<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001
                                       OR
              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      For the transition period ___ to ___
                         Commission File Number 0-16487
                                 ---------------

                              INLAND RESOURCES INC.
             (Exact Name of Registrant as Specified in its Charter)

                WASHINGTON                              91-1307042
       (State or Other Jurisdiction of                 (IRS Employer
        Incorporation or Organization)              Identification Number)

        410 17th Street
        Suite 700
        Denver, Colorado
        (303) 893-0102                                           80202
     (Address of Principal Executive Offices)                   (Zip Code)
      Issuer's telephone number, including area code: (303) 893-0102

Securities  registered  pursuant to Section  12(b) of the Act:  NONE

Securities  registered  pursuant to Section 12(g) of the Act: Common Stock,  par
value $.001 per share

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such  shorter  period  that the issuer 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-K contained herein, and none will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

     At March 13, 2001, the registrant had outstanding  2,897,732  shares of par
value $.001 common stock.  The aggregate  value on such date of the common stock
of the Registrant held by non-affiliates was an estimated $700,000.



                       DOCUMENTS INCORPORATED BY REFERENCE


     None


<PAGE>

<TABLE>
<CAPTION>
                                                TABLE OF CONTENTS
<S>              <C>                                                                                           <C>
PART I
Items 1. &  2.    Business and Properties....................................................................... 2
Item 3.           Legal Proceedings.............................................................................12
Item 4.           Submission of Matters to a Vote of Security Holders...........................................12

PART II
Item 5.           Market for Registrant's Common Stock and Related Stockholder Matters..........................13
Item 6.           Selected Financial Data.......................................................................13
Item 7.           Management's Discussion and Analysis of Financial Condition and Results of Operations.........15
Item 7A.          Quantitative and Qualitative Disclosures About Market Risks...................................23
Item 8.           Financial Statements and Supplementary Data...................................................24
Item 9.           Changes In and Disagreements With Accountants on Accounting and Financial Disclosure..........24

PART III
Item 10.          Directors and Executive Officers of the Registrant............................................25
Item 11.          Executive Compensation........................................................................27
Item 12.          Security Ownership of Certain Beneficial Owners and Management................................29
Item 13.          Certain Relationships and Related Transactions................................................31

PART V
Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K ..............................32
</TABLE>





                                                          -i-


<PAGE>


                                     PART I

     The  following  text is  qualified in its entirety by reference to the more
detailed information and consolidated  financial statements (including the notes
thereto)  appearing  elsewhere  in this Annual  Report on Form 10-K.  Unless the
context otherwise  requires,  references to "Inland" shall mean Inland Resources
Inc.,  a  Washington  corporation,  and  references  to  the  "Company"  or  its
operations shall mean Inland and its consolidated subsidiary,  Inland Production
Company ("IPC"), a Texas corporation.  For definitions of certain terms relating
to the oil and gas industry used in this section,  see Items 1. and 2. "Business
and Properties - Certain Definitions."

     All  references  to shares of Inland's  common  stock,  par value $.001 per
share ("Common Stock"), and share prices in this Form 10-K have been adjusted to
give effect to the 1-for-10 reverse stock split effected December 14, 1999.

ITEMS 1. &  2.    BUSINESS AND PROPERTIES

OVERVIEW

     Inland  Resources  Inc. is an  independent  energy  company  engaged in the
acquisition,  development,  and  enhancement  of oil and gas  properties  in the
western United States.  All of the Company's oil and gas reserves are located in
the Monument  Butte Field (the "Field")  within the Uinta Basin of  northeastern
Utah.  Until  January 31, 2000,  the Company was also engaged in the refining of
crude oil and  wholesale  marketing  of refined  petroleum  products,  including
various grades of gasoline,  kerosene,  diesel fuel, waxes and asphalt through a
former  subsidiary,  Inland  Refining,  Inc.  ("Refining").  Inland conducts its
operations  through its subsidiary,  IPC. In 2001, IPC drilled 45 gross (35 net)
developmental  wells.  At December 31, 2001, the Company's  estimated net proved
reserves  totaled 68.3 MBOE,  having a pre-tax present value  discounted at 10%,
using constant prices, of $193 million. The constant prices used at December 31,
2001 were  calculated  on the basis of market  prices in effect on that date and
were approximately $16.84 per barrel of oil and $2.23 per Mcf of gas.

     The Company intends to pursue a strategy of development drilling,  focusing
on  enhancing  operating  efficiency  and  reducing  capital  costs  through the
concentration of assets in selected geographic areas.  Currently,  the Company's
operations are focused on the full  development of the Field,  where the Company
operates 707 gross (523 net) oil wells,  including 228 gross (184 net) injection
wells. Inland pioneered the secondary water flood recovery processes used in the
Field and  currently  operates 23 approved  secondary  recovery  projects in the
area.  Budgeted  development  expenditures for 2002 in the Field  are  estimated
to be $10-$12 million net to the Company.

     Effective  January  31,  2000,  Inland  sold  all of its  capital  stock in
Refining to Silver Eagle Refining,  Inc.  ("Silver  Eagle") for $500,000 and the
assumption of various refinery  liabilities and obligations.  Refining owned the
Wood  Cross  Refinery  in  Woods  Cross,  Utah  and the  Roosevelt  Refinery  in
Roosevelt,  Utah  (which was  non-operating  at the time of sale).  Prior to the
sale, the existing cash,  inventory,  accounts  receivable and a note receivable
were transferred to Inland Working Capital Corp ("IWCC"). IWCC agreed to satisfy
various  accounts  payable and  liabilities  not assumed as part of the purchase
price.  As a result of the sale of Refining to Silver  Eagle,  the Company is no
longer  engaged in the  business of  refining  crude oil and  marketing  refined
petroleum products. IWCC subsidiary was formally dissolved in July of 2001.

     Change of Control and Recapitalization.

     In January 2002, the Company  announced  that it had hired Lehman  Brothers
Inc. and  Petroleum  Place Energy  Advisors to advise the Company  regarding its
review of strategic  alternatives,  which may include a potential sale or merger
of the  Company.  The  Company  is engaged  in  various  levels of  negotiations
regarding such a transaction.

     1999 Exchange  Agreement - On September 21, 1999, the Company  entered into
an Exchange Agreement (the "Exchange Agreement") with Trust Company of the West,
as  Sub-Custodian  for Mellon Bank for the benefit of Account No. CPFF  873-3032
("Fund  V"),  TCW  Portfolio  No.  1555  DR  V  Sub-Custody  Partnership,   L.P.
("Portfolio")  (Portfolio and Fund V  collectively  being referred to as "TCW"),
Inland Holdings LLC  ("Holdings")  and Joint Energy  Development

                                       2
<PAGE>

Investments II Limited Partnership ("JEDI"). Pursuant to the Exchange Agreement,
Fund V agreed to  exchange  $75  million  in  principal  amount of  subordinated
indebtedness of IPC plus accrued  interest of $5.7 million and Portfolio  agreed
to exchange warrants to purchase 15,852 shares of Common Stock for the following
securities of Inland issued to Holdings, whose members are Fund V and Portfolio:
(1)  10,757,747  shares of Series D Preferred  Stock,  (2)  5,882,901  shares of
Series Z Preferred Stock, which  automatically  converted into 588,291 shares of
Common Stock on December 14, 1999, and (3) 1,164,295 shares of Common Stock; and
JEDI agreed to  exchange  the 100,000  shares of  Inland's  Series C  Cumulative
Convertible Preferred Stock ("Series C Preferred Stock") owned by JEDI, together
with $2.2 million of accumulated  dividends  thereon,  for (A) 121,973 shares of
Series  E  Preferred   Stock  and  (B)  292,098  shares  of  Common  Stock  (the
"Recapitalization").  The Series C Preferred  Stock bore  dividends at a rate of
$10 per share,  had a liquidation  preference of $100 per share and was required
to be  redeemed at a price of $100 per share not later than  January  21,  2008.

     March  2001  Transaction  - On March  20,  2001,  Hampton  Investments  LLC
("Hampton"), an affiliate of Smith Management LLC, ("Smith") purchased from JEDI
the  121,973  shares of Series E Preferred  Stock and  292,098  shares of Common
Stock  acquired  by JEDI in the  Exchange  Agreement.  Following  closing of the
Exchange Agreement and the purchase by Hampton of JEDI's shares,  Holdings owned
1,752,586  shares  of  Common  Stock,  representing  approximately  60.5% of the
outstanding  shares of Common Stock as of March 20, 2001.  Hampton owned 292,098
shares of Common  Stock,  representing  approximately  10.1% of the  outstanding
shares of Common Stock as of March 20, 2001.  TCW Asset  Management  Company has
the power to vote and dispose of the securities owned by Holdings.

     August 2001 Transaction  -  On  August 2,  2001,  the  Company  closed  two
subordinated debt transactions  totaling $10 million in aggregate with SOLVation
Inc.  ("SOLVation"),  a company  affiliated  with Smith,  and entered into other
restructuring  transactions  as  described  below.  The  first  of the two  debt
transactions  with SOLVation was the issuance of a $5 million  unsecured  senior
subordinated  note to SOLVation  due July 1, 2007.  The interest rate is 11% per
annum compounded  quarterly.  The interest payment is payable in arrears in cash
subject to the approval from the senior bank group and  accumulates  if not paid
in cash. The Company is not required to make any principal payments prior to the
July 1, 2007 maturity date. However, the Company is required to make payments of
principal and interest in the same amounts as any principal  payment or interest
payments on the TCW Subordinated  Note (described  below).  Prior to the July 1,
2007 maturity date, subject to the bank subordination agreement, the Company may
prepay the senior subordinated note in whole or in part with no penalty.

     The Company also issued a second $5 million  unsecured junior  subordinated
note to SOLVation.  The interest rate is 11% per annum compounded quarterly. The
maturity  date is the  earlier of (i) 120 days after  payment in full of the TCW
subordinated debt or (ii) March 31, 2010. Interest is payable in arrears in cash
subject to the approval from the senior bank group and  accumulates  if not paid
in cash. The Company is not required to make any principal payments prior to the
March 31, 2010 maturity date. Prior to the March 31, 2010 maturity date, subject
to both bank and  subordination  agreements,  the  Company may prepay the junior
subordinated note in whole or in part with no penalty. A portion of the proceeds
from the  senior  and  junior  subordinated  notes was used to fund a $2 million
payment to Holdings and other Company working capital needs.

     In  conjunction  with  the  issuance  of  the  two  subordinated  notes  to
SOLVation,  the Series D Preferred and Series E Preferred stock held by Holdings
were exchanged for an unsecured  subordinated note due September 30, 2009 and $2
million in cash from the Company. Holdings had previously purchased the Series E
Preferred  Stock  from  Hampton.  The  TCW  Subordinated  Note  amount  was  for
$98,968,964 that represented the face value plus accrued dividends of the Series
D Preferred  Stock as of August 2, 2001.  The interest  rate on this debt is 11%
per annum compounded  quarterly.  Interest is payable in arrears in cash subject
to the approval from the senior bank group and  accumulates if not paid in cash.
Interest payments will be made quarterly, commencing on the earlier of September
30, 2005 or the end of the first calendar quarter after the senior bank debt has
been  reduced  to  $40  million  or  less,  subject  to  both  bank  and  senior
subordination  agreements.  Beginning  the  earlier  of two  years  prior to the
maturity date or the first December 30 after the repayment in full of the senior
bank debt, subject to both bank and senior subordination agreements, the Company
will  make  equal  annual  principal  payments  of one  third  of the  aggregate
principal amount of the TCW Subordinated  Note. Any unpaid principal or interest
amounts are due in full on the September 30, 2009  maturity  date.  Prior to the
September 30, 2009 maturity date, subject to both bank and senior  subordination
agreements, the Company may prepay the TCW Subordinated Note in whole

                                      3
<PAGE>


or in part with no penalty.  As a result of the  exchange,  the Company  retired
both the Series D and Series E Preferred  stock. Due to the related party nature
of this  transaction,  the difference  between the aggregate  subordinated  note
balance and $2 million cash paid to Holdings and the aggregate liquidation value
of the Series D and E preferred stock plus accrued  dividends of $13,083,000 was
recorded as an increase to additional paid-in capital.

     As part of this  restructuring,  Holdings  also sold to Hampton,  1,455,390
shares of their common stock in the Company. Consequently,  Hampton now controls
approximately 80% of the issued and outstanding shares of the Company.  Holdings
also  terminated any existing option rights to the Company's  common stock,  and
relinquished the right to elect four persons to the Company's Board of Directors
to  Hampton.  However,  Holdings  has the right to  nominate  one  person to the
Company's  Board.  Remaining  board  members will be nominated by the  Company's
shareholders.  As long as Hampton or its  affiliates  own at least a majority of
the common stock of the Company,  Hampton has agreed with  Holdings that Hampton
will have the right to appoint at least two members to the board.


OIL AND GAS EXPLORATION AND PRODUCTION OPERATIONS

     General.  The  Company  conducts  exploration  and  production   activities
primarily  through IPC,  which owns all of the oil and gas acreage,  wells,  gas
gathering systems, water delivery,  injection and disposal systems and other oil
and gas related  tangible  assets of the Company.  IPC serves as the operator of
707 wells,  or 98% of the wells in which the  Company has an  interest.  Certain
disclosures   with  respect  to  production,   exploration  and   transportation
activities for Inland's  fiscal years 1999, 2000 and 2001 are set forth in pages
F-24 and F-25 of this Annual Report.

     Oil and Gas Reserves. The following table sets forth the Company's
estimated quantities of proved oil and gas reserves and the estimated future net
revenues (by reserve categories) without consideration of indirect costs such as
interest, administrative expenses or income taxes. These estimates were prepared
by the Company, with certain portions having been reviewed by Ryder Scott
Company, L.P., an independent reservoir engineer. The review by Ryder Scott
Company, L.P. consisted of properties which comprised approximately 80% of the
total present worth of future net revenue discounted at 10% as of December 31,
2001. The total proved net reserves estimated by the Company were within 10% of
those reviewed and estimated by Ryder Scott Company, L.P.; however, on a well by
well basis, differences of greater than 10% may exist. See also, the
Supplemental Oil and Gas Disclosures appearing on pages F-24 through F-27 of
this Annual Report.

<TABLE>
<CAPTION>

                                                                         As of December 31, 2001
                                                ---------------------------------------------------------------------
                                                    Proved                      Proved                    Total
                                                   Developed                   Undeveloped                Proved
                                                ---------------           ----------------------       ------------
                                                                          (dollars in thousands)
<S>                                                <C>                          <C>                     <C>
   Net Proved Reserves
    Oil (MBls)                                      18,409                       36,162                   54,571
    Gas (MMcf)                                      20,682                       61,825                   82,507
    MBOE (6Mcf per Bbl)                             21,856                       46,466                   68,322

  Estimated Future Net Revenues(1)                $182,495                     $375,832                 $558,327

  Present Value of Future Net Revenues(2)         $107,095                      $85,999                 $193,094
</TABLE>

     (1) Pre-tax and undiscounted.
     (2) Pre-tax and discounted at 10%.


     Future net revenues from  reserves at December 31, 2001 were  calculated on
the basis of market prices in effect on that date and were approximately  $16.84
per barrel of oil and $2.23 per Mcf of gas.  The value of the  estimated  proved
gas reserves are net of  deductions  for  shrinkage  and natural gas required to
power future field operations.

                                       4
<PAGE>

     Petroleum  engineering  is a subjective  process of estimating  underground
accumulations  of oil and gas  that  cannot  be  measured  in an  exact  manner.
Estimates  of  economically  recoverable  oil and gas reserves and of future net
cash flows necessarily depend upon a number of variable factors and assumptions,
including the following:

     o historical  production  from the area compared with production from other
producing areas;

     o the assumed effects of regulations by governmental agencies;

     o assumptions concerning future oil and gas prices; and

     o assumptions   concerning  future  operating  costs,   production  taxes,
development costs and work over and remediation costs.

