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, 1996

Commission file number #1-13162

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

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

    8201 Preston Road, Suite 580
           Dallas, Texas                                   75225
(Address of principal executive offices)                (Zip Code)

          (214) 265-8392
(Registrant's telephone number, including area code)

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

Title of each class                       Name of each exchange 
                                          on which registered

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 there is no 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.  X

                                 PART I

ITEM 1.  DESCRIPTION OF BUSINESS

BACKGROUND - FROM INCEPTION TO PRESENT

              Empiric Energy, Inc. ("Empiric" or "Company") is a Delaware
corporation formed in 1992 as an independent natural resources company. 
Empiric is engaged in oil and gas production in the continental United
States.  Empiric's principal oil and gas producing properties are located in
Texas and Pennsylvania.  The Company also owns 100 percent of the
working interest in a gas well in Holmes County, Mississippi, which is not
currently producing.

              The Company is an independent oil and gas exploration and
production company operating in the Hugoton Panhandle Field (the
"Panhandle Field") which extends from West Texas through Central
Oklahoma into Western Kansas.  During 1992 and 1993, the Company
participated in a 20 well drilling program on leases in Moore and Potter
Counties, north of Amarillo, Texas resulting in wells producing from the
Red Cave Sandstone Formation.  As a result, the Company earned a 41.5
percent working interest in approximately 26,755 gross acres covered by oil
and casinghead gas leases (the "Richmond acreage").

                In October, 1993 the Company acquired a 100 percent working
interest in approximately 7,000 gross acres on leases on the Brent Ranch,
adjacent to the Richmond acreage.  The Company drilled three non-
commercial wells on the Brent Ranch in October 1994 and June 1995 and
was required to drill four additional wells by June 22, 1995 and five wells
by October 1995.  A dispute arose with the lease holders over the timely
drilling of the wells to be commenced by June 22, 1995, which resulted in
termination of the Brent Ranch lease and of the Company's obligations to
drill eight additional wells.  

              On March 31, 1994, the Company filed a registration statement 
with the Securities and Exchange Commission for the sale of up to 500,000
Units at $10.00 per Unit in a "best efforts" underwriting.  Each Unit
consisted of three shares of the Company's Common Stock and one Warrant
to purchase one share of Common Stock at $4.25 per share for a five year
period.  The Public Offering was closed on October 14, 1994 with net
proceeds to the Company of $2,226,000 from the sale of 252,266 Units
after Underwriter commissions and expenses.  At the time of the original
underwriting, the Company's development drilling and acquisition growth
plans were based on the receipt of approximately $5,000,000, only about
one-half of which was obtained.  This shortfall of available capital has
restricted the Company's growth to achieve a continuing profitable status. 
The Company has attempted to raise additional capital through private
placements of debt/equity and from conventional financing sources with
limited success.

              Pursuant to an agreement dated March 23, 1995 between the
Company and Texoil Energy, Ltd. ("Texoil"), a Canadian corporation,
Texoil acquired one-half of the Company's interest in approximately 9,300
acres of oil and casinghead gas leases in Moore and Potter Counties, Texas,
including the 7,000 acres on the Brent Ranch and 225,000 shares of the
Company's Common Stock.  In consideration therefor, the Company
received $128,750 cash and a $121,250 note, 1,000,000 shares of Texoil
Common Stock and $750,000 principal amount of 6% preferred stock (the
"6% Preferred Stock"), convertible into 750,000 shares of Texoil Common
Stock.  Under the terms of the agreement, Texoil was required to fulfill the
Company's obligation to drill nine wells on the Brent Ranch and four wells
on the Richmond acreage.  In view of the cancellation of the Brent Ranch
Agreement along with the settlement of the legal dispute, this requirement
on the part of Texoil is no longer in effect.

              In December 1995, the Company acquired 72 percent working
interest in a 1240 acre tract in Clay and Jack Counties, Texas, on which
there is one producing oil well and eleven non-producing wells.

