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, 2000

                         Commission file number #1-13162



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

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


      14677 Midway Road, Suite 207
             Addison, Texas                                 75001
(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 x   No
   ---    ---

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 March  29,  2001,  the  aggregate  market  value at voting  stock  held by
non-affiliates,  computed by reference to the closing  price on the OTC Bulletin
Board, was $1,325,734.

As of March 29,  2001,  the  number of shares  outstanding  of the  Registrants'
common stock was 13,767,888.

<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..................................................4

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

PART II.

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

  Item 6.   Management Discussion and Analysis of
               Financial Condition and Results of Operations...................5

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

  Item 8.   Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure.............................7

PART III.

  Item 9.   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16(a) of the Exchange Act...............8

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

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

  Item 12.  Certain Relationships and Related Transactions.....................9

  Item 13.  Exhibits and Reports on Form 8-K..................................10

SIGNATURE PAGE................................................................10





                                        i

<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"), Jefferson Davis Parish, Louisiana, 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, 2000.
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 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.  As of December 31, 2000,  there are
eight producing wells in Zavala County, Texas.

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.

Louisiana Acquisition
---------------------

(See ITEM 2.  DESCRIPTION  OF  PROPERTY  - Oil and Gas  Properties  -  Louisiana
Acquisition)


         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 South
Thornwell  Field  located in Jefferson  Davis Parish,  Louisiana,  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.

Louisiana Acquisition
---------------------

         SOUTH  THORNWELL  FIELD.  The  Company  has a  thirty  percent  working
interest  (30%  working  interest)  in the South  Thornwell  Field in  Jefferson
Parish,  Louisiana. The 30% working interest is an approximate 850 acres, out of
a 6,000 acre field.  The Thornwell  Field has produced  approximately 3 trillion
cubic feet of gas to date.  According to Shell Oil Company  interpretation of 3D
seismic, there remains in excess of 323 Bcf of gas located in five pay zones.

         The LDC Operating,  Inc.  lease (30% working  interest owned by Empiric
Energy, Inc.) includes the highest point of the structure which gives LDC access
to 60% of the remaining gas reserves.  This  represents a substantial  source of
production for Empiric's 30% working interest ownership in the field.

         LDC   Operating,   Inc.   believes   there  are  a   minimum   of  five
re-entry/workover  prospects,  of which Empiric has  successfully  completed the
workover  of the Lyons #A-1 well,  which  based upon the  initial  testing,  the
Company  believes the production to be  significant.  The completion of a second
well, the Lyons #A-2, has been delayed due to mechanical problems,  which should
be  resolved  in  April  2001.  Production  from  the  Lyons  #A-2  will  be  at
approximately 12,800 ft., with production results,  expected by management to be
similar to the Lyons #A-1 well. A third well site has been  prepared and work on
that well will commence within a few days after the completion of the Lyons #A-2
well. Empiric has prepaid its 30% working interest for the third well.

         LDC  Operating,   Inc.  believes  there  are  at  least  five  "offset"
locations,  with  potential  production at 15,000 feet,  ranging in the 20 to 25
MMcfpd,  with  reserves  of 25 to 40  Bcf.  This  estimate  is  based  on  wells
previously  drilled  and  completed  in that area.  Estimated  cost to drill and
complete these wells will be in the $4.0 to $7.0 million range.

         Empiric,  in  conjunction  with the operator and outside  participants,
intends to examine the  possibility  of drilling the most  promising  15,000 ft.
prospect  in the near  future.  Empiric is also  examining  the  possibility  of
acquiring additional leasehold acreage in that area.

         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 2001,  including a workover
program for approximately 10 wells.

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


                                        2

<PAGE>

         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.  A workover
program covering five wells will commence in the near future.

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.

Productive Well Summary
-----------------------

         The  following  table  sets forth  certain  information  regarding  the
Company's  ownership,  as of December 31, 2000, 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
Pennsylvania (1)                 0      0     7.0     4.0       7.0     4.0

                  Totals       4.0    1.6    15.0     7.9      19.0     9.5

(1) 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, 2000.


                               DEVELOPED      UNDEVELOPED          TOTAL
                             GROSS    NET    GROSS    NET     GROSS     NET
                            ------  ------  ------  ------   ------   ------
Louisiana                        0      0      850     255      850      255
South Texas                    480    220   17,202   8,248   17,692    8,468
Richmond Acreage               -0-    -0-   21,535  13,211   21,535   13,211

         Total                 480    220   39,587  21,714   40,127   21,394

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


                                        3

<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

         The Company is not involved in any litigation in the ordinary course of
its business and operations and is not aware of any upcoming litigations.

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.








                                        4

<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 1999,  2000 and the first  quarter of 2001
regarding the OTC market.