     Because all reserve estimates are to some degree subjective, the quantities
of oil and gas that are ultimately recovered, the production and operating costs
incurred,  the amount and timing of future  development  expenditures and future
oil and gas sales prices may differ  materially from those assumed in estimating
reserves. Furthermore,  different reserve engineers may make different estimates
of reserves and cash flows based on the same  available  data.  Inland's  actual
production,  revenues and expenditures with respect to reserves will likely vary
from estimates, and the variances may be material.

     No estimates  of total  proved net oil and gas reserves  have been filed by
the Company with,  or included in any report to, any United States  authority or
agency  pertaining to the Company's  individual  reserves since the beginning of
the Company's last fiscal year.

     Production,  Unit Prices and Costs.  The following table sets forth certain
information  regarding the production  volumes of, average sale prices  received
for, and average  production  costs for the sales of oil and gas by the Company.
See also,  the  Supplemental  Oil and Gas  Disclosures  appearing  on pages F-24
through F-27 of this Annual Report.

<TABLE>
                                                                       Year Ended December 31,
                                                         ----------------------------------------------
                                                             2001             2000           1999
                                                            ------           ------         ------
<S>                                                     <C>                 <C>            <C>
Net Production:
   Oil (MBls)...............................               1,212             1,072           1,165
   Gas (MMcf) (1)...........................               2,423             2,289           2,901
       Total (MBOE).........................               1,616             1,454           1,649
Average Sale Price(2):
   Oil (per Bbl)............................              $22.31            $26.71          $14.38
   Gas (per Mcf)(3).........................              $ 3.05            $ 2.60           $1.56
Average Production Cost:
       ($/BOE)(4)...........................              $ 5.78            $ 5.23          $ 4.34
</TABLE>

                                       5
<PAGE>

(1) Net of lease fuel used for operations.
(2) Does not reflect the effects of hedging transactions.
(3) Includes natural gas liquids.
(4) Includes direct lifting costs (labor,  repairs and  maintenance,  materials
    and supplies) and the administrative costs of production offices, insurance
    and property taxes.

    Drilling  Activities.  The following table sets forth the number of oil and
gas  wells  drilled  during  2001,  2000 and 1999 in which  the  Company  had an
interest.
<TABLE>
<CAPTION>
                                     2001                       2000                      1999
                            ---------------------     ------------------------    ----------------------
                              Gross        Net          Gross           Net         Gross         Net
                             -------     -------       -------        -------      -------      -------
<S>                          <C>          <C>          <C>             <C>         <C>           <C>
Development wells:

    Oil(1) .........           44         34.5          43(2)         34.5(2)         8           7.5

    Dry.............            1           .5           1               1            -             -
                             ------      ------        ------        ------         ------       ------
       Total.......            45         35.0          44            35.5            8           7.5
                             ======      ======        ======        ======         ======       ======
</TABLE>

     (1) All of the completed  wells have multiple  completions,  including both
     oil completions and gas completions. Consequently, pursuant to the rules of
     the Securities and Exchange  Commission,  each well is classified as an oil
     well.

     (2) Three of the wells (gross and net) were  completed  as water  injection
     wells.

     The  information  contained in the foregoing table should not be considered
indicative of future drilling performance nor should it be assumed that there is
any necessary correlation between the number of productive wells drilled and the
amount of oil and gas that may  ultimately  be  recovered  by the  Company.  The
Company does not anticipate any acquisitions of properties or major equipment at
this time.

     The  Company  does  not  own any  drilling  rigs  and  all of its  drilling
activities  are conducted by  independent  contractors  on a day rate or footage
basis under standard drilling contracts.

     Productive Oil And Gas Wells and Water Injection Wells. The following table
reflects the number of productive oil and gas wells and water injection wells in
which the Company held a working interest as of December 31, 2001:

<TABLE>
                                                                      Wells(1)
                                    ----------------------------------------------------------------------------
                                               Gross(2)                                      Net(2)
                                    ----------------------------              ----------------------------------
<S>                                   <C>             <C>                          <C>             <C>
                                                         Water                                        Water
Location                               Oil(1)          Injection                    Oil(1)          Injection
--------                               ---             ---------                    ---             ---------
Utah(3)                                494                231                       377                184
</TABLE>



(1) The Company is an  operator of 707 gross wells (558 net) and a  non-operator
with respect to 18 gross (3 net) wells.

(2) Net wells represent the sum of the actual percentage working interests owned
by the Company in gross wells at December 31, 2001.

(3) All of the Company's wells are located in the Field.

                                       6
<PAGE>


     Acreage Data. The following  table  reflects the developed and  undeveloped
acreage that the Company held as of December 31, 2001:
<TABLE>
<CAPTION>
                                           Developed Acreage                         Undeveloped Acreage(1)
                                       ------------------------                   --------------------------
          <S>                          <C>              <C>                         <C>              <C>
                                        Gross             Net                        Gross             Net
            Location                    Acres            Acres                       Acres            Acres
           ----------                  -------          -------                     -------          -------
            Utah(2)                     28,300           22,700                     103,300           78,700
</TABLE>

(1)  Undeveloped  acreage  includes  56,600  gross  (44,700  net)  acres held by
production at December 31, 2001.

(2) All of the Company's acreage is located in the Field.

     As of December 31, 2001,  the  undeveloped  acreage not held by  production
involves  241 leases  with  remaining  terms of up to 7 years.  Leases  covering
approximately 1,341 net acres have expiration dates in 2002. The Company intends
to renew expiring leases in areas considered to have good development potential.
The Company also intends to continue paying delay rentals and minimum  royalties
necessary to maintain these leases (an expense of  approximately  $76,000 net to
the Company in 2001). To the extent that wells cannot be drilled in time to hold
a lease,  which the  Company  desires to retain,  the  Company  may  negotiate a
farm-out arrangement of such lease retaining an override or back-end interest.

     Secondary  Recovery  Enhancement  Activities.  Inland presently  engages in
secondary recovery  enhancement  operations in the Field through water flooding.
Water  flooding  involves  the  pumping  of large  volumes  of water into an oil
producing  reservoir to increase or maintain  reservoir  pressures  and displace
oil,  resulting in greater crude oil production.  Inland  currently  operates 23
approved  water flood units or areas.  At December 31, 2001, the Company had 231
wells injecting an aggregate of 12,400 BWPD.  During 2001, the Company installed
42 miles of water  pipelines  to handle low  pressure  water  delivery  and high
pressure water injection. The Company also converted 33 gross (26 net) oil wells
into injection  wells.  At December 31, 2001, the Company owned and operated 182
miles of water  pipelines  and seven water  injection  plants with an  injection
capacity  of 20,000  BWPD.  Inland  has  experienced  stabilized  or  increasing
production  in many wells  offsetting  its water  injection  operations.  Inland
intends to  continue  aggressively  developing  secondary  recovery  water flood
operations by extending  infrastructure and initiating  injection in 35 wells in
the Field during 2002.

     The  Company has  agreements  with the Johnson  Water  District,  the Upper
Country Water District and the State of Utah to take up to 37,000 BWPD,  subject
to  availability,  from their  water  pipelines  for the  Company's  water flood
injection operations in the Field. All water rights are subject to various terms
and conditions including state and federal environmental  regulations and system
availability.  Inland  believes that these  agreements  will provide  sufficient
water to handle all water injection at peak field development.

     Gas Gathering and  Transportation  Systems.  As  of  the 2001 year end, the
Company  produced  approximately  14  MMcf  of  natural  gas  per  day  and sold
approximately  11  MMcf  of  natural  gas per day.  The  difference  between the
volume of natural gas produced and sold is the amount of natural  gas  that  the
Company  uses as lease fuel for operations.  The  Company  collects  and markets
approximately 90% of its  operated  gas  production  using  its  gas  gathering,
transportation and compression  system.  The system  consists  of  approximately
361 miles of pipelines and 2 compression  facilities  using  5  compressors  and
2 dehydration units with a throughput capacity of 22.5 MMcf per day.

     Delivery  Commitments.  The Company has no  material  delivery  commitments
under contracts.

     Markets for Oil and Gas. The  availability of a ready market and the prices
obtained  for the  Company's  oil and gas  depend  on many  factors  beyond  the
Company's  control,  including the extent of domestic  production and imports of
oil and gas,  the  proximity  and  capacity of natural gas  pipelines  and other
transportation facilities, fluctuating demands for oil and gas, the marketing of
competitive  fuels,  and the effects of  governmental  regulation of oil and gas
production and sales.

                                       7
<PAGE>
     The crude oil  produced  from the Field is called  Black Wax. The Black Wax
produced  from the Field is primarily  transported  by truck and refined in Salt
Lake City at one of four large refineries  operated by Big West, BP, Chevron and
Phillips.  Transportation  of large  quantities  of Black Wax by pipeline is not
currently  feasible,  and  transportation  by  truck  or rail to  refineries  in
California  or Colorado  is not  economical.  Black Wax is a valuable  commodity
since it is low in sulfur  content and can be  distilled  and cracked  into high
margin petroleum  products such as gasoline,  diesel and jet fuel;  however,  it
does not blend well with other crude oil  feedstocks  in the  refining  process.
Since Black Wax has limited compatibility in blending,  the demand for Black Wax
tends to become  inelastic  as the supply of Black Wax reaches the  cracking and
blending  capacity of the Salt Lake City refineries.  The Company  estimates the
existing  refining  capacity  for Black Wax in Salt Lake City to be higher  than
local  production.  The Company is aware of refinery  modifications  at the Big
West refinery that should further increase the demand for Black Wax.

     The Company has  various  contracts  to sell its Black Wax crude oil to the
Salt Lake City refiners.  The pricing  mechanism under each contract is directly
related to the average monthly  settlement  prices of certain futures  contracts
quoted on the New York Mercantile  Exchange index ("NYMEX").  The negative basis
differential  between  NYMEX and the Company's  wellhead  price  averaged  $3.59
during year 2001. From January 2002 and through December 2005, the Company has a
contract  with Big West to sell up to 7,000 barrels of oil per day at NYMEX less
$3.00.  The NYMEX price ranged from $19.40 to $29.69  during 2001 and was $19.40
for December  2001.  The NYMEX price  ranged from $25.54 to $34.26  during 2000.
During 2001 and 2000,  the Company  sold 56% and 59%,  respectively,  of its oil
production  to BP.  During  2001  and  2000,  the  Company  sold  35%  and  41%,
respectively, of its oil production to Chevron.

     Periodically,  the Company  enters  into  commodity  contracts  to hedge or
otherwise  reduce the impact of oil price  fluctuations.  The amortized cost and
the monthly  settlement gain or losses are reported as adjustments to revenue in
the period in which the related oil is sold.  Hedging  activities  do not affect
the actual  sales price for the  Company's  crude oil. The Company is subject to
the   creditworthiness  of  its  counterparties  since  the  contracts  are  not
collateralized. The Company entered into all of its hedging contracts with Enron
North America  Corp.  ("ENAC").  On December 2, 2001,  ENAC filed for Chapter 11
bankruptcy. The ENAC bankruptcy caused a default on all of the Company's hedging
contracts from November 2001 through  September 30, 2003. The Company recorded a
loss of $5.5 million to the statement of  operations to reflect  ineffectiveness
of the  derivative  contracts  following  the filing of Chapter 11 bankruptcy of
ENAC. On January 30, 2002, the Company  terminated all of its hedging  contracts
with ENAC and determined a potential  bankruptcy claim against ENAC in excess of
$7.5 million.

     The Company markets  substantially all of its operated gas production.  The
Company  had  contracts  to sell  3,400 Mcf per day from  January  2001  through
October 2001 at $4.70 per Mcf. The Company currently has contracts to sell 5,042
Mcf per day from November 2001 through March 2002 at $2.89 per Mcf and 5,042 Mcf
per day from April 2002  through  October of 2002 at $2.28 per Mcf.  Natural gas
marketed  by the Company not  subject to gas  purchase  agreements  is sold on a
month-to-month  basis in the spot  market,  the price of which ranged from $1.13
per Mcf to $10.21  per Mcf  during  2001 and from  $2.52 to $7.18 per Mcf during
2000, and was $2.40 per Mcf for December 2001. All spot market sales during 2001
and 2000 were made to Wasatch Energy  Corporation  ("Wasatch").  Inland believes
that the loss of Wasatch as a purchaser of its gas  production  would not have a
material  adverse effect on its results of operations due to the availability of
other natural gas purchasers in the area.

     On March 22, 2002, Questar Pipeline Company ("QPC") curtailed all gas
producers in the Monument Butte Field, including Inland, for not meeting certain
QPC specifications. After curtailment, Inland is producing and transporting
approximately 50% of its total gas capacity. The Company is in the process of
installing a gas liquid plant in the Field that would bring all of its gas up to
QPC's pipeline specifications. The gas liquid plant will be operational in
approximately 60 days. The Company believes that the current gas curtailment is
not significant to the Company's operations.

     Regulation  of  Exploration  and  Production.  The  Company's  oil  and gas
exploration,  production and related  operations are subject to extensive  rules
and  regulations  promulgated by federal and state  agencies.  Failure to comply
with such  rules  and  regulations  can  result in  substantial  penalties.  The
regulatory  burden on the oil and gas industry  increases the Company's  cost of
doing business and affects its profitability. Because such rules and regulations
are frequently amended or interpreted differently by regulatory agencies, Inland
is unable to accurately predict the future cost or impact of complying with such
laws.

     The  Company's  oil and  gas  exploration  and  production  operations  are
affected  by state and federal  regulation  of oil and gas  production,  federal
regulation of gas sold in interstate and intrastate commerce,  state and federal
regulations governing  environmental quality and pollution control, state limits
on allowable  rates of production by a well or proration  unit and the amount of
oil and gas  available  for sale,  state and federal  regulations  governing the
availability  of  adequate  pipeline  and other  transportation  and  processing
facilities,  and  state  and  federal  regulation  governing  the  marketing  of
competitive  fuels. For example,  a productive gas well may be "shut-in" because
of an  over-supply  of gas or lack of an available  gas pipeline in the areas in
which Inland may conduct operations. State and federal regulations generally are
intended to prevent waste of oil and gas,  protect rights to produce oil and gas
between owners in a common reservoir, control the amount of oil and gas produced
by assigning  allowable  rates of production  and control  contamination  of the
environment. Pipelines are subject to the jurisdiction of various federal, state
and local agencies.
                                       8
<PAGE>

     Many state authorities  require permits for drilling  operations,  drilling
bonds and reports concerning  operations and impose other requirements  relating
to the  exploration  and  production  of oil and  gas.  Such  states  also  have
ordinances,  statutes or regulations addressing conservation matters,  including
provisions  for the  unitization  or  pooling  of oil and  gas  properties,  the
regulation of spacing,  plugging and abandonment of such wells,  and limitations
establishing  maximum rates of production  from oil and gas wells.  However,  no
Utah regulations provide such production limitations with respect to the Field.

     Environmental Regulation. The recent trend in environmental legislation and
regulation has been generally  toward  stricter  standards,  and this trend will
likely  continue.  The Company  does not  presently  anticipate  that it will be
required to expend  amounts  relating to its oil and gas  production  operations
that are material in relation to its total capital expenditure program by reason
of environmental laws and regulations, but because such laws and regulations are
subject to interpretation by enforcement  agencies and are frequently changed by
legislative  bodies,  the Company is unable to  accurately  predict the ultimate
cost of such compliance for 2002.