              On March 21, 1996, the Company signed a letter of intent with
Westar Energy, Inc. ("Westar") to take part in a joint venture drilling
program for approximately 100 gas wells (subsequently reduced to 88
wells), which will be drilled in "segments".  The number of wells to be
drilled in each "segment" will be mutually agreed upon between the parties. 
The drilling program will be carried out on leases owned or to be acquired
by Westar in Indiana and Westmoreland Counties, Pennsylvania.  The
actual drilling sites are subject to mutual agreement.  Empiric will receive
up to 75 percent working interest, 50 percent of the working interest to be
paid in cash and the remaining 25 percent working interest to be paid for
by the issuance and guaranty of the value of the Common stock of Empiric. 
When the first agreed upon segments have been drilled and completed,
Empiric has the right to continue with segments of wells to be mutually
agreed upon for a total of 100 wells for a total investment of $13,500,000,
including cash and Common stock at the rate of $135,000 per well for a 75
percent working interest.  

              Westar will earn a 15 percent reversionary interest after Empiric 
has received its entire investment, cash and the value of Common stock, plus
110 percent.  Empiric is guaranteeing a value of $3.00 per share for all
shares accepted by Westar for a certain time after drilling has been
completed on each segment of wells completed.

              As of December 31, 1996, two segments - comprising three wells
each - had been identified, with drilling operations completed on the First
Segment of three wells.  The total reserves of the First Segment are
estimated to range from .773 Bcf to 1.6 Bcf per well, with average daily
aggregate production rates in the 450 Mcf per day range. 

              As of the date of this report, drilling has been completed on the
Second Segment of three wells, with approximately similar production and
proved reserve results.  The Third Segment will consist of two wells and
drilling will commence in the near future, the sites having been selected and
drilling permits obtained.  (Refer to Shareholder Report dated April 15,
1997 for a current status of the program).

              During 1996, oil production from the Texas properties was 4,436
Bbls for which the Company received an average price per barrel of $21.41
as compared to 5,153 barrels of oil produced in 1995 at an average price
of $16.55.  Gas production on the Texas properties in 1996 was minimal
due to the late hookup of the sales lines and the negotiation of an acceptable
gas sales contract.  There was no production during 1996 on the Company's
Mississippi properties and no gas sales revenue was received prior to
December 31, 1996 on the Westar project in Pennsylvania.

              Empiric has obtained outside investors to finance its required 
cash investment for a 50 percent working interest the First, Second and Third
Segments of the Westar Drilling Program, totaling eight wells.  These
investors will receive 80 percent of the revenues applicable to each working
interest, with Empiric receiving 20 percent until such time as the investors
receive cumulatively up to 117 percent of their original investment.  At that
point, Empiric will receive 50 percent of the total revenues applicable to the
investors 50 percent working interest over the remaining productive life of
the wells.

              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.


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
Clay, Jack and Jones Counties, Texas, as well as in Indiana and
Westmoreland Counties, Pennsylvania.

              HOLMES COUNTY, MISSISSIPPI.  The Company was
incorporated in September 1992 and acquired substantially all of the
working interest of the Thomas E. Smith 9-2 Well No. 1 (the "Smith
Well"), a producing gas well in Mississippi, in exchange for 1,750,000
shares of its Common Stock from the working interest owners, including
Hill Investors, Inc. ("Hill"), a company controlled by James J. Ling, the
Chairman and Chief Executive Officer and a director of the Company.  The
Company owns a 100 percent working interest in the Smith Well, a gas
well completed at 11,800 feet in the Smackover Formation in the Thornton
Smackover Field.  Although not currently producing, the well produced on
a test gas and condensate through a nearby TXG gas plant at rates up to 800
Mcf of gas and 30 Bbls of condensate per day.  The Smith Well required
extensive workovers.  Empiric has paid $65,000 in cash against these costs
and is due these payments and other credits which are subject to
confirmation audits and negotiations with the operator. 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 in the latter part of 1997. 
The gas treatment plant will not resume operations until the quantities of
raw gas from adjacent gas fields become available for economic processing. 
The Company has been advised that other drilling is planned and it is
anticipated that sufficient quantities of raw gas will become available in
order that the plant can resume economic operations by the end of 1997. 
Even when production recommences, the amount of production will be
restricted to avoid water coning.  The gas produced from the well contains
48 percent carbon dioxide and three percent hydrogen sulfide which require
separation from the gas, resulting in a lower wellhead price; however, no
assurances can be given that the sale of oil and gas produced from the well
will be adequate to return the operator's costs.  