                                             HIGH        LOW        CLOSE
                                VOLUME       TRADE      TRADE       TRADE
                                ------      ------     ------      ------

      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             568,700     1.0625     0.5625      0.6094
      Second Quarter            697,100     0.9375     0.4062      0.4062
      Third Quarter             797,400     0.5312     0.2812      0.4219
      Fourth Quarter          1,653,500     1.3125     0.4062      1.0000

      2001
      First Quarter           1,165,200     1.0938     0.3125      0.5000

As of March 31, 2001, there were approximately 627 record and beneficial holders
of the Common Stock.

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

Comparison of 2000 to 1999

         The following schedule sets forth in summary form the financial results
of operations of the Company for the years ended December 31, 1999 and 2000.


     YEAR           REVENUES              NET LOSS
     ----          ---------           -------------
     1999          $ 199,732           $   (967,710)
     2000          $ 126,218           $ (2,045,423)

         Revenues  of  $126,218  in 2000 were  $73,514 or 37% lower than  during
1999. The reduction was due to lower production  volumes due to interruptions of
production  caused by an operator  and a pipeline  company  even though  average
prices for oil and gas were higher in 2000 than in 1999.

         Production  expense of  $117,367  in 2000 was $65,821 or 36% lower than
1999. The decrease was consistent with the decrease in revenues.


                                        5

<PAGE>

         Depletion and depreciation expenses of $173,468 in 2000 were $10,261 or
6.0% higher than 1999. The increase was due primarily to higher depletion due to
lower reserve volumes estimated at December 31, 2000.

         There was no impairment  expense for 1999 compared to $559,915 in 2000.
The  difference  is due to the lower  estimated  reserve  volumes  for 2000 that
created an impairment of the Company's full cost pool.

         There was no bad debt expense for 2000 compared to $24,244 in 1999. 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.

         There was no equity compensation  expense for 1999 compared to $690,000
in 2000.  In 1999,  the Company  modified the  exercise  price of its options to
purchase  common  stock which  changed  the nature of the options  from fixed to
variable.  Accounting for variable  options requires that an expense be recorded
based on the fair market value of the underlying  common stock at period end. At
December  31,  2000,  the quoted  trading  value of the  Company's  common stock
exceeded the modified exercise price of the options.

         General  and  Administrative  expense of $589,971  was  $194,373 or 25%
lower than 1999.  The  difference  was  primarily  due to the  Company  reducing
expenses and staff in 2000 due to limited funds.

         There was no other  income in 2000  compared  to $64,130  in 1999.  The
difference  was due  primarily  to the  Company  collecting  during  1999 a note
receivable that had been previously fully reserved.

         Interest  expense of $40,920  was  $35,669 or 46% lower than 1999.  The
difference was due to a lower level of debt in 2000 than in 1999.

         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 $153,591  for 2000  leaving a cash
balance of $216,166 at December 31, 2000. Net cash used by operating  activities
was $223,868 due  primarily  to the net loss of  $2,045,423,  offset by non cash
expenses and the increases in the accruals of current liabilities. Net cash used
by investing activities was $417,320 which was primarily for the purchase of oil
and gas properties.  Financing activities,  which included the net proceeds from
the sales of common stock,  provided cash of $794,779  which was used to support
the operating and investing activities described above.

         During the year 2000, the Company issued the following securities which
were outstanding at the end of the year:


               4,105,361 Common Shares, par value $0.01


                                        6

<PAGE>




                  25,000 Series 'B' Convertible Preferred Stock, par value $0.05

                  74,450 Series 'C' Convertible Preferred Stock, par value $0.05

                  50,000 Class 'D'  Warrants,  each allowing the purchase of one
                         Common share at $1.50 until May 13, 2001

                 250,000 Class 'F' Warrants,  each  allowing the purchase of one
                         Common share at $0.75 until April 2005

                  48,000 Redeemable  Class  'F'  Warrants,  each   allowing  the
                         purchase of one Common share at $2.50  until  September
                         2003

         The Common  Shares  were  issued at prices from $0.34 to $1.00 and were
issued  for cash,  oil and gas  properties,  components  of debt,  services  and
interest. None of the above securities were registered.

         As of December 31,  2000,  the Company had working  capital  deficit of
$68,391.  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.

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, 2000 and 1999...............F-1
  Balance Sheet - December 31, 2000..........................................F-2
  Statements of Operations - Years ended December 31, 2000 and 1999..........F-3
  Statements of  Changes in Stockholder's Equity.............................F-4
  Statements of Cash Flow - Years ended December 31, 2000 and 1999...........F-5
  Notes to Financial Statements......................................F-6 to F-14

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

         None.





                                        7

<PAGE>

                                    PART III.

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

         The Company has one  executive  officer  and  director,  James J. Ling,
Chairman, Chief Executive Officer and Acting Chief Financial Officer.  Following
is a brief summary of the business background and experience of Mr. Ling.

         James J. Ling,  age 78, 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.

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, 1999 and 2000.