     The  Company is subject to  numerous  laws and  regulations  governing  the
discharge  of  materials  into  the   environment   or  otherwise   relating  to
environmental protection. These laws and regulations may require the acquisition
of a permit  before  drilling  commences,  restrict  the types,  quantities  and
concentration of various substances that can be released into the environment in
connection with drilling and production  activities,  limit or prohibit drilling
activities  on  certain  lands  lying  within  wilderness,  wetlands,  and areas
containing  threatened and  endangered  plant and wildlife  species,  and impose
substantial  liabilities for unauthorized pollution resulting from the Company's
operations.

     The following environmental laws and regulatory programs appeared to be the
most  significant  to the  Company's  operations  in 2001,  and are  expected to
continue to be significant in 2002:

     Regulated  Access to Public Lands.  A substantial  portion of the Company's
operations occur on federal leaseholds.  During 1996, the Vernal, Utah office of
the  Bureau  of  Land  Management   ("BLM")  undertook  the  preparation  of  an
Environmental  Assessment  ("EA") to evaluate the  environmental  impacts of the
Company's  proposed  development  plan within the Field.  The Agency's Record of
Decision  ("ROD") on the EA,  which was issued on February  3, 1997,  identified
surface  stipulations and mitigation measures that the Company must implement to
protect various surface resources,  including  protected and sensitive plant and
wildlife  species,  archaeological  and  paleontological  resources,  soils  and
watersheds.  The Company has proven  itself  successful at continuing to develop
oil and gas resources in the Field while complying with the surface stipulations
and mitigation  measures  contained in the 1997 ROD. In 2002, the BLM will begin
evaluating  the  environmental  impacts  of 600 to 900 new  wells  proposed  for
development by the Company over a five to ten year period  beginning in 2004. An
Environmental  Impact  Statement  ("EIS") will be prepared by BLM in 2002, and a
final ROD on the EIS should be issued in mid-2003.

     On February 16, 1999, the United States Fish and Wildlife Service ("USFWS")
issued a Proposed Rule to list the mountain plover, a small ground-nesting bird,
as "threatened" under the Federal Endangered Species Act. The Field contains the
only known  breeding  population of mountain  plover in Utah.  The USFWS had not
issued  a Final  Rule to list the  mountain  plover  as of  December  31,  2001,
however,  the  USFWS  and BLM are  likely to  implement  additional  restrictive
surface  stipulations in the Field once a Final Rule to list the mountain plover
as threatened is issued.  Based on  preliminary  discussions  with the USFWS and
BLM, the Company believes it will be able to comply with any additional  surface
stipulations  without  causing a material impact on its future drilling plans in
the Field.

     Clean Water and Oil Pollution Regulatory Programs.  The federal Clean Water
Act ("CWA") regulates  discharges of pollutants to surface waters. The discharge
of crude oil and petroleum  products to surface  waters also is precluded by the
Oil Pollution Act ("OPA").  The Company's  operations are inherently  subject to
accidental  spills and releases of crude oil and  drilling  fluids that may give
rise to liability to  governmental  entities or private  parties under  federal,
state or local  environmental  laws,  as well as under common law.  Minor spills
occur from time to time  during the normal  course of the  Company's  production
operations.  The Company maintains spill prevention  control and  countermeasure
plans ("SPCC plans") for facilities that store large  quantities of crude oil or
petroleum  products  to prevent  the  accidental  discharge  of these  potential
pollutants  to  surface  waters.  As of  December  31,  2001,  the  Company  had
undertaken all investigative or remedial work required by governmental  agencies
to address  potential  contamination by accidental spills or discharges of crude
oil or drilling fluids.

                                       9

<PAGE>

     The Company's operations involve the injection of water into the subsurface
to enhance oil recovery. Under the Safe Drinking Water Act ("SDWA"), oil and gas
operators,  such as the Company,  must obtain a permit for the  construction and
operation of underground Class II enhanced recovery underground injection wells.
To protect against contamination of drinking water, the Environmental Protection
Agency  ("EPA") and the State of Utah  regulate the quality of water that may be
injected into the  subsurface,  and require that  mechanical  integrity tests be
performed  on  injection  wells every five years.  In  addition,  the Company is
required to monitor the pressure at which water is injected, and must not exceed
the maximum allowable injection pressure set by the EPA and the State of Utah.

     The Company has obtained the  necessary  permits for the Class II injection
wells it operates,  and monitors the water quality of injection water at several
injection stations.  The Company also maintains a schedule to conduct mechanical
integrity  tests for each well every five years.  The Company  experienced  some
difficulty  monitoring and  regulating  injection  pressures at each  individual
injection  well during the period  from 1995 to 1998.  The Company has reached a
Settlement  with EPA on injection well over  pressuring  during the 1995 to 1998
time  period,  and  is  currently  in  substantial   compliance  with  the  EPAs
underground  injection program. The Company developed a computer program in 1999
to assist with  monitoring  injection  pressures that has enhanced the Company's
efforts to meet EPA requirements.

     Clean Air Regulatory Programs.  The Company's operations are subject to the
federal Clean Air Act ("CAA"), and state implementing  regulations.  Among other
things, the CAA requires all major sources of hazardous air pollutants,  as well
as major  sources of certain  other  criteria  pollutants,  to obtain  operating
permits,  and in some cases,  construction  permits.  The permits  must  contain
applicable  Federal and state  emission  limitations  and  standards  as well as
satisfy other statutory and regulatory requirements.  The 1990 Amendments to the
CAA also established new monitoring,  reporting, and recordkeeping  requirements
to provide a reasonable  assurance of compliance  with emission  limitations and
standards.  The Company currently obtains construction and operating permits for
its  compressor  engines,  and is not presently  aware of any potential  adverse
claims in this regard.

     Waste Disposal Regulatory  Programs.  The Company's operations generate and
result in the  transportation and disposal of large quantities of produced water
and other wastes  classified by EPA as "nonhazardous  solid wastes".  The EPA is
currently  considering the adoption of stricter disposal and clean-up  standards
for nonhazardous  solid wastes under the Resource  Conservation and Recovery Act
("RCRA").  In some instances,  EPA has already  required the clean up of certain
nonhazardous  solid waste reclamation and disposal sites under standards similar
to those  typically  found only for hazardous  waste disposal  sites. It also is
possible that wastes that are currently  classified  as  "nonhazardous"  by EPA,
including  some wastes  generated  during the Company's  drilling and production
operations,  may in the future be  reclassified as "hazardous  wastes".  Because
hazardous  wastes  require  much more  rigorous and costly  treatment,  storage,
transportation and disposal requirements, such changes in the interpretation and
enforcement  of  the  current  waste  disposal   regulations   would  result  in
significant increases in waste disposal expenditures by the Company.

     The Comprehensive  Environmental  Response,  Compensation and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct,  on certain classes of persons
who are  considered to have caused or  contributed  to the release or threatened
release of a "hazardous  substance" into the environment.  These persons include
the current or past owner or operator  of the  disposal  site or sites where the
release  occurred and companies  that  transported  disposed or arranged for the
disposal of the hazardous  substances under CERCLA. These persons may be subject
to joint and  several  liability  for the  costs of  cleaning  up the  hazardous
substances  that have been  released  into the  environment  and for  damages to
natural  resources.  The Company is not presently aware of any potential adverse
claims in this regard.

     Health and Safety Regulatory  Programs.  The Company's  operations also are
subject  to  regulations  promulgated  by the  Occupational  Safety  and  Health
Administration  ("OSHA")  regarding  worker and work place  safety.  The Company
currently provides health and safety training and equipment to its employees and
is adopting  additional  corporate policies and procedures to comply with OSHA's
workplace safety standards.

     Operational  Hazards And Uninsured Risks. The oil and gas business involves
certain inherent operating hazards such as well blowouts, cratering, explosions,
uncontrollable flows of oil, gas or well fluids, fires, formations with abnormal
pressures,  pollution, releases of toxic gas and other environmental hazards and
risks. Any of these operating hazards could result in substantial  losses to the
Company. In accordance with customary industry practices,  the Company maintains
insurance  against some, but not all, of these risks and losses.  The Company is
also required under various  operating  agreements to maintain certain insurance
coverage on existing wells and all new wells drilled during drilling operations,
and name  others as  additional  insureds  under such  insurance  coverage.  The
occurrence  of an event  that is not fully  covered by  insurance  could have an
adverse impact on the Company's financial condition and results of operations.

                                       10

<PAGE>

     Competition.  Many companies and individuals are engaged in the oil and gas
business.  Inland  is faced  with  strong  competition  from  major  oil and gas
companies and other independent  operators attempting to acquire prospective oil
and gas leases,  producing oil and gas properties  and other mineral  interests.
Some  competitors are very large,  well-established  companies with  substantial
capabilities  and long  earnings  records.  Inland may be at a  disadvantage  in
acquiring  oil and gas  prospects  since it must  compete with  individuals  and
companies that have greater financial resources and larger technical staffs than
Inland.

     With  respect  to Black Wax  production,  additional  competitive  pressure
result  from the  inelasticity  in the demand  for Black Wax after the  refining
capacity in the Salt Lake City area is reached.

DISCONTINUED REFINING OPERATIONS

     General.  As  noted  above  under  "Overview",  Inland  sold  its  refinery
operations  effective  as of January  31,  2000 by  selling  all of its stock in
Refining to Silver  Eagle.  The Company's  refining  operations  were  conducted
through its wholly-owned  subsidiary,  Refining,  at the Woods Cross Refinery, a
hydroskimming plant with an overall crude capacity of approximately 10,000 BPD.

     The  financial  statements  included  with this Annual  Report  reflect all
necessary  adjustments to record Refining at net realizable value as of December
31, 1999,  and to reflect the refining  operations as  discontinued  operations.
Consequently, separate segment information and a separate discussion of refinery
operations, are not included in this Annual Report.

     Environmental Regulations Associated with Discontinued Refining Operations.
As of December 31, 2001, the Company was not aware of any remaining  liabilities
associated with any of its previously held refining  properties.  There remains,
however, the possibility that federal, state, or local governmental agencies, or
private parties could attempt to join the Company in clean-up efforts associated
with previously held refining properties should they be required.

EMPLOYEES

     At February 19, 2002,  the Company had 108  employees,  consisting of three
executive officers, 20 technical,  clerical and administrative  employees and 85
field operations staff involved in the Company's oil and gas operations in Utah.
A sale or  strategic  alliance of the Company  could  affect a number of Company
employees.

OTHER PROPERTY

     The Company's  principal  executive office is located in Denver,  Colorado.
The Company  leases  approximately  16,500  square feet pursuant to a lease that
expires in December  2002 and  provides  for a rental rate of $25,000 per month.
Such  space  is  adequate  for the  foreseeable  future.  The  Company  owns the
Roosevelt Utah field office (20,200 square feet) and land (40 acres).

CERTAIN DEFINITIONS

The  following  are  abbreviations  and words  commonly  used in the oil and gas
industry and in this Annual Report.

"bbl"  or  "barrel"  means  barrels,  a  standard  measure  of  volume  for oil,
condensate and natural gas liquids which equals 42 U.S. gallons.

"BOE" means equivalent  barrels of oil. In reference to natural gas, natural gas
equivalents are determined  using the ratio of six Mcf of natural gas to one Bbl
of crude oil, condensate or natural gas liquids.

"BPD" means barrels per day.

"BWPD" means barrels of water per day.

                                       11

<PAGE>

"development  well" means a well drilled within the proved area of an oil or gas
reservoir to the depth of a stratigraphic horizon known to be productive.

"exploration  well"  means  a  well  drilled  to  find  commercially  productive
hydrocarbons  in an  unproved  area or to  extend  significantly  a known oil or
natural gas reservoir.

"farm-in" or "farm-out" refers to an agreement whereunder the owner of a working
interest  in an oil and gas lease  delivers  the  contractual  right to earn the
working  interest or a portion  thereof to another party who desires to drill on
the leased  acreage.  Generally,  the  assignee is required to drill one or more
wells in order to earn a working  interest in the acreage.  The assignor usually
retains a royalty or a working  interest after payout in the lease. The assignor
is  said  to  have  "farmed-out"  the  acreage.  The  assignee  is  said to have
"farmed-in" the acreage.

"gathering  system"  means a  pipeline  system  connecting  a number  of  wells,
batteries or platforms to an interconnection with an interstate pipeline.

"gross" oil and natural gas wells or "gross" acres are the total number of wells
or acres, respectively,  in which the Company has an interest, without regard to
the size of that interest.

"MBls" means one thousand barrels.

"MBOE" means one thousand equivalent barrels of oil.

"Mcf" means one thousand cubic feet, a standard measure of volume for gas.

"MMcf" means one million cubic feet.

"net" oil and natural  gas wells or "net"  acres are the total  gross  number of
wells or acres  respectively  in which the Company  has an  interest  multiplied
times the Company's or other  referenced  party's working interest in such wells
or acres.

"posted  field price" is an industry  term for the fair market value of oil in a
particular field.

"productive wells" are producing wells or wells capable of production

In this Annual Report, natural gas volumes are stated at the legal pressure base
of the  state  or area in which  the  reserves  are  located  and at 60  degrees
Fahrenheit.

ITEM 3. LEGAL PROCEEDINGS

None.

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

None.



                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       12
<PAGE>


                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

Since July 29, 1999, Inland's Common Stock has been traded  over-the-counter and
quoted  from time to time in the OTC  Bulletin  Board  and in the "Pink  Sheets"
under the trading symbol "INLN".  Prior to July 29, 1999,  Inland's Common Stock
was quoted on the Nasdaq  SmallCap  Market under the symbol "INLN".  As of March
13,  2002,  there were  approximately  513 holders of record of Inland's  Common
Stock.  The following table sets forth the range of high and low sales prices as
reported by Nasdaq for the periods  indicated  prior to July 29,  1999,  and the
range of high and low bid prices as reported by the OTC  Bulletin  Board for the
periods  indicated  after July 29, 1999.  The  quotations  reflect  inter-dealer
prices without retail markup,  markdown or commission,  and may not  necessarily
represent actual transactions. All prices have been adjusted to give retroactive
effect to the 1-for-10  reverse  split of the Common Stock  effected on December
14, 1999.  This  adjustment was made by multiplying the actual price by a factor
of 10.  There can be no  assurance  that the shares  would  have  traded at such
adjusted  price had the  reverse  split  occurred  prior to the dates  reflected
below.

<TABLE>
<CAPTION>
                                                               Common Stock Price Range
                                                             ------------------------------

                                                                  High                  Low
                                                                 ------                ------

        <S>                                                      <C>                   <C>
          YEAR ENDED DECEMBER 31, 2001
          First Quarter...................................     $   1.87             $  1.03
          Second Quarter..................................         1.69                1.25
          Third Quarter...................................         1.60                1.30
          Fourth Quarter..................................         2.10                1.32

         YEAR ENDED DECEMBER 31, 2000
          First Quarter...................................     $   7.00             $  2.13
          Second Quarter..................................         7.00                3.00
          Third Quarter...................................         5.75                4.25
          Fourth Quarter..................................         3.88                0.94
</TABLE>

DIVIDEND POLICY

Inland has not paid cash dividends on Inland's Common Stock during the last five
years  and  does  not  intend  to pay  cash  dividends  on  Common  Stock in the
foreseeable  future.  The  payment of future  dividends  will be  determined  by
Inland's  Board of Directors in light of  conditions  then  existing,  including
Inland's earnings,  financial condition,  capital requirements,  restrictions in
financing  agreements,  business conditions and other factors. The Fortis Credit
Agreement forbids the payment of dividends by Inland on its Common Stock.