              PANHANDLE FIELD AREA.  The Panhandle Field covers 19
counties in the Texas and Oklahoma panhandles and in Western Kansas. 
It is one of the largest gas fields in the United States and is estimated to
contain reserves that exceed 70 trillion cubic feet of gas and 1.5 billion
barrels of oil. 

              In 1992 and 1993 the Company participated in a 20-well drilling
program on the Richmond acreage in the Panhandle Field of Moore County
to earn a 41.5 percent working interest (31.9 percent net revenue interest)
in 26,755 acres covered by oil and casinghead gas leases from Richmond
Petroleum, Inc. ("Richmond Petroleum").  This drilling, initially resulted
in the completion of 18 commercial wells as pumping Red Cave Sandstone
oil producers ranging from poor to sometimes better-than-average.  Of these
18 wells, six were shut in because of decline in production which the
Company believes resulted primarily from inadequate initial completion
techniques.  In addition to the 20 well drilling program, Empiric
recompleted as a producer a shut in well which was acquired with the
leases.  In early May, 1993, the Company and a non-affiliated working
interest owner removed the operator of the Richmond acreage because of
their dissatisfaction with the drilling and completion practices on certain
wells.  These practices included incorrectly recording well locations, failure
to drill wells to agreed depths, drilling wells too close together, not using
surface casing, failure to perforate all production zones and using
inappropriate fracture treatments.  The Company subsequently discharged
the operator for cause and acquired his 28.5 per cent working interest in
exchange for 5,000 acres.  As a result of this transaction the Company
owned an approximate 70 percent working interest in 21,755 acres. 

              In September 1993, the Company sold to Red Cave Limited Liability
Company ("Red Cave") for $450,000 a 28.5 percent working interest in
approximately 1,405 gross acres of the Richmond acreage on which 22
wells were producing or deemed capable of production.  As part of such
consideration, the Company also sold to Red Cave a 7.5 percent working
interest in undeveloped leases covering the remaining 20,350 acres of the
Richmond acreage owned by the Company and an option to purchase a 25
percent working interest in the Brent Ranch lease, which was not exercised. 
The Company also granted to Red Cave a one year option to purchase an
additional 20 percent working interest in such undeveloped Richmond
acreage for additional consideration of $183,231.  This option expired
without exercise.

              PENNSYLVANIA PROPERTIES.  In March 1996, Empiric entered
into an agreement with Westar Energy, Inc. ("Westar") for an approximate
100 well infill drilling project in Indiana and Westmoreland Counties,
Pennsylvania.  Permits have already been obtained for approximately fifty
infill drilling locations.  All locations selected to date are surrounded by
producing wells drilled approximately twenty years ago with initial potential
ranging from 750 to 3,000 Mcfpd.  Empiric has contracted for a 75 percent
working interest (60 percent N.R.I.) to drill the wells for a total turn-key
cost of $180,000 per well with Empiric's 75 percent working interest to
cost $135,000 per well, $45,000 in the form of 15,000 shares of Empiric
Common stock subject to a $3.00 per share guarantee by Empiric to
become effective after the completion of the last well in each drilling
segment.

PLANNED ACTIVITIES
              As described elsewhere in this report, the Company has substantial
leasehold properties which Management believes are very promising of
containing hydrocarbons which can be developed and produced in
commercially attractive quantities.  It is also evident that the Company's
total acreage can not be explored and developed in the short term; however,
all of the leases are held and perpetuated by the production of long life gas
wells owned by the gas rights holders.  Further, the Company does not
have sufficient capital to develop all available properties.  The Company
will continue to seek capital on terms attractive to its shareholders and will
utilize its financial resources on a priority basis favoring the most attractive
first, then utilizing cash flow from operations to continue with further
developments.

PRODUCTIVE WELL SUMMARY
              The following table sets forth certain information regarding the
Company's ownership, as of December 31, 1996, of productive wells in the
areas indicated.