                           SUMMARY COMPENSATION TABLE

                                                                  COMMON STOCK &
NAME/POSITION         FISCAL YEAR     SALARY(1)(2)     BONUS*     STOCK OPTIONS
-------------         -----------     ------------     ------     --------------
James J Ling(1)           1999         $ 120,000         -0-        $ 121,000
                          2000         $ 120,000         -0-            -0-

Renn Rothrock, Jr.        1999         $ 120,000      $ 20,000      $ 150,000
                          2000         $  53,284         -0-        $  25,000

*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) Because of the Company's working capital condition, Hill Investors, Inc. has
not received full cash compensation through his company for years 1999 and 2000.
The consulting companies, Hill Investors, Inc. has received a note 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, the fact that he is not compensated through
consulting contracts rather than directly from the Company has no adverse effect
on his duties  and  fiduciary  obligations  to the  Company  as an  officer  and
director.  Mr. Ling devotes substantially all of his time to the business of the
Company and is not engaged in significant outside activities.

         Mr. Renn  Rothrock,  Jr.  resigned as President  and Director to pursue
other opportunities.




                                        8

<PAGE>

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 or 2000.

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,
2000:


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

James J. Ling(1)                    861,105                              6.5%

(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.

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, 1998, whereby Hill provides
the services of Mr. Ling as Chairman and Chief Executive  Officer of the Company
for which Hill  receives a monthly fee of $10,000.  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.



                                        9

<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.



By:   /s/  James J. Ling                               Date: April 16 ,2001
     -------------------------------------                  ---------------
     James J. Ling
     Chairman, Chief Executive Officer and
     Acting Chief Financial Officer





                                       10

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



To the 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,  2000,  and the  related  statements  of  operations,  changes  in
stockholders'  equity and cash flows for the years ended  December  31, 2000 and
1999.  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, 2000,  and the results of its operations and its cash flows for the
years ended December 31, 2000 and 1999, 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
and future working capital  requirements are dependent on the Company's  ability
to generate  profitable  operations.  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.

A significant  portion of the  Company's oil and gas  properties at December 31,
2000 are unproved leasehold costs.




HEIN + ASSOCIATES LLP

Dallas, Texas
March 30, 2001






                                       F-1

<PAGE>
<TABLE>
<CAPTION>

                              EMPIRIC ENERGY, INC.

                                  BALANCE SHEET
                                DECEMBER 31, 2000

                                     ASSETS
                                     ------

<S>                                                                         <C>
CURRENT ASSETS:
 Cash                                                                       $   216,166
 Oil and gas sales receivable                                                    26,339
                                                                            -----------
             Total current assets                                               242,505

PROPERTY AND EQUIPMENT

 Oil and gas properties (full cost method):
   Unproved leasehold costs                                                   1,790,102
   Proved leasehold costs and well equipment                                  4,709,390
 Less accumulated depletion and impairment                                   (3,332,286)
                                                                            -----------
             Net property and equipment                                       3,167,206

OTHER FURNITURE AND EQUIPMENT, net of accumulated depreciation of $31,354         3,156

DEPOSITS                                                                          1,742
                                                                            -----------

                     Total assets                                           $ 3,414,609
                                                                            ===========

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

CURRENT LIABILITIES:
 Current portion of long-term debt                                          $   110,706
 Accounts payable and accrued expenses                                           37,024
 Payroll taxes payable                                                           69,491
 Oil and gas revenues payable                                                    27,155
 Due to related parties                                                          66,720
                                                                            -----------
                     Total current liabilities                                  311,096

LONG-TERM DEBT, net of current portion                                           13,024

COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)

STOCKHOLDERS' EQUITY:
   Series A convertible preferred stock, no par value,
       $575,000 liquidation preference                                           43,168
   Series B convertible preferred stock, $0.05 par value,
       375,000 shares authorized; 25,000 shares issued and
       outstanding; $200,000 liquidation preference                               1,250
   Series C convertible preferred stock, $0.05 par value,
       240,000 shares authorized; 74,450 shares issued and
       outstanding; $480,000 liquidation preference                               3,723
   Common stock, $.01 par value; 20,000,000 shares authorized;
       13,151,388 shares issued and outstanding                                 131,515
   Common stock subscribed, 37,500 shares                                           375
 Additional paid-in capital                                                   9,675,525
 Receivables                                                                    (74,061)
 Accumulated deficit                                                         (6,691,006)
                                                                            -----------
                     Total stockholders' equity                               3,090,489
                                                                            -----------
                     Total liabilities and stockholders' equity             $ 3,414,609
                                                                            ===========

</TABLE>

              See accompanying notes to these financial statements.


                                       F-2

<PAGE>

                              EMPIRIC ENERGY, INC.