ITEM 6. SELECTED FINANCIAL DATA

The following tables set forth selected  historical  consolidated  financial and
operating  data for Inland as of and for each of the five years  ended  December
31, 2001.  Inland  utilizes the successful  efforts method of accounting for oil
and gas  activities.  Such data  should  be read  together  with the  historical
consolidated financial statements of Inland incorporated in this annual report.

                                       13
<PAGE>

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                        -------------------------------------------------------
                                                          2001           2000       1999       1998        1997
                                                        --------       -------     ------     ------      ------
<S>                                                      <C>            <C>        <C>        <C>         <C>
                                                             (dollars in thousands, except for unit amounts)
REVENUE AND EXPENSE DATA:
Revenues:
   Oil and gas sales................................    $31,487        $28,497     $16,399   $21,278     $17,182

Operating expenses:
   Lease operating expenses.........................      9,344          7,596       7,160     8,362       3,780
   Production taxes.................................        479            483         192       454         383
   Exploration......................................        143            135         155       153          61
   Impairment.......................................          -              -           -     1,327           -
   Depletion, depreciation and amortization.........      9,106          7,816       9,882    12,025       6,480
   General and administrative, net..................      1,486          2,128       3,136     2,061       2,118
                                                        --------        -------     -------   -------     -------
      Total operating expenses......................     20,558         18,158      20,525    24,382      12,822
                                                        --------        -------     -------   -------     -------
Operating income (loss).............................     10,929         10,339      (4,126)   (3,104)      4,360


Interest expense....................................    (12,031)        (8,298)    (15,989)  (14,895)     (4,759)
Unrealized derivative...............................     (5,548)             -           -         -           -
Interest and other income...........................        626            103          72       107         380
                                                        --------        -------     -------   -------     -------
Net income (loss) from continuing operations             (6,024)         2,144     (20,043)  (17,892)        (19)
Loss from discontinued operations.............                -           (250)    (16,274)   (5,560)          -
                                                        --------        -------     -------   -------     -------
Net income (loss) before extraordinary loss and
   cumulative effect of change in accounting
   principle........................................     (6,024)         1,894     (36,317)  (23,452)        (19)
Extraordinary loss..................................          -                       (556)               (1,160)
Cumulative effect of change in accounting principle.         45              -           -         -           -
                                                        --------        -------     -------   -------     -------
Net income (loss) ..................................     (5,979)         1,894     (36,873)  (23,452)     (1,179)

Redemption premium - Preferred Series B Stock.......          -              -           -         -        (580)
Accrued Preferred Series C Stock dividends..........          -              -        (663)   (1,084)       (450)
Accrued Preferred Series D Stock dividends..........     (6,342)        (9,732)     (2,262)        -           -

Accrued Preferred Series E Stock dividends..........       (980)        (1,506)       (350)        -           -
Accretion of Preferred Series D Stock discount......     (3,318)        (6,300)     (1,473)        -           -
Accretion of Preferred Series E Stock discount......       (535)          (900)       (220)        -           -
Excess carrying value of Series E preferred
         over redemption consideration .............     13,083              -           -         -           -
                                                         -------        -------     --------   -------    -------
Net loss attributable to common stockholders....        $(4,071)      $(16,544)    $(41,841) $(24,536)   $(2,209)
                                                         =======        =======     ========   =======    =======

Net income (loss)...............................        $(5,979)       $ 1,894     $(36,873) $(23,452)   $(1,179)
Change in fair value of derivative contracts              5,503              -            -         -          -
                                                        --------        -------     -------    -------    -------
Comprehensive income (loss).....................        $  (476)       $ 1,894     $(36,873) $(23,452)   $(1,179)
                                                        ========        =======     =======    =======    =======

Loss per common share from continuing operations
     Basic......................................        $ (1.42)       $ (5.62)    $ (17.56) $ (22.62)   $ (1.42)
     Diluted....................................          (1.42)         (5.62)      (17.56)   (22.62)     (1.42)

Loss per common share before extraordinary loss and
  cumulative effect of change in accounting
    principle
     Basic......................................        $ (1.40)       $ (5.71)    $ (28.99) $ (29.25)   $ (1.42)
     Diluted....................................          (1.40)         (5.71)      (28.99)   (29.25)     (1.42)

Loss per common share:
     Basic......................................        $ (1.40)       $ (5.71)    $ (29.37) $ (29.25)   $ (2.99)
     Diluted....................................          (1.40)         (5.71)      (29.37)   (29.25)     (2.99)
</TABLE>

                                       14
<PAGE>

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                          -------------------------------------------------------
                                                           2001          2000          1999        1998       1997
                                                          ------        ------        ------      ------     ------
<S>                                                      <C>           <C>           <C>         <C>        <C>
                                                              (dollars in thousands, except for unit amounts)
BALANCE SHEET DATA (AT END OF PERIOD):
Oil and gas properties, net.........................     $162,025      $148,955      $142,412    $159,105   $133,820
Total assets........................................      173,376       160,065       153,402     187,781    175,953
Debt................................................      197,456        83,500        79,082     156,973    123,111
Preferred stock.....................................            -        91,243        72,805      11,102     10,018
Stockholders' equity (deficit)......................      (30,412)      (20,210)       (3,666)      7,039     30,672

OTHER FINANCIAL DATA:

Net cash provided by (used in) operating activities....  $ 16,663      $  7,992       $(7,513)   $  6,822   $  5,668
Net cash used in investing activities...............      (22,289)      (14,137)       (3,772)    (39,391)   (99,272)
Net cash provided by financing activities...........        6,727         4,085        10,502      47,076    107,128

OPERATING DATA:
Sales volumes (net):
     Oil (MBbls)................................            1,212         1,072         1,165       1,501        855
     Gas (MMcf).................................            2,423         2,289         2,901       3,006      1,637
     MBOE.......................................            1,616         1,454         1,649       2,002      1,128
     BOEPD......................................            4,427         3,973         4,518       5,485      3,090
Average prices (excluding hedging activities):
     Oil (per Bbl)..............................         $  22.31      $  26.71      $  14.38    $   9.82   $  16.17
     Gas (per Mcf)..............................             3.05          2.60          1.56        2.00       2.19
     Per BOE....................................            21.30         23.79         12.90       10.35      15.23

 Production and operating costs (per BOE) (1)....        $   5.78      $   5.23      $   4.34    $   4.18   $   3.35
</TABLE>

(1) Excludes production taxes.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following  discussion  should be read in conjunction with the Company's
consolidated  financial  statements and notes thereto included elsewhere in this
Annual  Report  and the  information  set  forth  under  the  heading  "Selected
Financial Data" and is intended to assist in the  understanding of the Company's
financial  position  and  results  of  operations  for each of the  years  ended
December 31, 2001, 2000 and 1999.

GENERAL

     Inland is a  diversified  and  independent  energy  company  engaged in the
acquisition,  development  and  enhancement  of oil  and gas  properties  in the
western United States.  All of the Company's oil and gas reserves are located in
the Monument  Butte Field (the "Field")  within the Uinta Basin of  northeastern
Utah.

     On January 31,  2000,  the Company sold its 100% owned  subsidiary,  Inland
Refining,  Inc. The subsidiary owned the Woods Cross Refinery and a nonoperating
refinery  located in Roosevelt,  Utah.  The Woods Cross  refinery was originally
purchased on December 31, 1997 for $22.9 million and the Roosevelt  refinery was
originally  purchased on September 16, 1998 for $2.25 million. Due to this sale,
the Company is no longer  involved  in the  refining of crude oil or the sale of
refined products.  As a result, all refining  operations have been classified as
discontinued operations in the accompanying consolidated financial statements.

     In January 2002, the Company  announced  that it had hired Lehman  Brothers
Inc. and  Petroleum  Place Energy  Advisors to advise the Company  regarding its
review of strategic  alternatives,  which may include a potential sale or merger
of the  Company.  The  Company  is engaged  in  various  levels of  negotiations
regarding such a transaction.

                                       15
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Our  discussion  of financial  condition and results of operation are based
upon the information  reported in our  consolidated  financial  statements.  The
preparation of these financial  statements  requires us to make  assumptions and
estimates that affect the reported amounts of assets, liabilities,  revenues and
expenses as well as the disclosure of contingent  assets and  liabilities at the
date of our financial statements. We base our decisions on historical experience
and  various  other  sources  that  are  believed  to be  reasonable  under  the
circumstances. Actual results may differ from the estimates we calculated due to
changing business  conditions or unexpected  circumstances.  Policies we believe
are critical to understanding our business  operations and results of operations
are detailed below.  For additional  information on our  significant  accounting
policies  you  should  see Note 1 in  our  accompanying  consolidated  financial
statements.

     Revenue   recognition.   The   Company  is  engaged  in  the   acquisition,
development,  and enhancement of oil and gas properties of crude oil and natural
gas. Our revenue  recognition policy is significant because our revenue is a key
component  of our  results of  operations  and our  forward  looking  statements
contained in Liquidity and Capital  Resources.  We derive our revenue  primarily
from the sale of produced crude oil and natural gas.  Revenue is recorded in the
month our  production  is delivered to the  purchaser,  but payment is generally
received between 30 and 60 days after the date of production. At the end of each
period we make estimates of the amount of production  delivered to the purchaser
and the  price  we  received.  We use our  knowledge  of our  properties,  their
historical performance,  NYMEX and local spot market prices and other factors as
the basis for these  estimates.  Variances  between our estimates and the actual
amounts received are recorded in the month payment is received.

     Oil  and gas  reserve  quantities.  Estimated  reserve  quantities  and the
related  estimates of future net cash flows affect our periodic  calculations of
depletion,  depreciation  and impairment for our proved oil and gas  properties.
Proved oil and gas reserves are the estimated  quantities of crude oil,  natural
gas and natural gas liquids which  geological and engineering  data  demonstrate
with  reasonable  certainty  to  be  recoverable  in  future  years  from  known
reservoirs under existing economic and operation conditions.  Future inflows and
future  production and  development  costs are determined by applying  benchmark
prices and costs, including transportation and basis differentials, in effect at
the end of each period to the  estimated  quantities of oil and gas remaining to
be  produced  at the end of that  period.  Expected  cash  flows are  reduced to
present value using a discount rate that depends upon the  calculation for which
the reserve estimates will be used. Reserve estimates are inherently  imprecise.
Estimates of new discoveries  are more imprecise that those of proved  producing
oil and gas properties. We expect that periodic reserve estimates will change in
the future, as additional information becomes available or as oil and gas prices
and costs change. For any period,  unknown circumstances could have caused us to
calculate more or less depletion,  depreciation or impairment.  Changes in these
calculations  caused by  changes  in  reserve  quantities  or net cash flows are
recorded in the period that the reserve estimates changed.

     Valuation of long-lived and intangible  assets.  Our property and equipment
are recorded at cost. An impairment  allowance is provided on unproved  property
when we  determine  that the  property  will not be  developed.  We evaluate the
reliability of our proved producing and other long-lived  assets whenever events
or changes in circumstances  indicate that an impairment may have occurred.  Our
impairment  test compares the expected  undiscounted  future net revenues from a
property using escalated  pricing with the related net capitalized  costs of the
property at the end of each period.  When the net  capitalized  costs exceed the
undiscounted  future net  revenue of a  property,  the cost of the  property  is
written down to our estimate of fair value,  which is  determined  by applying a
10% discount rate to future net revenues.  Each company has its own criteria for
acceptable  internal  rates of return,  and those criteria can change over time.
Different  pricing  assumptions  or discount  rates would  result in a different
calculated impairment.

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

     Oil and Gas Sales.  Crude oil and  natural  gas  revenue for the year ended
December 31, 2001 increased $3 million,  or 11% from the previous year. As shown
in the table below,  the $3 million  variance in 2001 was caused by higher crude
oil and  natural gas  volumes  and,  in the case of natural  gas higher  average
prices, offset by lower crude oil prices. The Company operates and is in control
of over 98% of its oil and gas  production.  Crude oil sales as a percentage  of
total oil and gas sales  were 79% and 83%  during  2001 and 2000,  respectively.
Crude oil will continue to be the predominant product produced from the Field.

                                       16
<PAGE>

     The Company had entered into price  protection  agreements to hedge against
volatility  in crude oil  prices.  The Company  entered  into all of its hedging
contracts  with Enron North America Corp.  ("ENAC").  On December 2, 2001,  ENAC
filed for Chapter 11 bankruptcy.  The ENAC  bankruptcy  caused default on all of
the Company's  hedging  contracts from November 2001 through September 30, 2003.
The Company  recorded a loss of $5.5 million to the  statement of  operations to
reflect  ineffectiveness  of the  derivative  contracts  following the filing of
Chapter 11 bankruptcy of ENAC.  The amount that had been deferred in accumulated
other  comprehensive  income  will be  reclassified  to  earnings  based  on the
originally  scheduled  delivery  period.  Amounts expected to be reclassified to
earnings in 2002 and 2003 are $3,993,000 and $1,510,000,  respectively. Although
hedging  activities do not affect the Company's actual sales price for crude oil
in the Field,  the financial  impact of hedging  transactions  is reported as an
adjustment  to crude oil revenue in the period in which the related oil is sold.
Crude oil sales were decreased by $2.9 million and $6.1 million during year 2001
and 2000,  respectively,  to recognize hedging contract  settlement  losses. See
Item 7A "Quantitative and Qualitative Disclosures About Market Risk".

     On January 30, 2002, the Company terminated all of its hedging contracts
with ENAC and determined a potential bankruptcy unsecured claim against ENAC in
excess of $7.5 million.

<TABLE>
<CAPTION>
                              Year Ended December 31, 2001                      Year Ended December 31, 2000
                        -----------------------------------------       --------------------------------------------

                          Net Volume      Average      Sales              Net Volume       Average         Sales
                        (Bbls or Mcfs)     Price     (in 000's)         (Bbls or Mcfs)      Price         (in 000's)
                        --------------    -------    ----------         --------------     -------        ----------
<S>                    <C>               <C>        <C>                <C>                <C>            <C>
Crude Oil Sales             1,211,793       $22.31      $ 27,034            1,071,752          $26.71       $ 28,627
Natural Gas Sales           2,422,612       $ 3.05         7,394            2,289,059           $2.60          5,953
Hedging Loss                                              (2,941)                                             (6,083)
                                                        ---------                                           --------
   Total Revenue                                        $ 31,487                                            $ 28,497
                                                        =========                                           ========
</TABLE>

     Lease  Operating  Expenses.  Lease  operating  expense  for the year  ended
December 31, 2001 increased  $1,748,000,  or 23% from the previous  year.  Lease
operating expense per BOE increased from $5.23 per BOE sold in 2000 to $5.78 per
BOE in 2001.  The  increase in year 2001 on a BOE basis is due to  substantially
higher  costs of materials  and labor,  due to  increased  demand for  products,
services and employees in the Monument Butte region and neighboring areas.

     Production  Taxes.  Production  taxes as a percentage of sales were 1.4% in
2001 and 1.4% in 2000.  Production  tax  expense  consists of  estimates  of the
Company's  yearly effective tax rate for Utah state severance tax and production
ad valorem tax.  Changes in sales  prices,  tax rates,  tax  exemptions  and the
timing, location and results of drilling activities can all affect the Company's
actual effective tax rate.

     Exploration.  Exploration expense in 2001 and 2000 represents the Company's
cost to retain unproved acreage including delay rentals.

     Depletion,  Depreciation  and  Amortization.  Depletion,  depreciation  and
amortization  for the year ended  December  31, 2001  increased  16.5%,  or $1.3
million,  from the previous  year. The increase  resulted from  increased  sales
volumes and a higher average  depletion rate.  Depletion,  which is based on the
units-of-production  method,  comprises  the majority of the total  charge.  The
depletion rate is a function of capitalized costs and related  underlying proved
reserves in the periods  presented.  The Company's  average  depletion  rate was
$5.26 per BOE sold during 2001 compared to $4.95 per BOE sold during 2000. Based
on December 31, 2001 proved reserves, the Company's depletion rate entering 2002
is $5.25 per BOE.