                                          Productive Wells

                            Oil                Gas                Total
                        Gross    Net      Gross     Net       Gross     Net
Texas
  Baker 39               12.0    5.0        --       --        12.0     5.0
  Thompson 23             1.0    0.4        --       --         1.0     0.4
  Sneed 53                1.0    0.4        --       --         1.0     0.4
Mississippi
  Smith (1)                --     --        1.0      1.0         1.0    1.0
Pennsylvania (2)           --     --        3.0      1.6         3.0    1.6
  Totals                 14.0    5.8        4.0      2.6        18.0    8.4


(1)  This well is currently shut-in.  It is expected that production will not
begin earlier than November 1997.
(2)  Assumes approximately 54% working interest remaining after all
investor costs, owner "backins" and finder commissions.

ACREAGE
              The following table sets forth certain information regarding the
Company's developed and undeveloped leasehold acreage as of December
31, 1996.

                            Developed         Undeveloped           Total
                       Gross       Net      Gross       Net     Gross     Net

Lyon Operating          1223       881       -0-       -0-      1223       881
Richmond Acreage         220        92     21,535    13,211    21,755   13,302
Mississippi              320       320       -0-       -0-        320      302
  Total                 1763      1293     21,535    13,211    23,298   14,503


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

ITEM 3.  LEGAL PROCEEDINGS

              There are no outstanding legal proceedings of a material nature
regarding the business affairs of the Company.

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.

                                 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 Boston Stock Exchange for the periods indicated
in 1996 and from America Online service regarding the OTC market.

                                         High         Low       Close
                         Volume          Bid          Bid        Bid
1996
  First Quarter            22,700          1           1/4        1/4
  Second Quarter           37,000         5/8          1/8        5/8
  Third Quarter            16,800         1/2          1/8        1/8
  Fourth Quarter           34,000         1/2          1/8        1/8
1997
  First Quarter
   Thru 3/31/97           136,200         5/8          3/8        9/16

              As of March 24, 1997, there were approximately 581 record and
beneficial holders of the Common Stock and Series A Warrants.


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

              The following schedule sets forth in summary form the financial
results of operations of the Company since its inception in October 1992
through December 31, 1996.

YEAR          REVENUES        PROFIT/LOSS            COMMENTS

1992          Minimal           Minimal       Only 3 months of operations
1993          $191,958        ($286,454)
1994          $138,012        ($998,929)      See Note 1 
1995          $ 85,282        ($245,636)
1996          $ 94,798        ($491,446)      See Note 2 below

Note 1:  Includes a special "non-cash" charge of $830,000 to adjust the
total capitalized value of oil and gas properties to the discounted value of
oil and gas reserves at December 31, 1996 in accord with independent
engineering reserve evaluations.  This adjustment is required by the "full
cost" method of accounting as explained in Note 1 of the Financial
Statements.
Note 2:  Includes a special "non-cash" charge of $431,000 to adjust the
total capitalized value of oil and gas properties to the discounted value of
oil and gas reserves at December 31, 1996 in accord with independent
engineering reserve evaluations.  This adjustment is required by the "full
cost" method of accounting as explained in Note 1 of the Financial
Statements.  The end of year 1996 reserve evaluation for the Texas
Panhandle properties was substantially reduced due to the independent
engineer's re-evaluation downward, based upon actual initial potential tests
of the wells and actual production decline curves as extrapolated therefrom. 
During 1996, the Management of the Company earned $135,000 of
consulting fees from a non-affiliated company for investment advice and
assistance regarding energy-related opportunities.  This amount was
included as "other income" in the financial statements.

From the outset, operations in West Texas have been adversely affected by
improper drilling, completion and maintenance practices performed by a
non-affiliated operator who was later removed for cause and his interest
purchased by the Company.  Although casinghead gas was available from
the first wells drilled and completed in 1992, a suitable gas sales contract
was not available until mid-1995 and no gas was sold until subsequent to
that time.

              The Company drilled three unsuccessful wells in 1994/1995 in the
West Texas Panhandle Brent Ranch properties, two of the wells in
conjunction with Texoil, Inc. at a total cost of more than $300,000. 
Although many other promising drill sites are available on Company-owned
leasehold properties, the Company has not been able to obtain capital to
develop these opportunities.