                            STATEMENTS OF OPERATIONS


                                                YEARS ENDED DECEMBER 31,
                                                ------------------------
                                                   2000            1999
                                              ------------    ------------

REVENUE -
 Oil and gas sales                            $    126,218    $    199,732

COSTS AND EXPENSES:
 Production expense                                117,367         183,188
 Depletion and depreciation                        173,468         163,207
 Impairment of oil and gas properties              559,915            --
 Bad debt expense                                     --            24,244
 Equity compensation expense                       690,000            --
 General and administrative                        589,971         784,344
                                              ------------    ------------
          Total costs and expenses               2,130,721       1,154,983

OTHER INCOME (EXPENSE):
 Other income                                         --            64,130
 Interest expense                                  (40,920)        (76,589)
                                              ------------    ------------
          Total other income (expense)             (40,920)        (12,459)
                                              ------------    ------------

NET LOSS                                        (2,045,423)       (967,710)

DIVIDENDS APPLICABLE TO PREFERRED STOCK            (43,750)           --
                                              ------------    ------------


NET LOSS APPLICABLE TO COMMON STOCK           $ (2,089,173)   $   (967,710)
                                              ============    ============


BASIC AND DILUTED NET LOSS PER COMMON SHARE   $      (0.20)   $      (0.12)
                                              ============    ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING      10,353,000       8,319,000
                                              ============    ============




              See accompanying notes to these financial statements.

                                       F-3

<PAGE>
<TABLE>
<CAPTION>

                              EMPIRIC ENERGY, INC.

                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

          FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 2000




                                                                                            Common Stock
                                                               Common Stock                  Subscribed             Preferred
                                                          Shares         Amount         Shares        Amount          Stock
                                                       -----------    -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>            <C>            <C>

BALANCES, January 1, 1999                                7,625,353    $    76,254           --      $      --      $    43,168


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

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           --             --             --

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

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

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

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

Net loss                                                      --             --             --             --             --
                                                       -----------    -----------    -----------    -----------    -----------
BALANCES, December 31, 1999                              9,046,027         90,461         46,875            469         43,168

Issuance of common stock subscribed                         46,875            469        (46,875)          (469)          --

Common stock, preferred stock and warrants
   issued for cash                                         633,725          6,337           --             --            4,348

Common stock issued for services                           167,800          1,678           --             --             --

Common stock warrants issued for services
                                                              --             --             --             --             --

Change in value of variable stock options                     --             --             --             --             --

Common stock issued in the acquisition of oil and
   gas properties                                        1,617,000         16,170           --             --             --

Conversion of notes payable to common stock,
   preferred stock and warrants                          1,080,744         10,808           --             --              313

Conversion of accounts payable and due related
   party to common stock, preferred stock and
   warrants                                                459,217          4,592           --             --              312

Common stock dividend to Series B preferred
   stock shareholders                                      100,000          1,000           --             --             --

Common stock subscribed                                       --             --           37,500            375           --

Cash received for stock subscription receivable
                                                              --             --             --             --             --

Net loss                                                      --             --             --             --             --
                                                       -----------    -----------    -----------    -----------    -----------
BALANCES, December 31, 2000                             13,151,388    $   131,515         37,500    $       375    $    48,141
                                                       ===========    ===========    ===========    ===========    ===========

                                                                       Obligation
                                                                           to
                                                         Additional    Repurchase
                                                          Paid-In       Treasury                    Accumulated
                                                          Capital        Stock       Receivables      Deficit         Total
                                                        -----------   -----------    -----------    -----------    -----------


BALANCES, January 1, 1999                               $ 4,987,884   $   (11,875)   $   (74,061)   $(3,634,123)   $ 1,387,247


Equity instruments issued in the purchase of oil and
   gas properties                                            50,790          --             --           51,540

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

Common stock issued for services and interest
                                                            184,206          --             --             --          186,406

Common stock issued for cash                                444,368          --             --             --          453,799

Common stock issued for receivable                           24,500          --          (25,000)          --             --

Conversion of notes payable to common stock
                                                            140,867          --             --             --          142,808

Common stock subscribed                                      49,531          --             --             --           50,000

Net loss                                                       --            --             --         (967,710)      (967,710)
                                                        -----------   -----------    -----------    -----------    -----------
BALANCES, December 31, 1999                               5,882,146       (11,875)       (99,061)    (4,601,833)     1,303,475

Issuance of common stock subscribed                            --            --             --             --             --

Common stock, preferred stock and warrants
   issued for cash                                          706,824          --             --             --          717,509

Common stock issued for services                             87,583          --             --             --           89,261

Common stock warrants issued for services
                                                            115,000          --             --             --          115,000

Change in value of variable stock options                   690,000          --             --             --          690,000

Common stock issued in the acquisition of oil and
   gas properties                                         1,227,995          --             --             --        1,244,165

Conversion of notes payable to common stock,
   preferred stock and warrants                             551,724        11,875           --             --          574,720

Conversion of accounts payable and due related
   party to common stock, preferred stock and
   warrants                                                 296,878          --             --             --          301,782

Common stock dividend to Series B preferred
   stock shareholders                                        42,750          --             --          (43,750)          --

Common stock subscribed                                      74,625          --             --             --           75,000

Cash received for stock subscription receivable
                                                               --            --           25,000           --           25,000

Net loss                                                       --            --             --       (2,045,423)    (2,045,423)
                                                        -----------   -----------    -----------    -----------    -----------
BALANCES, December 31, 2000                             $ 9,675,525   $      --      $   (74,061)   $(6,691,006)   $ 3,090,489
                                                        ===========   ===========    ===========    ===========    ===========

</TABLE>

              See accompanying notes to these financial statements.