     General and Administrative, Net. General and administrative expense for the
year ended December 31, 2001 decreased $642,000, or 30% from the previous year.
General and administrative expense is reported net of operator fees and
reimbursements which were $7.5 million and $5.5 million during 2001 and 2000,
respectively. Gross general and administrative expense was $9 million in 2001
and $7.2 million in 2000. The lower net general and administrative expenses for
2001 was due to higher reimbursement from operating overhead, drilling and labor
due to the 2001 drilling program offset by higher labor and benefit costs.

                                       17
<PAGE>

     Interest  Expense.  Interest  expense for the year ended  December 31, 2001
increased  $3.7  million,  or 45% from the previous  year.  The increase was the
result  of the new  issuance  of  subordinated  debt on  August  2, 2001 of $109
million at a rate of 11% per annum.  Accrued interest on the  subordinated  debt
for 2001 was $5 million  compared to none for 2000.  Interest on the senior bank
debt  decreased $1.5 million or 19% from the previous  year.  Borrowings  during
2001 and 2000 were  recorded  at  effective  interest  rates of 8.8% and  10.2%,
respectively.

     Other Income. Other income in 2001 and 2000 primarily represents interest
earned on the investment of surplus cash balances and miscellaneous other
income.

     Income  Taxes.  In 2001 and 2000,  no income tax  provision  or benefit was
recognized due to net operating losses incurred and the  establishment of a full
valuation allowance.

     Preferred  Series  D Stock  Dividends.  Inland's  Preferred  Series D Stock
accrued dividends at 11.25% compounded quarterly. The amount accrued represented
those dividends earned through August 1, 2001 and during 2000, respectively.  As
discussed under Note 5 to the Consolidated  Financial Statements,  the Company's
Preferred  Series D Stock was  cancelled  in exchange  for the TCW  subordinated
notes and $2 million on August 2, 2001.

     Preferred  Series  E Stock  Dividends.  Inland's  Preferred  Series E Stock
accrued dividends at 11.5% compounded quarterly.  The amount accrued represented
those dividends earned through August 1, 2001 and during 2000, respectively.  As
discussed under Note 5 to the Consolidated  Financial Statements,  the Company's
Preferred Series E Stock was cancelled on August 2, 2001.

     Preferred  Series D Stock Discount.  Inland's  Preferred Series D Stock was
initially  recorded on the  financial  statements at a discount of $20.2 million
and was being accreted to face value ($80.7 million) over the minimum  mandatory
redemption period,  that started on April 1, 2002 and ended on April 1, 2004. As
discussed under Note 5 to the Consolidated  Financial Statements,  the Company's
Preferred  Series D Stock was cancelled in exchange for TCW  subordinated  notes
and $2 million on August 2, 2001.

     Preferred  Series E Stock Discount.  Inland's  Preferred Series E Stock was
initially recorded on the financial statements at a discount of $4.2 million and
was being accreted to face value ($12.2  million) over the period to the minimum
mandatory  redemption  date of April 1, 2004.  As discussed  under Note 5 to the
Consolidated  Financial  Statements,  the Company's Preferred Series E Stock was
cancelled on August 2, 2001.

     YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

     Oil and Gas Sales.  Crude oil and  natural  gas  revenue for the year ended
December 31, 2000  increased  $12.1  million,  or 74% from the previous year. As
shown in the table below,  the variance was caused by higher  average  crude oil
and natural gas prices offset by lower sales volumes.  The Company  operates and
is in  control of over 99% of its oil and gas  production.  Crude oil sales as a
percentage  of total oil and gas sales  were 83% and 79%  during  2000 and 1999,
respectively.  Crude oil will continue to be the  predominant  product  produced
from the Field.

     The Company has entered into price  protection  agreements to hedge against
volatility in crude oil prices.  Although  hedging  activities do not affect the
Company's actual sales price for crude oil in the Field, the financial impact of
hedging  transactions  is reported as an  adjustment to crude oil revenue in the
period in which the related oil is sold.  Crude oil sales were decreased by $6.1
million and $4.9 million during year 2000 and 1999,  respectively,  to recognize
hedging contract  settlement  losses.  See Item 7A "Quantitative and Qualitative
Disclosures About Market Risk."
<TABLE>
<CAPTION>

                              Year Ended December 31, 2000                      Year Ended December 31, 1999
                        ---------------------------------------         -------------------------------------------

                          Net Volume      Average      Sales              Net Volume       Average         Sales
                        (Bbls or Mcfs)     Price     (in 000's)         (Bbls or Mcfs)      Price        (in 000's)
                        --------------    -------    ----------         --------------     -------       ----------
<S>                     <C>              <C>        <C>                <C>                <C>           <C>
Crude Oil Sales             1,071,752      $26.71      $ 28,627              1,165,117      $14.38         $ 16,754
Natural Gas Sales           2,289,059      $ 2.60         5,953              2,900,501      $ 1.56            4,517
Hedging Loss                                             (6,083)                                             (4,872)
                                                     ----------                                          ----------
   Total Revenue                                       $ 28,497                                            $ 16,399
                                                     ==========                                          ==========
</TABLE>
                                       18
<PAGE>

     Lease  Operating  Expenses.  Lease  operating  expense  for the year  ended
December 31, 2000  increased  $436,000,  or 6.1% from the previous  year.  Lease
operating  expense per BOE increased from $4.34 per BOE sold in 1999 to $5.23 in
2000.  The  increase  on a BOE basis is due to the  lower  volume  produced  and
general price increases throughout year 2000.

     Production  Taxes.  Production  taxes as a percentage of sales were 1.4% in
2000 and 1.0% in 1999.  Production  tax  expense  consists of  estimates  of the
Company's  yearly effective tax rate for Utah state severance tax and production
ad valorem tax.  Changes in sales  prices,  tax rates,  tax  exemptions  and the
timing, location and results of drilling activities can all affect the Company's
actual effective tax rate.

     Exploration.  Exploration expense in 2000 and 1999 represents the Company's
cost to retain unproved acreage including delay rentals.

     Depletion,  Depreciation  and  Amortization.  Depletion,  depreciation  and
amortization  for the year  ended  December  31,  2000  decreased  21%,  or $2.1
million,  from the previous  year. The decrease  resulted from  decreased  sales
volumes and a lower average  depletion  rate.  Depletion,  which is based on the
units-of-production  method,  comprises  the majority of the total  charge.  The
depletion rate is a function of capitalized costs and related  underlying proved
reserves in the periods  presented.  The Company's  average  depletion  rate was
$4.95 per BOE sold during 2000 compared to $5.59 per BOE sold during 1999.

     General and Administrative, Net. General and administrative expense for the
year ended December 31, 2000  decreased  $1.0 million,  or 32% from the previous
year. The 2000 amount  includes  $430,000  related to an  unsuccessful  business
combination and employee  severance costs. The 1999 amount includes $1.2 million
related to the Company's financial restructuring.  After removal of these costs,
general and  administrative  expense was 12% lower between periods.  General and
administrative expense is reported net of operator fees and reimbursements which
were $5.5 million and $4.7  million  during 2000 and 1999,  respectively.  Gross
general and  administrative  expense was $7.2 million (net of one-time costs) in
2000 and $6.6  million  (net of  restructuring  costs) in 1999.  The increase in
reimbursements  and  expense is a function  of operated  field  activity;  which
decreased  in 1999 when the Company  suspended  development  activity  until the
fourth  quarter,  then  increased  in year 2000 when the Company was active with
development activities throughout the year.

     Interest  Expense.  Interest  expense for the year ended  December 31, 2000
decreased  $7.7  million,  or 48% from the previous  year.  The decrease was the
result  of  the  financial   restructuring  performed  in  September  1999  when
approximately $80.0 million of debt was converted to preferred stock. Borrowings
during 2000 and 1999 were  recorded  at  effective  interest  rates of 10.2% and
10.6%, respectively.

     Other Income.  Other income in 2000 and 1999 primarily  represents interest
earned on the investment of surplus cash balances.

     Income  Taxes.  In 2000 and 1999,  no income tax  provision  or benefit was
recognized due to net operating losses incurred and the  establishment of a full
valuation allowance.

     Discontinued Operations.  During 1999, the Company operated the Woods Cross
Refinery and incurred an operating  loss of $1.8  million.  On January 31, 2000,
the refinery along with certain other assets were sold to Silver Eagle. Although
the margins obtained for refined product sales in the Salt Lake City region were
strong for most of the year, the Company  suffered from  inefficient  operations
since it was unable to secure  sufficient  quantities  of  feedstock  due to its
financial  condition.  After the Company's financial  restructuring in September
1999,  increasing  crude oil costs reduced  margins on refined  product sales to
unacceptable  levels.  These  circumstances  combined with the  availability  of
alternative buyers for the Company's crude oil caused the Company to discontinue
refinery  operations in December 1999 and subsequently  sell Refining on January
31, 2000. As a result of this activity, the accompanying  consolidated financial
statements  for the current  period and all prior  periods have been adjusted to
report refining operations as

                                       19
<PAGE>

discontinued operations.  The Company recorded a charge of $14.5 million in 1999
to record the disposal of the refining business segment. The Company recorded an
additional loss of $250,000  during 2000 to reflect  adjustments to the refinery
shut-down accruals.

     Extraordinary Item.  Effective September 21, 1999, the Company restructured
an existing  obligation to TCW and amended the terms of its farmout  arrangement
with Smith Energy Partnership.  As a result of these  transactions,  unamortized
debt issue costs of $556,000 were written off as an extraordinary loss.

     Preferred Series C Stock Dividends.  Inland's  Preferred Series C Stock was
exchanged for Common Stock and Preferred Series E Stock as part of the financial
restructuring  transaction  on  September  21,  1999.  Prior to that  time,  the
Preferred  Series C Stock accrued  dividends at 10%  compounded  quarterly.  The
amount accrued represents those dividends earned during 1999.

     Preferred  Series  D Stock  Dividends.  Inland's  Preferred  Series D Stock
accrued dividends at 11.25% compounded quarterly. The amount accrued represented
those dividends earned during 2000 and the fourth quarter of 1999, respectively.
As  discussed  under  Note  5 to  the  Consolidated  Financial  Statements,  the
Company's  Preferred  Series  D Stock  was  cancelled  in  exchange  for the TCW
subordinated notes and $2 million on August 2, 2001.

     Preferred  Series  E Stock  Dividends.  Inland's  Preferred  Series E Stock
accrued dividends at 11.5% compounded quarterly.  The amount accrued represented
those dividends earned during 2000 and the fourth quarter of 1999, respectively.
As  discussed  under  Note  5 to  the  Consolidated  Financial  Statements,  the
Company's Preferred Series E Stock was cancelled on August 2, 2001.

     Preferred  Series D Stock Discount.  Inland's  Preferred Series D Stock was
initially  recorded on the  financial  statements at a discount of $20.2 million
and was being accreted to face value ($80.7 million) over the minimum  mandatory
redemption  period which started on April 1, 2002 and ended on April 1, 2004. As
discussed under Note 5 to the Consolidated  Financial Statements,  the Company's
Preferred  Series D Stock was cancelled in exchange for TCW  subordinated  notes
and $2 million on August 2, 2001.

     Preferred  Series E Stock Discount.  Inland's  Preferred Series E Stock was
initially recorded on the financial statements at a discount of $4.2 million and
was being accreted to face value ($12.2  million) over the period to the minimum
mandatory  redemption  date of April 1, 2004.  As discussed  under Note 5 to the
Consolidated  Financial  Statements,  the Company's Preferred Series E Stock was
cancelled on August 2, 2001.


LIQUIDITY AND CAPITAL RESOURCES

FORTIS CREDIT AGREEMENT

     Effective  September 21, 1999, the Company entered into a credit  agreement
(the "Fortis Credit  Agreement").  The current  participants  are Fortis Capital
Corp. and U.S. Bank National Association (the "Senior Lenders"). At December 31,
2001,  the Company had  advanced all funds under its current  borrowing  base of
$83.5  million.  The borrowing  base is calculated  as the  collateral  value of
proved  reserves and is subject to  redetermination  on or before March 31, 2002
and with subsequent  determinations to be made on each subsequent  October 1 and
April 1. If the borrowing base is lower than the outstanding  principal  balance
then drawn, the Company must immediately pay the difference. The borrowing base
was redetermined to be $83.5 million at March 26, 2002.

     In conjunction with SOLVation  financing,  the Fortis Credit Agreement with
the senior bank group was amended to change the  maturity  date to June 30, 2007
from April 1, 2002, or  potentially  earlier if the borrowing base is determined
to be insufficient.  Interest accrues under the Fortis Credit Agreement,  at the
Company's option, at either (i) 2% above the prime rate or (ii) at various rates
above the LIBOR rate.  The LIBOR rates will be  determined by the senior debt to
EBITDA  ratios  starting  August 2, 2001.  If the senior debt to EBITDA ratio is
greater than 4.00 to 1.00, the rate is 3.25% above the LIBOR rate; if the senior
debt to EBITDA ratio is equal to or less than 4.00 to 1.00 but greater than 3.00
to 1.00,  the rate is 2.75% above the LIBOR  rate;  if the senior debt to EBITDA
ratio is less than 3.00 to 1.00,  the rate is 2.25% above the LIBOR rate.  As of
December 31, 2001, $83 million and $500,000 were borrowed under the LIBOR option
at interest rates of 6.27% and 4.65%,  respectively.  The revolving  termination
date is June 30, 2004 at which time the loan  converts  into a term loan payable
in  12  equal  quarterly  installments  of  principal,  with  accrued  interest,
beginning  September 30, 2004.  The Fortis Credit  Agreement has covenants  that
restrict the payment of cash dividends, borrowings,

                                       20
<PAGE>


sale of assets,  loans to  others,  investments,  merger  activity  and  hedging
contracts  without the prior  consent of the lenders and requires the Company to
maintain certain net worth,  interest  coverage and working capital ratios.  The
Company was in  compliance  of its bank  covenants  as of December  31,  2001.
The Fortis Credit Agreement is secured by a first lien on  substantially  all
assets of the Company. The Fortis Credit Agreement was amended on March 25,
2002.

SUBORDINATED UNSECURED DEBT TO SOLVATION INC.

     On August 2, 2001, the Company closed two  subordinated  debt  transactions
totaling $10 million in aggregate  with SOLVation Inc. The first of the two debt
transactions  with SOLVation was the issuance of a $5 million  unsecured  senior
subordinated  note to SOLVation  due July 1, 2007.  The interest rate is 11% per
annum compounded  quarterly.  The interest payment is payable in arrears in cash
subject to the approval from the senior bank group and  accumulates  if not paid
in cash. The Company is not required to make any principal payments prior to the
July 1, 2007 maturity date. However, the Company is required to make payments of
principal and interest in the same amounts as any principal  payment or interest
payments on the TCW subordinated  debt (described  below).  Prior to the July 1,
2007 maturity date, subject to the bank subordination agreement, the Company may
prepay the senior subordinated note in whole or in part with no penalty.

     The Company also issued a second $5 million  unsecured junior  subordinated
note to SOLVation.  The interest rate is 11% per annum compounded quarterly. The
maturity  date is the  earlier of (i) 120 days after  payment in full of the TCW
subordinated debt or (ii) March 31, 2010. Interest is payable in arrears in cash
subject to the approval from the senior bank group and  accumulates  if not paid
in cash. The Company is not required to make any principal payments prior to the
March 31, 2010 maturity date. Prior to the March 31, 2010 maturity date, subject
to both bank and  subordination  agreements,  the  Company may prepay the junior
subordinated note in whole or in part with no penalty. A portion of the proceeds
from the  senior  and  junior  subordinated  notes was used to fund a $2 million
payment to TCW and other Company working capital needs.