              In 1996, the Company closed an agreement with Westar to drill up
to 100 wells on "infill" drilling sites surrounded by producing wells.  As
of December 31, 1996, three of these wells (referred to as the First
Segment) were completed with successful results and placed on-line.  No
revenues were booked in 1996 on these Pennsylvania properties since
revenues were not received until March 1997.  Three additional wells
(referred to as the Second Segment) have been completed through the date
of this report with similar successful results.  A Third Segment consisting
of two wells is being readied for drilling.  The Company anticipates
receiving substantial revenues in 1997 from the Westar project in
Pennsylvania, limited only by the amount of capital which can be obtained
to further the development and completion of up to 100 "infill" wells all
proximate to producing wells.

              Although the drilling results on the completed gas wells through
December 31, 1996 on the Westar Project in Pennsylvania have produced
gas reserves applicable to the Company's interest, the Company as a matter
of conservatism has not elected to include such reserves in the total year
end reserve calculations referred to above in Note 2 relating to the
substantial one-time charge to earnings recorded for the year 1996.

              A comparison of the Company's balance sheet position at the year
ended 1995 and 1996 discloses the complete elimination of long-term debt
in the total amount of $267,520 which was eliminated by the exchange of
preferred stock and a portion of which was also issued in exchange for
other debt incurred during the normal course of business operations during
the calendar year 1996.  The total debt-for-equity exchange program during
the year 1996 resulted in an increase in stockholders' equity of
approximately $30,000 notwithstanding a recorded book loss of $491,000
for the year.

LIQUIDITY
              As of December 31, 1996, the Company had no long-term debt and
an equity-to-debt ratio of about 4.5-to-1.  On the other hand, the Company
had a working capital deficit of approximately $350,000.  Although these
ratios are improved from comparative numbers at the beginning of the year
(about 3-to-1 and $600,000 respectively), the Company needs and is seeking
the infusion of working capital for expanded drilling and developmental
programs on Company-owned or contractually held acreage, for debt
reduction and for acquisition of producing properties to obtain cash flow.

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, 1996            F-2
  Consolidated Balance Sheets - Comparative 1995/1996            F-4
  Statements of Operations - Comparative 1995/1996               F-5
  Statements of Cash Flow                                        F-7
  Notes to Financial Statements                             F-8 thru F-16

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

              None.


                            ITEM III

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

              The Company has two executive officers and two directors, James
J. Ling, Chairman and Chief Executive Officer, and Clyde E. Skeen,
Secretary, Treasurer and Chief Financial Officer.  The Company engaged
Thomas A. Goff as a consultant from December 1992 to December 1995
and may employ his services as needed in the future.  Following is a brief
summary of the business background and experience of Messrs. Ling and
Skeen:

         James J. Ling.  James J. Ling, age 74, 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.  From
      November, 1989, until January, 1992, Mr. Ling was Chairman of
      the Executive Committee, Chief Executive Officer (when the
      Executive Committee was not in session) and a member of the
      Finance and Personnel Compensation Committees of Avacelle, Inc.,
      an aircraft parts manufacturer.  In March, 1992, subsequent to Mr.
      Ling's resignation, Avacelle, Inc. filed a voluntary petition pursuant
      to Chapter 11 of the United States Bankruptcy Code.  Avacelle's
      Plan of Reorganization was approved in October 1993 and Avacelle
      is currently in operation.  Mr. Ling was also formerly the President
      and a director of San Gabriel Development Corporation ("San
      Gabriel") whose only asset was the Smith Well in Holmes County,
      Mississippi.  In November 1991, San Gabriel filed a voluntary
      petition pursuant to Chapter 7 of the United States Bankruptcy Code
      and the assets of San Gabriel were abandoned by the Trustee in
      Bankruptcy to the secured creditors, who received shares of the
      Company's Common Stock as payment in full for the indebtedness.