                                       F-4

<PAGE>
<TABLE>
<CAPTION>

                              EMPIRIC ENERGY, INC.

                            STATEMENTS OF CASH FLOWS


                                                                       YEARS ENDED DECEMBER 31,
                                                                       ------------------------
                                                                          2000           1999
                                                                      -----------    -----------
<S>                                                                   <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                             $(2,045,423)   $  (967,710)
 Adjustments to reconcile to net cash used by operating activities:
   Depletion, depreciation and impairment                                 733,383        163,207
   Bad debt expense                                                          --           24,244
   Common stock and warrants issued for services                          204,261        186,406
   Change in value of variable stock options                              690,000           --
   Changes in assets and liabilities:
    Accounts receivable                                                    18,708        (23,062)
    Accounts payable and accrued expenses                                  28,522        185,996
    Oil and gas revenues payable                                           15,193          3,000
    Due to related party                                                  129,949         92,809
    Other assets                                                            1,539           --
                                                                      -----------    -----------
                  Net cash used by operating activities                  (223,868)      (335,110)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of oil and gas properties                                    (417,320)      (288,598)

     Purchase of furniture and equipment                                     --           (3,691)
                                                                      -----------    -----------

                  Net cash used in investing activities                  (417,320)      (292,289)

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from long-term debt                                                --          325,066
 Repayments of long-term debt                                             (22,730)      (139,612)
 Proceeds from sales and subscription of stock                            817,509        503,799
                                                                      -----------    -----------
                  Net cash provided by financing activities               794,779        689,253
                                                                      -----------    -----------

NET CHANGE IN CASH                                                        153,591         61,854

CASH, beginning of the year                                                62,575            721
                                                                      -----------    -----------

CASH, end of the year                                                 $   216,166    $    62,575
                                                                      ===========    ===========

SUPPLEMENTAL INFORMATION -

 Cash paid during the year for interest                               $     1,668    $    22,170
                                                                      ===========    ===========

NON-CASH INVESTING AND FINANCING ACTIVITY:
   Purchase of oil and gas properties with equity securities          $ 1,244,165    $    50,925
                                                                      ===========    ===========
   Common stock issued for receivable                                 $      --      $    25,000
                                                                      ===========    ===========
 Conversion of accounts payable to notes payable                      $   125,729    $      --
                                                                      ===========    ===========
 Conversion of due to related party to equity                         $   177,769    $      --
                                                                      ===========    ===========
 Conversion of accounts payable to equity                             $   124,013    $      --
                                                                      ===========    ===========
   Conversion of notes payable to equity                              $   574,720    $   142,808
                                                                      ===========    ===========
 Common stock dividend issued to preferred stockholders               $    43,750    $      --
                                                                      ===========    ===========

</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,
     exploration and development of oil and gas properties, which are located in
     Texas and  Pennsylvania  as of December  31,  2000.  The  Company  also has
     working  interests in unproved  leasehold acreage in Texas and Louisiana as
     of December 31, 2000.

     Continued Operations
     --------------------
     The accompanying 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,  and future working capital
     requirements are dependent on the Company's ability to generate  profitable
     operations.  These  issues  raise  substantial  doubt  about the  Company's
     ability  to  continue  as  a  going  concern.   The  Company  is  currently
     participating  in the drilling of two exploratory  wells,  which management
     believes have the  potential to provide  positive cash flow to the Company.
     The Company may  participate in additional  wells in the program,  but will
     need to raise additional capital to do so.

     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, 2000 and
     1999, internal costs capitalized into the full cost pool were approximately
     $53,000 and $63,000, 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,  which are not
     subject to depletion,  are assessed  periodically for possible  impairment.
     Any impaired  amounts are transferred to the proved oil and gas properties.
     The Company had no impaired unproved properties as of December 31, 2000.

     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%, plus the cost of unproved  properties
     not subject to depletion,  less any related income tax effects.  During the
     year ended December 31, 2000, the Company  recorded  impairment of the full
     cost pool in the amount of $559,915  based on the  full-cost  ceiling test.
     There was no impairment recorded for the year ended December 31, 1999.