SUBORDINATED UNSECURED DEBT TO TCW

     In  conjunction  with  the  issuance  of  the  two  subordinated  notes  to
SOLVation,  the Series D Preferred  and Series E Preferred  stock held by Inland
Holdings  LLC, a company  controlled  by TCW,  were  exchanged  for an unsecured
subordinated  note due  September  30,  2009  and $2  million  in cash  from the
Company.  The note amount was for  $98,968,964  that  represented the face value
plus accrued dividends of the Series D Preferred stock as of August 2, 2001. The
interest rate is 11% per annum compounded  quarterly.  Interest shall be payable
in  arrears  in cash  subject to the  approval  from the  senior  bank group and
accumulates  if not  paid in cash.  Interest  payments  will be made  quarterly,
commencing on the earlier of September 30, 2005 or the end of the first calendar
quarter  after the senior  bank debt has been  reduced  to $40  million or less,
subject to both bank and senior subordination agreements.  Beginning the earlier
of two  years  prior to the  maturity  date or the first  December  30 after the
repayment  in full of the  senior  bank  debt,  subject  to both bank and senior
subordination agreements,  the Company will make equal annual principal payments
of one third of the aggregate principal amount of the TCW subordinated note. Any
unpaid  principal or interest  amounts are due in full on the September 30, 2009
maturity date.  Prior to the September 30, 2009 maturity  date,  subject to both
bank and  senior  subordination  agreements,  the  Company  may  prepay  the TCW
subordinated note in whole or in part with no penalty.

CASH FLOW AND CAPITAL PROJECTS

     During  the year  2001,  the  Company  generated  $20.6  million  of EBITDA
(earnings before  interest,  taxes,  depreciation and  amortization) of which it
used $22.3  million to  continue  development  of the Field and $6.4  million to
service  interest on senior bank  borrowings.  Net proceeds of $8.7 million from
the issuance of  subordinated  debt was generated to provide  working capital to
its  operations  and $2 million to retire the Series E  preferred  stock.  Field
development  in year 2001  consisted  of drilling 45 gross wells (35 net wells),
converting 33 gross (25 net) wells to water injection and continued extension of
the gas gathering and water delivery infrastructures.

     The Company's net capital budget for  development of the Field in year 2002
is estimated to be $10 to $12 million.  The Company  plans to drill 25 wells (20
net wells), complete 25 workovers or recompletion wells and convert 35 producing
wells to water  injection.  Although  there  can be no  assurance,  the  Company
believes  that  cash  on hand  along  with  future  cash  to be  generated  from
operations  will be sufficient to implement its  development  plans for the next
year.   The  level  of  these  and  other   capital   expenditures   is  largely
discretionary, and the amount of funds devoted to any

                                       21
<PAGE>

particular  activity  may  increase  or  decrease  significantly   depending  on
available opportunities,  commodity prices, operating cash flows and development
results,  among other items.  The Company's  contractual  cash  obligations  are
listed in the following table:

<TABLE>
<CAPTION>

Contractual                                 Less Than          1-3           4-5        After 5
Cash Obligations            Total            1 Year           Years         Years        Years
----------------           --------         ---------        -------       -------      --------
<S>                       <C>              <C>              <C>           <C>          <C>
                                            (In thousands)

Long-term debt             $197,456         $    -           $13,918       $64,726      $118,812
Operating leases                299               299           -             -             -
                           --------         ---------        -------       -------      --------
Total Contractual Cash     $197,755         $     299        $13,918       $64,726      $118,812
                           ========         ==========       =======       =======      ========
</TABLE>

     On March 22, 2002, Questar Pipeline Company ("QPC") curtailed all gas
producers in the Monument Butte Field, including Inland, for not meeting certain
QPC specifications. After curtailment, Inland is producing and transporting
approximately 50% of its total gas capacity. The Company is in the process of
installing a gas liquid plant in the Field that would bring all of its gas up to
QPC's pipeline specifications. The gas liquid plant will be operational in
approximately 60 days. The Company believes that the current gas curtailment is
not significant to the Company's operations.

RECENTLY ADOPTED ACCOUNTING STANDARDS

     In June 1998,  SFAS No. 133,  "Accounting  for Derivative  Instruments  and
Hedging  Activities" ("SFAS No. 133") was issued,  which establishes  accounting
and reporting  standards for derivative  instruments and hedging activity.  SFAS
No. 133 requires recognition of all derivative  instruments on the balance sheet
as  either  assets  or  liabilities  measured  at  fair  value.  Changes  in the
derivative's fair value will be recognized currently in earnings unless specific
hedge  accounting  criteria  are met.  Gains and  losses on  derivative  hedging
instruments  must be recorded in either  other  comprehensive  income or current
earnings,  depending on the nature and designation of the instrument. The impact
of  adopting  SFAS No. 133 on January 1, 2001  resulted  in  recording a current
liability  of  $1,927,000  and  recording  a  cumulative  effect  of a change in
accounting principle as accumulated  comprehensive loss in the equity section of
$1,972,000 and income recorded as a cumulative  effect of a change in accounting
principle of $45,000.

     In June  2001,  SFAS No.  141  "Business  Combination"  and  SFAS  No.  142
"Goodwill and Other Intangible Assets" were issued,  which requires all business
combinations  to be  accounted  for using the  purchase  method and  changes the
treatment of goodwill created in a business  combination.  The adoption of these
two statements did not have an impact on the Company.

     Additionally,  SFAS No. 143 "Accounting for Asset  Retirement  Obligations"
was issued in July 2001.  This  standard  requires  entities  to record the fair
value of a liability for an asset  retirement  obligation in the period in which
it is incurred. When the liability is initially recorded, the entity capitalizes
the cost by increasing the carrying amount of the related  long-lived asset. The
asset is then  depreciated  over the estimated useful life. The present value of
the retirement obligation is adjusted each reporting period. The Company has not
yet determined the impact of adopting this statement which becomes effective on
January 1, 2003.

     In August 2001,  SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived  Assets" was issued.  This Statement  established a single accounting
model, based on the framework of SFAS No. 121 ("Accounting for the Impairment of
Long-Lived  Assets  and for  Long-Lived  Assets  to Be  Disposed  Of"),  for the
long-lived  assets to be  disposed  of by sale.  The  statement  was  adopted on
January 1, 2002 and the Company did not have a material impact upon adoption.

DELISTING OF COMMON STOCK

     Effective  with the close of business July 28, 1999,  the Company's  Common
Stock was delisted from the Nasdaq  SmallCap  Market.  The Company was no longer
able to satisfy  the net  tangible  asset  maintenance  standard  for  continued
listing.  The Company's Common Stock is now traded on the NASD  over-the-counter
bulletin board under the same symbol "INLN".

INFLATION AND CHANGES IN PRICES

     Inland's revenues and the value of its oil and gas properties have been and
will be affected by changes in oil and gas  prices.  Inland's  ability to borrow
from traditional  lending sources and to obtain additional capital on attractive
terms is also substantially  dependent on oil and gas prices. Oil and gas prices
are  subject to  significant  seasonal  and other  fluctuations  that are beyond
Inland's ability to control or predict.  Although the level of inflation affects
certain of Inland's  costs and  expenses,  inflation  did not have a significant
effect on Inland's result of operations during 2001 or 2000.

                                       22
<PAGE>

FORWARD LOOKING STATEMENTS

     Certain  statements in this report,  including  statements of the Company's
and management's  expectation,  intentions,  plans and beliefs,  including those
contained in or implied by  "Management's  Discussion  and Analysis of Financial
Condition and Results of  Operations"  and the Notes to  Consolidated  Financial
Statements, are "forward-looking statements",  within the meaning of Section 21E
of the Securities Exchange Act of 1934, that are subject to certain events, risk
and   uncertainties   that  may  be  outside  the   Company's   control.   These
forward-looking   statements   include  statements  of  management's  plans  and
objectives for the Company's future operations and statements of future economic
performance,  information  regarding  drilling  schedules,  expected  or planned
production  or  transportation  capacity,  future  production  levels of fields,
marketing of crude oil and natural gas, the Company's  capital budget and future
capital  requirements,  credit  facilities,  the  Company's  meeting  its future
capital needs, the Company's  realization of its deferred tax assets,  the level
of future expenditures for environmental costs and the outcome of regulatory and
litigation matters, and the assumptions described in this report underlying such
forward-looking  statements.   Actual  results  and  developments  could  differ
materially from those expressed in or implied by such statements due to a number
of factors,  including,  without  limitation,  those described in the context of
such  forward-looking  statements,  fluctuations  in the  price of crude oil and
natural gas, the success rate of exploration efforts,  timeliness of development
activities,  risk incident to the drilling and completion for oil and gas wells,
future production and development costs, the strength and financial resources of
the  Company's  competitors,  the Company's  ability to find and retain  skilled
personnel,  climatic conditions, the results of financing efforts, the political
and  economic  climate in which the  Company  conducts  operations  and the risk
factors described from time to time in the Company's other documents and reports
filed with the SEC.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     Market  risk  generally  represents  the risk that  losses may occur in the
value of  financial  instruments  as a result of  movements  in interest  rates,
foreign currency exchange rates and commodity prices.

     INTEREST  RATE  RISK.  Inland is  exposed  to some  market  risk due to the
floating  interest  rate  under  the  Fortis  Credit  Agreement.  See  Item 7. -
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Liquidity and Capital  Resources." All borrowings  under the Fortis
Credit  Agreement  are due and  payable in 12 equal  quarterly  installments  of
principal with accrued  interest,  beginning  September 30, 2004. As of December
31, 2001, the Fortis Credit  Agreement had a principal  balance of $83.5 million
locked in at various interest rates as described below:

<TABLE>
<CAPTION>

         Principle Amount           Period Locked In                            Interest Rate
         ----------------           ----------------                            -------------
<S>      <C>                        <C>                                        <C>
         $83 million                January 1, 2002 - February 22, 2002         6.77%
         $83 million                February 22, 2002 - May 23, 2002            5.15%
         $500,000                   January 1, 2002 - June 3, 2002              5.28%
</TABLE>

     The  Company's  total  subordinated  debt of $114  million  outstanding  at
December  31,  2001  has a  fixed  interest  rate of 11%  per  annum  compounded
quarterly and is not subject to rate  increases.  Assuming the principal is paid
according to the terms of the loan,  an increase in interest  rates could result
in an increase in interest  expense on the  existing  principal  balance for the
remaining   term   of   the   loan,   as   shown   by   the   following   chart:

                      Increase in Interest Expense Without
                                      Hedge


<TABLE>
<CAPTION>
                                  1% increase in     2% increase in
                                  interest rates     interest rates
                                  --------------     --------------

   <S>                           <C>                <C>
     Year 2002                       $515,000          $1,030,000
     Year 2003                       $835,000          $1,670,000
     Year 2004                       $818,000          $1,635,000
     Year 2005                       $591,000          $1,183,000
     Year 2006                       $313,000          $  626,000
     January 1, 2007 through
     June 30, 2007                   $157,000            $313,000

</TABLE>

                                       23
<PAGE>


COMMODITY RISKS. Inland hedges a portion of its oil production to reduce its
exposure to fluctuations in the market prices thereof. Inland uses various
financial instruments whereby monthly settlements are based on differences
between the prices specified in the instruments and the settlement prices of
certain futures contracts quoted on the NYMEX index. Gains or losses on hedging
activities are recognized as oil and gas sales in the period in which the hedged
production is sold.

     On December 2, 2001,  ENAC filed for Chapter 11 bankruptcy.  The bankruptcy
caused ENAC to default on all of the Company's  hedging  contracts from November
2001 through  September 30, 2003. The Company recorded a loss of $5.5 million to
the  statement  of  operations  to  reflect  ineffectiveness  of the  derivative
contracts following the filing of Chapter 11 bankruptcy of ENAC. The amount that
had been deferred in accumulated other comprehensive income will be reclassified
to earnings based on the originally scheduled delivery period.  Amounts expected
to be  reclassified  to earnings in 2002 and 2003 are $3,993,000 and $1,510,000,
respectively.  On January 30, 2002,  the Company  terminated  all of its hedging
contracts  with ENAC and  determined  a  potential  bankruptcy  unsecured  claim
against ENAC in excess of $7.5 million.

     On March 11,  2002,  the Company  hedged  30,000 net barrels per month with
Equiva  Trading  Company for the April 2002 to December 2002 period using a swap
with a settlement  amount of $23.90 per barrel.  The potential gains or (losses)
on this  contract  based on a  hypothetical  average  market price of equivalent
product for this period is as follows:

          Average NYMEX Per Barrel Market Price for the Contract Period
<TABLE>

<S>                  <C>           <C>           <C>            <C>         <C>          <C>           <C>
                     $  18.00      $    20.00    $  22.00       $ 24.00     $   26.00    $     28.00   $     30.00
All Contracts -      $1,593,000    $1,053,000    $513,000       $27,000     $(567,000)   $(1,107,000)  $(1,647,000)
2002

</TABLE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements and supplementary data required by this item begin
at page F-1 hereof.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

         None.



                                     [THIS SPACE INTENTIONALLY LEFT BLANK]



                                       24
<PAGE>


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

         The following table provides information as of March 1, 2002, with
respect to each of the Company's directors and executive officers:


<TABLE>
<CAPTION>
                                                                                   SERVED AS EXECUTIVE
                                                                                       OFFICER OR
    NAME                             AGE                  POSITION                   DIRECTOR SINCE
    ----                             ---                  --------                 -------------------
                                          DIRECTORS

<S>                                 <C>        <C>                                     <C>
 Arthur J. Pasmas (1)                 67         Director (Chairman)                     2001

 Marc MacAluso (1)                    41         Director, Chief Executive               1999
                                                 Officer and Chief Operating
                                                 Officer
 Bill I. Pennington                   50         Director, President and                 1994
                                                 Chief Financial Officer
 Bruce M. Schnelwar (1)               60         Director                                2001
 Dewey A. Stringer III(1)             59         Director                                2001


                                  OTHER EXECUTIVE OFFICERS


 William T. War                       59         Vice President                          1998

</TABLE>


     (1)  Member of the Audit Committee.

     ARTHUR  J.  PASMAS.  Mr.  Pasmas  has  served  as Vice  President  of Smith
Management LLC (or affiliated  entities),  New York, New York, a private company
engaged in various  businesses  and  investments,  including oil and gas,  since
1984. He currently  manages oil and gas  investments as Vice President for Smith
Management  LLC from offices in Houston,  Texas.  He was appointed as a director
and  Chairman  of the Board on August 2,  2001.  He was also a  director  of the
Company from 1994 until September 1999, and was Co-Chief Executive Officer of
the Company from November 1998 until September 1999.

     MARC MACALUSO.  Mr. MacAluso was appointed as Chief  Executive  Officer and
Chief Operating  Officer on February 1, 2001, and has served as a director since
October 14, 1999. He was Senior Vice President of TCW Asset  Management  Company
in Houston,  Texas from August 1994 through January 2001,  where he was involved
in all aspects of  mezzanine  financing  for TCW's Energy  Group.  He joined TCW
Asset  Management  Company  after leading new business  development  at American
Exploration  Company.  Prior to American  Exploration  Company,  his  experience
includes various assignments with Shell Oil Company and Shell Western E&P, Inc.




