the estimates of the
     Company's net interest in total proved reserves of crude oil and condensate
     and natural gas, all of which are domestic reserves:


                                                       Oil               Gas
                                                     (Barrels)          (MCF)
                                                    ----------       ----------
     Balance, January 1, 1998                           91,722        2,968,650

          Purchase of minerals in place                 29,125          894,154
          Revisions of previous estimates              (30,639)      (1,902,562)
          Production                                      (410)        (125,695)
                                                    ----------       ----------
     Balance, December 31, 1998                         89,798        1,834,547

          Revisions of previous estimates                9,555          138,192
          Production                                    (1,139)        (133,204)
                                                    ----------       ----------
     Balance December 31, 1999                          98,214        1,839,535
                                                    ==========       ==========

     Proved developed reserves: (1)
          December 31, 1998                             70,423        1,720,115
                                                    ==========       ==========
          December 31, 1999                             78,349        1,478,366
                                                    ==========       ==========

     (1)  Approximately  71% of the reserves  classified as proved  developed at
     December 31, 1999 are non- producing.  The estimated capital costs required
     to bring the  reserves to  production  is  $450,000.  The Company  does not
     presently have the resources  required to bring the reserves to production.
     If it becomes  necessary for the Company to participate  with another party
     to bring the reserves to  production,  the ultimate  quantities of reserves
     the Company would realize would be lower than the amounts reported.

     Proved oil and gas  reserves  are the  estimated  quantities  of crude oil,
     condensate  and  natural  gas  which   geological  and   engineering   data
     demonstrate  with  reasonable  certainty to be  recoverable in future years
     from known  reservoirs  under existing  economic and operating  conditions.
     Proved  developed oil and gas reserves are reserves that can be expected to
     be recovered  through existing wells with existing  equipment and operating
     methods.  The above  estimated net  interests in proved  reserves are based
     upon  subjective   engineering   judgments  and  may  be  affected  by  the
     limitations inherent in such estimation. The process of estimating reserves
     is  subject  to  continual  revision  as  additional   information  becomes
     available  as  a  result  of  drilling,   testing,  reservoir  studies  and
     production history.  There can be no assurance that such estimates will not
     be materially revised in subsequent periods.


                                      F-15

<PAGE>

<TABLE>

<CAPTION>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


12.  STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
     -------------------------------------------------------------------

     The  standardized  measure of discounted  future net cash flows at December
     31,  1999 and 1998,  relating  to proved oil and gas  reserves is set forth
     below. The assumptions  used to compute the standardized  measure are those
     prescribed by the Financial Accounting Standards Board and, as such, do not
     necessarily  reflect the Company's  expectations  of actual  revenues to be
     derived  from those  reserves  nor their  present  worth.  The  limitations
     inherent in the reserve quantity  estimation process are equally applicable
     to the  standardized  measure  computations  since these  estimates are the
     basis for the valuation process.


                                                                 YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                    1999           1998
                                                                -----------    -----------
<S>                                                             <C>            <C>
     Future cash inflows                                        $ 5,888,000    $ 4,848,000
     Future development and production costs                     (1,832,000)    (2,069,000)
                                                                -----------    -----------

     Future net cash flows, before income tax                     4,056,000      2,779,000
     Future income taxes                                               --             --
                                                                -----------    -----------

     Future net cash flows                                        4,056,000      2,779,000
     10% annual discount                                         (1,230,000)      (905,000)
                                                                -----------    -----------

     Standardized measure of discounted future net cash flows   $ 2,826,000    $ 1,874,000
                                                                ===========    ===========

     Future net cash flows were computed  using year-end  prices and costs,  and
     year-end  statutory tax rates  (adjusted for  permanent  differences)  that
     relate to existing  proved oil and gas reserves at year end. The  following
     are  the  principal  sources  of  change  in the  standardized  measure  of
     discounted net cash flows:


                                                                  YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                    1999           1998
                                                                -----------    -----------

     Sales of oil and gas produced, net of production costs     $   (17,000)   $  (116,000)
     Purchase of minerals in place                                     --          931,000
     Net changes in prices and production costs                     601,000       (225,000)
     Revisions and other                                            181,000     (1,222,000)
     Accretion of discount                                          187,000        228,000
                                                                -----------    -----------
          Net change                                                952,000       (404,000)
     Balance, beginning of year                                   1,874,000      2,278,000
                                                                -----------    -----------
     Balance, end of year                                       $ 2,826,000    $ 1,874,000
                                                                ===========    ===========

</TABLE>


                                      F-16

<PAGE>


                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


13.  SUBSEQUENT EVENT
     ----------------

     The Company has entered into a Security  Exchange  Agreement  with Daedalus
     Building Systems,  Inc. that involves the exchange of $1,500,000 face value
     of Empiric convertible  preferred stock (convertible into 750,000 shares of
     Empiric common stock) and 750,000  Empiric  warrants to purchase a share of
     Empiric  common  stock for $2 for a period of three  years to  Daedalus  in
     exchange  for  1,500,000  common  shares of Daedalus  and 750,000  Daedalus
     warrants to purchase a share of Daedalus  common  stock for $2 for a period
     of three years. If the exchange agreement is consummated, management of the
     Company  plans to  distribute  the  majority of the  Daedalus  common stock
     shares received to its stockholders as a dividend.

     The exchange  agreement is contingent upon Daedalus receiving approval from
     the Securities and Exchange Commission for its registration statement filed
     in late  1999.  This has not  occurred  as of the date of the  accompanying
     audit report.



                                   **********










                                      F-17