     Depletion  of  proved  oil  and  gas   properties  is  computed  using  the
     unit-of-production  method based on estimated  proved oil and gas reserves.
     Depletion expense of $168,976 and $158,817 was recorded for the years ended
     December 31, 2000 and 1999,  respectively.  Depletion per equivalent mcf of
     natural gas was approximately  $4.02 and $1.13 for the years ended December
     31, 2000 and 1999, respectively.

     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
     $4,492  and  $4,390  for the  years  ended  December  31,  2000  and  1999,
     respectively.


                                       F-6

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


     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 all  potentially  dilutive  common  shares  (such as  options,
     warrants and  convertible  securities)  into  consideration.  For the years
     ended December 31, 2000 and 1999, the Company's  potential  dilutive common
     shares totaling 2,673,000 and 1,885,000,  respectively, 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. Stock
     options or warrants that are re-priced  subsequent to December 15, 1998 are
     treated as variable stock options  beginning on July 1, 2000 as required by
     Interpretation  No.  44  of  the  Financial   Accounting  Standards  Board,
     "Accounting for Certain Transactions Involving Stock Compensation".

     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
     assessment of unproved oil and gas  properties  for  impairment  and 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.

2.  RELATED PARTY TRANSACTIONS
    --------------------------

     Hill  Investors,  Inc., an affiliate of the chairman of the 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, 2000
     and 1999, the Company incurred expense under this agreement of $120,000 per
     year.

     Clyde  Skeen  Business  Consultants,  an  affiliate  of a deceased  Company
     officer  and  member  of  the   Company's   board  of   directors,   had  a
     month-to-month  consulting agreement with the Company until September 2000.
     During the years ended  December  31, 2000 and 1999,  the Company  incurred
     expense under this agreement of $31,500 and $42,000, respectively.

     At December 31, 2000, the Company had liabilities to Hill  Investors,  Inc.
     and Clyde Skeen Business  Consultants that totaled $66,720 for unreimbursed
     expenses and management fees.

     During  2000,  the Company  converted  total  liabilities  of $392,848  due
     officers,  directors and family members of officers and directors to common
     stock of the Company.



                                       F-7

<PAGE>
<TABLE>
<CAPTION>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


3.   LONG TERM DEBT
     --------------

     Long-term debt at December 31, 2000 consisted of the following


<S>                                                                                          <C>
Note payable to a bank, interest at 7.25%, monthly payments of interest with principal due
    upon demand.  Note is collateralized by a $40,000 certificate of deposit  owned  by  a
    stockholder                                                                              $  40,000

Unsecured  note  payable to an individual, interest at 8.0%, principal and interest due at
    maturity of December 1999.  This note is in default at December 31. 2000                    15,000

Other unsecured notes payable, various terms and maturities through December 2002               68,730
                                                                                             ---------

Total notes payable                                                                            123,730
 Less current portion                                                                         (110,706)
                                                                                             ---------
                                                                                             $  13,024
                                                                                             =========

</TABLE>

Maturities of long-term  debt based on  contractual  requirements  for the years
ending December 31, 2001 and 2002 are as follows:


          2001                           $     110,706
          2002                                  13,024
                                         -------------
                                         $     123,730
                                         =============


4.   INCOME TAXES
     ------------

     The Company's deferred tax assets and (liabilities) are composed of the
following at December 31, 2000:


Deferred tax assets:
  Difference in bases of oil and gas properties                $     533,000
  Net operating loss carryforward                                  2,756,000
                                                               -------------
Total deferred tax asset before valuation allowance                3,289,000
Valuation allowance                                               (3,289,000)
                                                               -------------
  Net asset                                                    $        --
                                                               =============

  Net change in valuation allowance from December 31, 1999     $    (484,000)
                                                               =============

As of December 31, 2000, the Company has a net operating loss  carryforward  for
federal income tax purposes of  approximately  $7,655,000 which will expire from
2007 to 2020.



                                       F-8

<PAGE>


                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


5.   STOCKHOLDERS' EQUITY
     --------------------

     At December  31,  2000,  the Company has  $575,000  face amount of Series A
     preferred  stock  outstanding.  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. 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 in 1998 of $43,168.

     During 2000, the Company  designated  Series B and C convertible  preferred
     stock. Each series of convertible  preferred stock has a par value of $0.05
     per share, no interest rate, no voting privileges,  a one-time common stock
     dividend, a liquidation preference and is convertible into common stock.

     Series B  convertible  preferred  stock is entitled  to a one-time  minimum
     dividend  of two  shares  of  common  stock  for  each  share  of  Series B
     convertible preferred stock outstanding. A stock dividend of 100,000 shares
     of common  stock was issued in September  2000 to the Series B  convertible
     preferred  stockholders.  This dividend was recorded at the quoted  trading
     price  per  share  of the  common  stock  at the  date of the  transaction.
     Additionally,  Series B convertible  preferred  stock is  convertible  into
     common stock at a rate of $1.00 per share of common stock for each $1.00 of
     liquidation  value.  Series B convertible  preferred  stock is callable for
     conversion at the Company's option any time after the common stock dividend
     is paid or at the end of one year  which  will  range  from  June to August
     2001.  As of December 31, 2000,  the Company had 25,000  shares of Series B
     convertible  preferred stock  outstanding with a liquidation  preference of
     $200,000, convertible into 200,000 shares of common stock.