                                       25
<PAGE>


     BILL I. PENNINGTON. Mr. Pennington has served as Chief Financial Officer of
the Company since  September 21, 1994 and as President  since November 16, 2000.
He also served as Chief Executive Officer from September 23, 1999 until February
1, 2001 and as Vice  President  from March 22,1996 until  September 23, 1999. He
was appointed as a director of the Company on September 23, 1999. He served as a
director of the Company from September 21, 1994 until  September 25, 1996 and as
Treasurer of the Company from  September  21, 1994 until March 22, 1996. He also
served as President, Chief Operating Officer and a Director of Lomax Exploration
Company, now known as IPC, from May 1987 until the Company's  acquisition of IPC
on September  21, 1994.  From March 1986 until May 1987,  Mr.  Pennington  was a
manager with the  accounting  firm of Coopers & Lybrand in Houston,  Texas.  Mr.
Pennington is a certified public accountant.

     BRUCE M. SCHNELWAR.  Mr.  Schnelwar has served as a director of the Company
since March 22, 2001.  He also was a director of the Company from  February 1998
until  September  1999.  He has  served  since  August  1994 as  Executive  Vice
President and Chief  Financial  Officer of Smith  Management  LLC (or affiliated
entities).

     DEWEY A. STRINGER III. Mr. Stringer has been President of Petro-Guard  Co.,
Inc., a private oil and gas exploration company located in Houston,  Texas since
July 1987.

     WILLIAM T. WAR. Mr. War has served as Vice  President of the Company  since
October 5, 1998. From September 1992 until his association with the Company, Mr.
War was Project Manager for Louisiana Land &  Exploration/Burlington  Resource's
Lost Cabin Gas Plant.

         SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
beneficially  own more than 10% of the Common Stock to file reports of ownership
and changes in  ownership  with the  Securities  and  Exchange  Commission  (the
"Commission").

     Based  solely  upon a review  of Forms  3, 4 and 5 and  amendments  thereto
furnished  to the  Company  pursuant  to Rule  16a-3(e)  promulgated  under  the
Exchange  Act or upon  written  representations  received  by the  Company,  the
Company is not aware of any failure by any officer, director or beneficial owner
of more  than  10% of the  Company's  Common  Stock  to  timely  file  with  the
Commission any Form 3, 4 or 5 during 2001.


                                       26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

     Summary Compensation Table. The following table sets forth the compensation
earned by the Company's Chief Executive Officer and each of its three other most
highly  compensated  executive  officers  for the year ended  December  31, 2001
(collectively,  the "Named  Officers") in salary and bonus for services rendered
in all  capacities to the Company for the fiscal years ended  December 31, 2001,
2000 and 1999:


<TABLE>
<CAPTION>
                                                  ANNUAL COMPENSATION         LONG TERM COMPENSATION
                                                -------------------------    ------------------------
                                                                             SECURITIES
                                                                             UNDERLYING
                                                             OTHER ANNUAL    OPTIONS OR   ALL OTHER
Name/Principal Position       YEAR   SALARY     BONUS        COMPENSATION     WARRANTS   COMPENSATION
-----------------------       ----   ------     -----        ------------    ---------   ------------

<S>                         <C>    <C>        <C>           <C>               <C>       <C>
Arthur  J. Pasmas,            2001   $   --     $   --        $199,992(1)       --        --
Chairman(1)                   2000   $   --         --        $199,992(1)       --        --
                              1999   $   --         --        $ 80,779(1)       --        --

Marc MacAluso, Chief          2001   $235,537   $   --        $ 27,952(3)    150,000(4)   --
Executive Officer and Chief   2000   $   --         --        $   --            --        --
Operating Officer(2)          1999   $   --         --        $   --            --        --

Bill I. Pennington,           2001   $250,000       --        $   --         150,000(4)   --
President and Chief           2000   $250,000       --        $ 10,200          --        --
Financial Officer(5)          1999   $201,000       --        $  6,544        87,500(6)   --

William T. War,               2001   $155,346   $ 75,000      $   --            --        --
Vice President                2000   $175,000   $ 50,000      $ 10,200          --        --
                              1999   $162,000       --        $  5,020        25,000      --
</TABLE>


      (1) Mr. Pasmas was appointed as a director and Chairman on August 2, 2001.
      He was also a director of the Company from 1994 until September 1999, and
      was Co-Chief Executive Officer of the Company from November 1998 until
      September 1999. The $199,992 represents total compensation paid to Mr.
      Pasmas during 2001 for his consulting agreement terminated on August 2,
      2001 and his compensation as the Chairman of the Board. The $199,992 and
      $80,779 for the years 2000 and 1999, respectively, were for consulting
      fees paid to Mr. Pasmas as a non officer and director.

      (2) Mr. MacAluso was appointed Chief Executive Officer and Chief Operating
      Officer on February 1, 2001. He was not an officer of the Company prior to
      his appointment as Chief Executive Officer and Chief Operating Officer on
      February 1, 2001.

      (3) Moving expenses in 2001 for Mr. MacAluso.

      (4) Options issued to Mr. MacAluso and Mr. Pennington on February 1, 2001.

      (5) Mr. Pennington was Chief Executive Officer until from September 23,
      1999 until February 1, 2001.

      (6) These options were mutually terminated by
      the Company and Mr. Pennington effective February 1, 2001.


     Option/Warrant/SAR Grants. The following table sets forth certain
information regarding options, warrants and SARs granted during 2001:


<TABLE>
<CAPTION>
                             INDIVIDUAL GRANTS                                                      POTENTIAL
-------------------------------------------------------------------                            REALIZABLE VALUE AT
                                                                                                  ASSUMED ANNUAL
                      NUMBER OF         PERCENT OF TOTAL                                          RATES OF STOCK
               SECURITIES UNDERLYING  OPTIONS/WARRANTS/SARS  EXERCISE OR                        PRICE APPRECIATION
              OPTIONS/WARRANTS/SARS   GRANTED TO EMPLOYEES   BASE PRICE     EXPIRATION           FOR OPTION TERM
NAME                  GRANTED (#)      IN FISCAL YEAR          ($/SH)          DATE            5%($)           10%($)
----          ----------------------  ---------------------  -----------    ----------         -----           ------

<S>                  <C>                <C>                  <C>            <C>             <C>             <C>
Marc MacAluso          90,000             100%                 $   1.63       2/1/09          $ 70,000        $168,000
                       60,000             100%                 $   2.84       2/1/09          $ 81,000        $195,000
Bill I. Pennington     90,000             100%                 $   1.63       8/2/06          $ 41,000        $ 90,000
                       60,000             100%                 $   2.84       8/2/06          $ 47,000        $104,000
William T. War             --              --                        --           --                --              --

</TABLE>


                                       27
<PAGE>




     Option/Warrant/SAR Exercises and Year-End Value Table. The following table
sets forth certain information regarding option exercises and the value of the
outstanding options to purchase Common Stock held by the Named Officers at
December 31, 2001:

<TABLE>
<CAPTION>
                                                              NUMBER OF SECURITIES                 VALUE OF UNEXERCISED
                                                              UNDERLYING UNEXERCISED               IN-THE-MONEY OPTIONS
                          NUMBER OF SHARES                    OPTIONS AT FISCAL YEAR END          AT FISCAL YEAR END (1)
                           ACQUIRED OR           REALIZED
NAME                         EXERCISE             VALUE    EXERCISABLE     UNEXERCISABLE    EXERCISABLE           UNEXERCISABLE
----                         --------             -----    -----------     -------------    -----------           -------------
<S>                           <C>                 <C>       <C>            <C>                 <C>                   <C>
Marc MacAluso                    --                --          50,000        100,000              --                   --
Bill I .Pennington               --                --         150,000           --                --                   --
William T. War                   --                --          25,000           --                --                   --

</TABLE>



     (1) Value is based on the  closing bid price of $1.35 per share on December
31, 2001.

     Long-Term   Incentive   Plans.  The  following  table  sets  forth  certain
information  regarding  long-term  incentive  awards  granted during 2001 to the
Named Officers:

<TABLE>
<CAPTION>
                                                         PERFORMANCE OR         ESTIMATED FUTURE PAYMENTS UNDER
                           NUMBER OF SHARES,            OTHER PERIOD              NON-STOCK PRICE-BASED PLANS
                           UNITS OR OTHER RIGHTS        UNTIL MATURATION       THRESHOLD     TARGET     MAXIMUM
NAME                                   #                 OR PAYOUT             ($ OR #)     ($ OR #)    ($OR #)
----                       ---------------------        ----------------       --------     --------    -------
<S>                               <C>                   <C>                   <C>         <C>         <C>
Marc MacAluso                       --                     12/31/03(1)          $50,000     $50,000     $50,000
Bill I. Pennington                  --                     12/31/03(1)          $50,000     $50,000     $50,000
William T. War                      --                             --                --          --          --

</TABLE>

      (1) The Employment Agreements of Messrs. MacAluso and Pennington provide
      for a performance bonus of $50,000 and $50,000, respectively, for the
      December 31, 2001 year based on meeting or exceeding actual 2001 oil and
      gas net equivalent production barrels and either completing a merger with
      another company acceptable to the Board or a public offering of the
      Company's common stock. However, the 2001 performance goals were not met
      and no bonuses were paid.

     Compensation  of  Directors.  The members of the Board of  Directors of the
Company  are  entitled  to  reimbursement  for  their  reasonable   expenses  in
connection  with their travel to and from, and  attendance  at,  meetings of the
Board of Directors or committees thereof.  Effective September 23, 1999, members
of the Board who are not  employees  of the  Company  are paid an annual  fee of
$25,000  and no  additional  meeting  fees  for  meetings  of the  Board  or any
committee. The Board of Directors may grant discretionary options to directors.

     Employment Agreements. Effective February 1, 2001, the Company entered into
an  employment  agreement  with  Mr.  MacAluso.  The  Company  entered  into new
employment agreement with Mr. Pennington effective February 1, 2001, pursuant to
which the Company and Mr.  Pennington  agreed to terminate his prior  employment
agreement.  Mr. Pennington also agreed to cancel all outstanding options granted
to him.

     Pursuant to their employment agreements,  dated effective February 1, 2001,
the Company  agreed to pay Messrs.  MacAluso  and  Pennington  base  salaries of
$250,000  and  annual  bonuses  of up to  $50,000  contingent  upon the  Company
reaching or  exceeding  certain  performance  targets to be set by the Board for
each year. Their  employment  agreements have an initial term of three years and
automatically  are extended for  additional one year periods unless either party
terminates the agreement  prior to the end of the current term. The Company also
agreed to grant each of them options to purchase  90,000 shares of the Company's
Common  Stock at an  exercise  price of $1.625 per share and options to purchase
60,000  shares of the Company's  Common Stock at an exercise  price of $2.84 per
share,  with such options vesting ratably over twelve fiscal quarters,  with the
first  one-twelfth  vesting on March 1, 2001.  However,  Mr. Pennington is fully
vested in his  150,000  options  due to change of  control of the  Company.  The
options  for 90,000  shares  are also  subject to  automatic  increase  upon the
issuance of  additional  shares by the Company in a pro rata amount based on the
percentage  increase in the number of  outstanding  shares of the  Company.  The
exercise  price for such new


                                       28
<PAGE>

options  would be the same as the issue  price of the new  shares  issued by the
Company. Their new employment agreements also entitle them to participate in all
employee benefit plans and programs of the Company. Each agreement also provides
that if the employee is permanently  disabled  during the term of the Agreement,
he will  continue to be  employed  at 50% of his base salary  until the first to
occur of his death,  expiration of 12 months,  or  expiration of the  employment
agreement.  Upon termination of employment by the Company without cause or after
a  subsequent  change of control of the Company,  any unvested  portion of their
options  immediately  vest. Upon termination of employment by the Company or the
employee following a change of control of the Company, the Company agrees to pay
the employee an amount equal to the greater of $250,000 or the remaining  unpaid
base salary for the  remaining  term of the  employment  agreement and agrees to
continue all employee benefits for a period of one year. Additionally, they will
be entitled to severance  payments in accordance  with the  Company's  severance
policy which provide for a severance  payment if the employee is terminated  due
to a change in control in an amount  determined  based on the number of years of
employment,  ranging from two weeks' base salary for one years' employment up to
six months base salary for  employment  of five years or more.  The Company also
agreed to pay  various  temporary  housing,  commuting,  moving  and  relocation
expenses of Mr. MacAluso in connection with his transfer from Houston,  Texas to
Denver,  Colorado.  These expenses were $27,952. In addition, the Company agreed
to purchase the equity in Mr. MacAluso's house in Houston for $141,000 (based on
appraised value) and assumed the financial  responsibility for its ultimate sale
which was completed in April of 2001.

     Mr. War's employment agreement was also amended effective November 16, 2000
to  eliminate  the  $75,000  termination  payment  payable by the Company if his
employment was terminated by the Company  without cause or following a change in
control,  and the $75,000 severance payment if he was terminated  without cause.
Under the amended employment  agreement,  Mr. War was paid a bonus of $50,000 in
January  2001 upon  execution  of the  amendment  and paid  another  $25,000  in
December  2001.  Additionally,  he will be entitled  to six months'  base salary
($70,000)  pursuant  to the  Company's  severance  policy if his  employment  is
terminated  following a change in control prior to expiration of the term of his
employment agreement.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company has no  compensation  committee and the full Board of Directors
determines  the  compensation  to be paid to executive  officers of the Company,
subject to  approval  by TCW Asset  Management  Company.  Messrs.  MacAluso  and
Pennington  participated in deliberations  by the Board of Directors  concerning
executive officer compensation during 2001.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of
Common Stock as of March 13, 2002, by each stockholder known to the Company to
own beneficially more than five percent of the outstanding Common Stock, each
current director, each Named Officer, and all executive officers and directors
of the Company as a group, based on information provided to the Company by such
persons. Except as otherwise stated, each such person has sole investment and
voting power with respect to the shares set forth in the table:

<TABLE>
<CAPTION>
                                                   Number
        Name and Address                             Of
        of Beneficial Owner                        Shares      Percent
        -------------------                        ------      -------

<S>                                            <C>           <C>
Hampton Investments LLC (1)                       2,318,186     71.7
  885 Third Avenue, 34th Floor
  New York, New York 10022

Inland Holdings LLC (2)                             297,196      9.2
  TCW Asset Management Company
  865 S. Figuero,  Suite 1800
  Los Angeles, California  90017

Marc MacAluso(3)                                    150,000      4.6
  410 17th Street
  Suite 700
  Denver, Colorado  80202

Bill I. Pennington (3)                              152,168      4.7
 410 17th Street
 Suite 700
 Denver, Colorado 80202
</TABLE>


                                       29
<PAGE>

<TABLE>

<S>                                                   <C>      <C>
Arthur J. Pasmas (4)                                     --       --
  5858 Westheimer, Suite 400
  Houston, Texas 77057

Bruce M. Schnelwar (4)
  885 Third Avenue, 34th Floor                           --       --
  New York, New York 10022

Dewey A. Stringer III                                 1,990        *
  5858 Westheimer, Suite 400
  Houston, Texas 77057

William T. War (3)                                   25,000        *
  410 17th Street
  Suite 700
  Denver, Colorado 80202

All executive officers and                          329,158     10.2
   directors as a group
  (4 persons) (3)

</TABLE>

*        Less than 1%

     (1)  JWA Investments IV LLC is the managing  member of Hampton  Investments
          and may be deemed to also  beneficially  own these  shares and John W.
          Adams is the sole  member  of JWA  Investments  and may be  deemed  to
          beneficially own these shares.

     (2)  Inland  Holdings  LLC  ("Holdings")  owns  these  shares of record and
          beneficially.  The members of Holdings are Trust  Company of the West,
          as  Sub-Custodian  for Mellon Bank for the benefit of Account No. CPFF
          873-3032  ("Fund V"),  and TCW  Portfolio  No.  1555 DR V  Sub-Custody
          Partnership, L.P. ("Portfolio").  TCW Asset Management Company has the
          power to vote and dispose of the shares  owned by Holdings  and may be
          deemed to beneficially own such shares.