           Clyde E. Skeen.  Clyde E. Skeen, age 80, 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 Pittsburg 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.  From
      November, 1989, until January, 1992, Mr. Skeen was Chairman of
      the Finance and Personnel Compensation Committees, Chief
      Financial Officer, a member of the Executive Committee, Secretary
      and Treasurer of Avacelle, Inc.  In March 1992, subsequent to Mr.
      Skeen's resignation, Avacelle, Inc. filed a voluntary petition
      pursuant to Chapter 11 of the U. S. Bankruptcy Code.  Avacelle's
      Plan of Reorganization was approved in October 1993 and Avacelle
      is currently in operation.

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, 1993,
1994, 1995 and 1996.

                            Summary Compensation Table

Name/Position          Fiscal Year       Salary (1)(2)     Bonus/Other Comp.

James J. Ling(1)           1993             $90,000            None
                           1994             $90,000            None
                           1995             $90,000            None
                           1996             $90,000            None
Clyde E. Skeen(2)          1993             $30,000            None
                           1994             $30,000            None
                           1995             $42,000            None
                           1996             $42,000            None

(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, Hill provides management consulting
services for which the Company pays Hill a monthly fee of $7,500.  
(2)  Mr. Skeen does not receive compensation directly from the Company,
but is paid through Clyde Skeen Business Consultants, Inc., which is paid
by the Company.
(3)  Because of the Company's working capital condition, neither Mr. Ling
nor Mr. Skeen has received cash compensation through their respective
associated companies for part of the year 1994 and all of the year 1995 and
1996.  They have received notes payable 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.

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 250,000 shares has been 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.  On January 10, 1994 the Board of
Directors granted the following options, subject to approval of the Plan by
the stockholders of the Company:  Hill Investors, Inc., 75,000 shares;
Clyde Skeen Business Consultants, Inc., 40,000 shares; and, Pamela
McMahon, 15,000 shares.  All options are exercisable at an exercise price
of $1.00 per share.  The options granted to Hill Investors, Inc. and Clyde
Skeen Business Consultants become exercisable 1/12 each  month,
cumulatively beginning 30 days after grant.  Ms. McMahon's options
become exercisable 1/24 each month, cumulatively beginning 30 days after
grant.  No option is exercisable after five years from the date of grant
unless earlier terminated because of death, disability, termination of
employment or cessation of services to the Company.  The Plan was
approved by stockholders of the Company on March 29, 1994.  Ms.
McMahon exercised an option to purchase 2,500 shares on December 20,
1994.

              On May 14, 1996, the Board of Directors authorized an additional
250,000 shares to be set aside for issuance under the Plan bringing to
500,000 the total shares authorized for the Stock Option Plan and, on that
date, also awarded additional stock options as follows:

a.   Five (5) year option granted to Pamela A. Miser to purchase up to
15,000 shares at a purchase price of $1.00 per share;
b.   Five (5) year option granted to Clyde Skeen Business Consultants, Inc.
to purchase up to 40,000 shares at a purchase price of $1.00 per share;
c.   Five (5) year option granted to Hill Investors, Inc. to purchase up to
75,000 shares at a purchase price of $1.00 per share.

The above options are subject to all the same conditions and covenants of
the original Stock Option Plan dated January 10, 1994.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
              OWNERS AND MANAGEMENT

              The following table sets forth the number of shares of Common
Stock and Series A Warrants held by the principal Officers and Directors
of the Company as of December 31, 1995:

   Name                Shares Beneficially Owned         % of Class
                         Common        Warrants       Common      Warrants

James J. Ling(1)        781,105         18,095         18.0%         7.2%
Clyde E. Skeen(2)       305,750         28,250          7.0%        11.2%

(1)  Includes 374,525 shares of Common Stock held by the Dorothy Ruth
Ling Trust, of which Mr. Ling is Trustee; and, 406,580 shares of Common
Stock held by Hill Investors, Inc., 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.

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,
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
$7,500.00.  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 shall 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.  The Company has renewed the agreement
with Hill until October 1, 1997 on the same terms and conditions.

              Hill is a Delaware corporation which currently owns 406,580 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.  

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

              Shareholder Report dated April 15, 1997 is attached.

              There were no Form 8-K reports filed during the year 1996.

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,
thereunto duly authorized.