     Series C convertible  preferred stock is entitled to a one-time dividend of
     common  stock of an entity that the  Company  had  intended to enter into a
     stock  exchange  with  during  2000 or 2001.  This stock  exchange  has not
     occurred  and the  letter of intent  has  expired.  Additionally,  Series C
     convertible  preferred stock is convertible  into common stock at a rate of
     $2.00 per share of common stock for each $1.00 of liquidation value. Series
     C convertible  preferred  stock is callable for conversion at the Company's
     option any time after the common  stock  dividend  is paid or at the end of
     one year which will range from October to December 2001. As of December 31,
     2000, the Company had 74,450 shares of Series C convertible preferred stock
     outstanding  with a liquidation  preference of $480,000,  convertible  into
     240,000 shares of common stock.

     As of December  31, 2000,  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  1998,  the Company  designated  Series B and C 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,  2000,
     there are  27,500  and  15,000  warrants  outstanding  for the Series B and
     Series C warrants,  respectively. There were no Series B warrants or Series
     C warrants  exercised during the year ended December 31, 2000. During 1999,
     299,490  and  200,000 of the  Series B and Series C warrants  respectively,
     were canceled as described below.

     During  1999,  the Company  designated  Series D and E 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 per share of common stock and can
     be exercised until May 2002. These warrants may be called by the Company at
     $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.  As of December 31, 2000,  there are 349,990 and 200,000
     warrants outstanding for the Series D and Series E warrants,  respectively.
     There were no Series D warrants



                                       F-9

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


     or Series E warrants  exercised  during the year ended  December  31, 2000.
     During the year ended  December  31,  2000,  50,000  Class D warrants  were
     issued by the  Company  in  connection  with the  issuance  of the Series B
     convertible preferred stock.

     During  1999,  299,490  and  200,000 of the Series B and Series C warrants,
     respectively,  issued on a property  acquisition in 1998,  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 2000, the Company  designated two new series of warrants to purchase
     common  stock.  The Series F warrants  have an exercise  price of $0.75 per
     share of common stock and can be exercised until April 2005. The Redeemable
     Series F warrants have an exercise price of $2.50 per share of common stock
     and can be exercised until September 2003. The Redeemable Series F warrants
     may be called by the Company for $0.25 per warrant if the Company's  common
     stock trades for $3.13 per share for ten consecutive  days. During the year
     ended  December 31, 2000,  there were 250,000  Series F warrants  issued as
     described  below  and  48,000   Redeemable  Series  F  warrants  issued  in
     connection with the issuance of the Series C Convertible  Preferred  Stock.
     All of the Series F and  redeemable  Series F warrants were  outstanding at
     December 31, 2000.

     During 2000,  the Company  issued  250,000 Series F warrants to a financial
     consulting  company.  The fair value of the warrants as  determined  by the
     Black-Scholes  option  pricing model of $115,000 was recorded as an expense
     during the year ended December 31, 2000.

     During 2000,  the Company issued 167,800 shares of common stock in exchange
     for services that were recorded as expense for the year ended  December 31,
     2000 in an amount equal to the  respective  quoted trading prices per share
     at the dates of the transactions.

     During  2000,  the  Company  issued  1,617,000  shares of  common  stock in
     exchange for an interest in unproved  leases and  properties  in Louisiana.
     The value of the stock as  determined by the quoted  trading  prices on the
     dates  of the  transactions  of  $1,244,165  was  recorded  to oil  and gas
     properties during the year ended December 31, 2000.

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

6.   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 re-priced in March 1999 to $0.50 per share. At December 31, 2000, there
     are  1,080,000  stock  options  reserved and  available for grant under the
     plan.




                                      F-10

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


The  following  is a summary of activity for the stock  options  granted for the
years ended December 31, 2000 and 1999:


                                   DECEMBER 31, 2000        DECEMBER 31, 1999
                                ----------------------  -----------------------
                                             WEIGHTED                 WEIGHTED
                                              AVERAGE                  AVERAGE
                                 NUMBER OF   EXERCISE    NUMBER OF    EXERCISE
                                   SHARES      PRICE       SHARES       PRICE
                                ----------  ----------  ----------   ----------

Outstanding, beginning of year   1,170,000  $      .50   1,285,000   $     1.00

Canceled or expired                   --          --      (115,000)  $     1.00
Granted                               --          --          --           --
Exercised                             --          --          --           --
Re-priced - previous                  --          --    (1,170,000)  $    (1.00)
Re-priced - new                       --          --     1,170,000   $     0.50
                                ----------  ----------  ----------   ----------

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


     If not previously exercised, options outstanding at December 31, 2000 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
                                     ===========      ===========

     As  discussed  in Note 1, the  re-priced  options  are  treated as variable
     options and the  difference  between the quoted stock price on July 1, 2000
     of $0.41 per share and the quoted stock price at December 31, 2000 of $1.00
     per share is  recorded  as an expense for all the  re-priced  options.  The
     total effect for the year ended  December 31, 2000 was  $690,000,  which is
     included in expenses.

     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  net loss and net loss per share  for the years  ended
     December 31, 2000 and 1999 would have been changed to the pro forma amounts
     indicated below.




                                      F-11

<PAGE>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS



                                          2000                1999
                                          ----                ----
Net loss:
  As reported                       $  (1,431,673)      $    (967,710)
  Pro forma                         $  (1,460,673)      $  (1,037,710)
Net loss per common share:
  As reported                       $       (0.14)      $       (0.12)
  Pro forma                         $       (0.14)      $       (0.12)

7.   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.

8.   COMMITMENTS AND CONTINGENCIES
     -----------------------------

     The Company has a  non-cancellable  sublease  for office  space.  The lease
     requires  minimum  monthly  rental  payments of $1,742 until  expiration in
     August 2001.

     The Company  incurred  rent  expense of $31,085,  and $41,680 for the years
     ended December 31, 2000 and 1999, respectively.

9.   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 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 that no allowance  for doubtful  accounts is necessary at December
     31, 2000.

10.  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:


                                                       YEARS ENDED DECEMBER 31,
                                                       ------------------------
                                                          2000          1999
                                                          ----          ----

Costs incurred in oil and gas producing activities:
 Acquisition of unproved properties                   $ 1,618,030   $      -
 Exploration costs                                           -          130,283
 Acquisition of proved properties                          43,455        63,123




                                      F-12

<PAGE>
<TABLE>
<CAPTION>

                              EMPIRIC ENERGY, INC.

                          NOTES TO FINANCIAL STATEMENTS


<S>                                                                  <C>            <C>
 Development costs                                                          --          146,117
                                                                     -----------    -----------
                     Total costs incurred                            $ 1,661,485    $   339,523
                                                                     ===========    ===========

Net capitalized costs related to oil and gas producing activities:
 Unproved leasehold costs                                            $ 1,790,102    $   179,609
 Proved leasehold costs                                                4,709,390      4,658,398
 Less accumulated depletion and impairment                            (3,332,286)    (2,603,395)
                                                                     -----------    -----------
                     Net oil and gas property costs                  $ 3,167,206    $ 2,234,612
                                                                     ===========    ===========

</TABLE>

     The  following  table  for  2000 is  based  on  information  prepared  by a
     petroleum  engineer who is the former  president of the Company.  The table
     for 1999 is based on  information  prepared  by  Company  management  using
     reserve estimates  previously prepared by independent  petroleum engineers.
     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, 1999                              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

 Abandonment of minerals in place (1)                (67,344)      (981,334)
 Revisions of previous estimates                      (3,562)      (468,855)
 Production                                             (961)       (36,272)
                                                 -----------    -----------

Balance, December 31, 2000                            26,347        353,074
                                                 ===========    ===========

Proved developed reserves:
 December 31, 1999                                    78,349      1,478,366
                                                 ===========    ===========
 December 31, 2000                                     6,311        237,981
                                                 ===========    ===========

     (1)  Abandonment  of minerals in place  resulted  from the  expiration of a
     proved undeveloped leasehold.

     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-13

<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,  2000 and 1999,  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.


                                                                YEARS ENDED DECEMBER 31,
                                                                  2000            1999
<S>                                                          <C>             <C>
Future cash inflows                                          $  2,809,000    $  5,888,000
Future development and production costs                          (740,000)     (1,832,000)
                                                             ------------    ------------

Future net cash flows, before income tax                        2,069,000       4,056,000
Future income taxes                                                  --              --
                                                             ------------    ------------

Future net cash flows                                           2,069,000       4,056,000
10% annual discount                                              (692,000)     (1,230,000)
                                                             ------------    ------------

Standardized measure of discounted future net cash flows     $  1,377,000    $  2,826,000
                                                             ============    ============

     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:


                                                                YEARS ENDED DECEMBER 31,
                                                                  2000            1999

Sales of oil and gas produced, net of production costs       $     (9,000)   $    (17,000)
Abandonment of minerals in place                               (1,822,000)           --
Net changes in prices and production costs                      1,109,000         601,000
Revisions and other                                            (1,010,000)        181,000
Accretion of discount                                             283,000         187,000
                                                             ------------    ------------
   Net change                                                  (1,449,000)        952,000
Balance, beginning of year                                      2,826,000       1,874,000
                                                             ------------    ------------
Balance, end of year                                         $  1,377,000    $  2,826,000
                                                             ============    ============

</TABLE>



                               ******************




                                      F-14