     (3)  Includes shares issuable under  outstanding stock options and warrants
          granted  to Messrs.  MacAluso,  Pennington  and War and all  executive
          officers and  directors  appointees  as a group for 150,000,  152,167,
          25,000 and 329,158 shares, respectively.

     (4)  Each of Messrs.  Pasmas and Schnelwar are officers of Smith Management
          LLC, an affiliate of Hampton  Investments,  but each of them disclaims
          beneficial   ownership   of  any  of  the  shares   owned  by  Hampton
          Investments.


In connection with Items 1 and 2 "Business and Properties - Recent Developments
- Change of Control and Recapitalization", Holdings and Hampton Investments with
their respective affiliates have agreed to vote to ensure that (i) the Company
and Subsidiary Boards each consist of six members, subject to certain
exceptions, (ii) as long as Hampton Investments and its affiliates hold at least
a majority of the Common Stock of the Company, Hampton Investments and its
affiliates have the right to appoint at least two members to the Company and
Subsidiary Boards or, if greater, at least one-third of the members of the
Board, and (iii) as long as the provisions in the Exchange and Note Issuance
Agreement relating to Board representation are applicable, the Requisite Holders
have the right to have one or


                                       30
<PAGE>

more individuals  designated for election to, and be elected to, the Company and
Subsidiary  Boards, as provided in the Exchange and Note Issuance  Agreement and
discussed above. Hampton Investments have appointed Messrs.  Pasmas and Stringer
as representatives on the Board.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Exchange of Preferred Stock for Subordinated Debt. As discussed in Items 1 and 2
"Business and Properties - Recent Developments - Change of Control and
Recapitalization," the Company exchanged its Series D Preferred Stock and Series
E Preferred Stock with Inland Holdings for the TCW Subordinated Notes in the
principal amount of $98,968,964 and for a $2 million payment by the Company to
Inland Holdings.

$10 million of Subordinated Debt. As discussed in Items 1 and 2 "Business and
Properties - Recent Developments - Change of Control and Recapitalization,"
SOLVation entered into the Senior Subordinated Note Agreement ($5 million) and
the Junior Subordinated Note Agreement ($5 million) and loaned the Company $10
million.

Amended and Restated Registration Rights Agreement. In connection with the
Exchange Agreement discussed under Items 1 and 2 "Business and Properties -
Recent Developments - Change of Control and Recapitalization," pursuant to an
Amended and Restated Registration Rights Agreement (the "Registration Rights
Agreement"), dated August 2, 2001, by and among Inland Holdings, the Company and
Hampton Investments, the Company granted certain demand and piggyback
registration rights to Hampton Investments and Inland Holdings in respect of
Common Stock held by them. Under the Registration Rights Agreement, Hampton
Investments may require the Company to effect three demand registrations and
Inland Holdings may require the Company to effect one demand registration. Each
of Inland Holdings and Hampton Investments is entitled to include their shares
on any registration statement filed by the Company under the Securities Act of
1933, subject to standard underwriters' kick-out clauses and other conditions.
The Company will be responsible for paying the costs and expenses associated
with all registration statements, including the fees of one law firm acting as
counsel to the holders requesting registration but excluding underwriting
discounts and commissions and any other expenses of the party requesting
registration.

Farmout Agreement. The Company entered into a Farmout Agreement with Smith
Management LLC ("Smith Management") effective June 1, 1998. As of December 31,
1998, SEP, an affiliate of Smith Management, received 152,220 pre-split (15,222
post-split) shares of Common Stock as payment of proceeds under the Farmout
Agreement. Effective November 1, 1998, an Amendment to the Farmout Agreement was
executed that suspended future drilling rights under the Farmout Agreement until
such time as the Company, Smith Management and the Company's senior lenders
agreed to recommence such rights. In addition, a provision was added that gave
Smith Management the option to receive cash rather than Common Stock if the
average stock price was calculated at less than $3.00 per share, such cash only
to be paid if the Company's senior lenders agreed to such payment. The Farmout
Agreement was further amended on September 21, 1999 as part of the
Recapitalization to eliminate this option, to provide for cash payments only
effective June 1, 1999, and to allow the Company to retain all proceeds under
the Farmout Agreement accrued from November 1, 1998 through May 31, 1999. The
Farmout Agreement provides that Smith Management will reconvey all drillsites to
the Company once Smith Management has recovered from production an amount equal
to 100% of its expenditures, including management fees and production taxes,
plus an additional sum equal to 18% per annum on such expended sums.

Consulting Agreement. The Company entered into a Consulting Agreement with
Arthur J. Pasmas on September 21, 1999 pursuant to which Mr. Pasmas was to
receive $200,000 annually for consulting services to be provided to the Company
until September 21, 2002. The Company mutually terminated this Consulting
Agreement on August 2, 2001 with Mr. Pasmas when he was appointed Chairman of
the Board of the Company. The Company has agreed to pay Mr. Pasmas $200,000
annually for serving as Chairman of the Board. Mr. Pasmas has been Vice
President of Smith Management (or affiliated entities) since 1985.

All transactions set forth above have been approved by disinterested members of
the Board of Directors of Inland, and are considered to be fair and reasonable
to the Company.


         [THIS SPACE INTENTIONALLY LEFT BLANK.]




                                       31
<PAGE>

                                                       PART IV

ITEM 14.      EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a) The following documents are filed as part of this Annual Report or
incorporated by reference:

     1.   Financial Statements

     See "Index to Consolidated Financial Statements" on page F-1 of this Annual
Report.

     2.   Financial Statement Schedules

          None.  All  financial  statement  schedules  are  omitted  because the
          information is not required,  is not material or is otherwise included
          in the  consolidated  financial  statements or notes thereto  included
          elsewhere in this Annual Report.

     3.   (a) Exhibits


Item
Number               Description
------               -----------


2.1                 Agreement and Plan of Merger between  Inland  Resources Inc.
                    ("Inland"),  IRI  Acquisition  Corp.  and Lomax  Exploration
                    Company (exclusive of all exhibits) (filed as Exhibit 2.1 to
                    Inland's  Registration  Statement on Form S-4,  Registration
                    No. 33-80392, and incorporated herein by this reference).

3.1                 Amended and Restated Articles of  Incorporation,  as amended
                    through  December 14, 1999 (filed as Exhibit 3.1 to Inland's
                    Current  Report on Form 8-K dated  September  21, 1999,  and
                    incorporated herein by reference).

3.2                 By-Laws  of  Inland   (filed  as  Exhibit  3.2  to  Inland's
                    Registration  Statement  on  Form  S-18,   Registration  No.
                    33-11870-F, and incorporated herein by reference).

3.2.1               Amendment  to Article IV,  Section 1 of the Bylaws of Inland
                    adopted  February  23,  1993  (filed  as  Exhibit  3.2.1  to
                    Inland's  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1992, and incorporated herein by reference).

3.2.2               Amendment  to the  Bylaws  of Inland  adopted  April 8, 1994
                    (filed as Exhibit 3.2.2 to Inland's  Registration  Statement
                    on Form S-4,  Registration  No.  33-80392,  and incorporated
                    herein by reference).

3.2.3               Amendment  to the Bylaws of Inland  adopted  April 27,  1994
                    (filed as Exhibit 3.2.3 to Inland's  Registration  Statement
                    on Form S-4,  Registration  No.  33-80392,  and incorporated
                    herein by reference).

4.1                 Credit  Agreement  dated  September 23, 1997 between  Inland
                    Production  Company  ("IPC"),  Inland,  ING  (U.S.)  Capital
                    Corporation,  as Agent, and Certain Financial  Institutions,
                    as banks (filed as Exhibit 4.1 to Inland's Current Report on
                    Form 8-K dated September 23, 1997, and  incorporated  herein
                    by reference).

4.1.1               Third Amendment to Credit Agreement entered into as of April
                    22, 1998,  amending  Exhibit 4.1 (filed as Exhibit  4.1.1 to
                    Inland's Quarterly Report on Form 10-Q for the quarter ended
                    March 31, 1998, and incorporated herein by reference).

4.1.2               Amended and Restated Credit  Agreement dated as of September
                    11,  1998  amending  and  restating  Exhibit  4.1  (filed as
                    Exhibit 4.1.2 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).


                                       32
<PAGE>


4.1.3               First  Amendment  to Amended and Restated  Credit  Agreement
                    dated as of March 5, 1999  amending  Exhibit 4.1.2 (filed as
                    Exhibit 4.1.3 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.1.4               Second Amended and Restated Credit Agreement dated September
                    15, 1999,  but effective as of September 21, 1999,  amending
                    and  restating  Exhibit 4.1 (without  exhibits or schedules)
                    (filed as Exhibit 4.1 to Inland's Current Report on Form 8-K
                    dated  September  21,  1999,  and  incorporated   herein  by
                    reference).


4.2                 Credit  Agreement  dated  September  23,  1997,  among  IPC,
                    Inland,  Trust Company of the West, and TCW Asset Management
                    Company,  in the  capacities  described  therein  (filed  as
                    Exhibit  4.2 to  Inland's  Current  Report on Form 8-K dated
                    September 23, 1997, and incorporated herein by reference).

4.2.1               Second  Amendment  to Credit  Agreement  entered  into as of
                    April 22, 1998, amending Exhibit 4.2 (filed as Exhibit 4.2.1
                    to  Inland's  Quarterly  Report on Form 10-Q for the quarter
                    ended March 31, 1998, and incorporated herein by reference).

4.2.2               Amended and Restated Credit  Agreement dated as of September
                    11,  1998,  amending  and  restating  Exhibit  4.2 (filed as
                    Exhibit 4.2.2 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.2.3               First  Amendment  to Amended and Restated  Credit  Agreement
                    dated as of March 5, 1999,  amending Exhibit 4.2.2 (filed as
                    Exhibit 4.2.3 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.2.4               Exchange  Agreement  dated as of  September  21, 1999 by and
                    between Inland, IPC, Refining,  Trust Company of the West, a
                    California trust company,  as Sub-Custodian  for Mellon Bank
                    for  the  benefit  of  Account  No.  CPFF  873-3032,  Inland
                    Holdings  LLC,  TCW  Portfolio  No.  1555  DR V  Sub-Custody
                    Partnership,  L.P. and Joint Energy Development  Investments
                    II Limited  Partnership  (without  exhibits  or  schedules),
                    terminating Exhibits 4.2 and 4.3, as previously amended, and
                    Exhibits 4.4, 4.5, 10.10 and 10.11 (filed as Exhibit 10.1 to
                    Inland's  Current  Report  on Form 8-K dated  September  21,
                    1999, and incorporated herein by reference).

4.3                 Intercreditor  Agreement dated  September 23, 1997,  between
                    IPC, TCW Asset Management Company, Trust Company of the West
                    and ING (U.S.) Capital  Corporation (filed as Exhibit 4.3 to
                    Inland's  Current  Report  on Form 8-K dated  September  23,
                    1997, and incorporated herein by reference).

4.3.1               Third Amendment to Intercreditor  Agreement  entered into as
                    of April 22,  1998,  amending  Exhibit 4.3 (filed as Exhibit
                    4.3.1 to  Inland?s  Quarterly  Report  on Form  10-Q for the
                    quarter  ended March 31, 1998,  and  incorporated  herein by
                    reference).

4.3.2               Amended and  Restated  Intercreditor  Agreement  dated as of
                    September  11,  1998,  amending  and  restating  Exhibit 4.3
                    (filed as Exhibit  4.3.2 to Inland's  Annual  Report on Form
                    10-K for the year ended December 31, 1998, and  incorporated
                    herein by reference).

4.3.3               First  Amendment  to  Amended  and  Restated   Intercreditor
                    Agreement dated as of March 5, 1999,  amending Exhibit 4.3.2
                    (filed as Exhibit  4.3.3 to Inland's  Annual  Report on Form
                    10-K for the year ended December 31, 1998, and  incorporated
                    herein by reference).

4.4                 Warrant  Agreement by and between  Inland and TCW  Portfolio
                    No. 1555 DR V Sub-Custody Partnership,  L.P. dated September
                    23, 1997 (filed as Exhibit 4.4 to


                                       33
<PAGE>


                    Inland's  Current  Report  on Form 8-K dated  September  23,
                    1997, and incorporated herein by reference).

4.5                 Warrant issued by Inland pursuant to the Warrant  Agreement,
                    dated September 23, 1997, representing the right to purchase
                    100,000  shares of Inland's  Common  Stock (filed as Exhibit
                    4.5 to Inland's  Current Report on Form 8-K dated  September
                    23, 1997, and incorporated  herein by reference).  10.1 1988
                    Option  Plan of  Inland  Gold and  Silver  Corp.  (filed  as
                    Exhibit  10(15) to Inland's  Annual  Report on Form 10-K for
                    the year ended December 31, 1988, and incorporated herein by
                    reference).

10.1.1              Amended  1988 Option  Plan of Inland  Gold and Silver  Corp.
                    (filed as Exhibit  10.10.1 to Inland's Annual Report on Form
                    10-K for the year ended December 31, 1992, and  incorporated
                    herein by reference).

10.1.2              Amended  1988  Option  Plan of Inland,  as  amended  through
                    August 29, 1994 (including  amendments increasing the number
                    of shares to 212,800 and changing "formula award") (filed as
                    Exhibit 10.1.2 to Inland's  Annual Report on Form 10-KSB for
                    the year ended December 31, 1994, and incorporated herein by
                    reference).

10.1.3              Automatic  Adjustment to Number of Shares Covered by Amended
                    1988 Option Plan executed  effective  June 3, 1996 (filed as
                    Exhibit 10.1 to Inland's Quarterly Report on Form 10-QSB for
                    the quarter ended June 30, 1996, and incorporated  herein by
                    reference).

10.2                Letter  agreement  dated October 30, 1996 between Inland and
                    Johnson Water  District  (filed as Exhibit 10.41 to Inland's
                    Annual Report on Form 10-KSB for the year ended December 31,
                    1996, and incorporated herein by reference).

10.3                Interest Rate Cap Agreement dated April 30, 1998 between IPC
                    and  Enron  Capital  and  Trade  Resources  Corp.  (filed as
                    Exhibit 10.4 to Inland?s  Quarterly  Report on Form 10-Q for
                    the quarter ended March 31, 1998, and incorporated herein by
                    reference).

10.4                Farmout  Agreement  between Inland and Smith  Management LLC
                    dated effective as of June 1, 1998 (filed as Exhibit 10.1 to
                    Inland?s  Current Report on Form 8-K dated June 1, 1998, and
                    incorporated herein by reference).

10.5                Warrant  Agreement  dated as of March 5, 1999 between Inland
                    Resources  Inc. and TCW  Portfolio No. 1555 DR V Sub-Custody
                    Partnership, L.P. (filed as Exhibit 10.20 to Inland's Annual
                    Report on Form 10-K for the year ended  December  31,  1998,
                    and incorporated herein by reference).

10.6                Warrant  Certificate  dated March 5, 1999 between Inland and
                    TCW Portfolio No. 1555 DR V  Sub-Custody  Partnership,  L.P.
                    representing   5,852  shares  (filed  as  Exhibit  10.21  to
                    Inland's  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1998, and incorporated herein by reference).

10.7                Shareholders  Agreement  dated  as  of  September  21,  1999
                    between Inland,  Holdings, Fund V, JEDI and Pengo Securities
                    Corp., Smith Energy Partnership,  Randall D. Smith,  Jeffrey
                    A. Smith, Barbara Stovall Smith, John W. Adams and Arthur J.
                    Pasmas  (collectively,  the "Smith Group") (filed as Exhibit
                    10.2 to Inland's  Current Report on Form 8-K dated September
                    21, 1999, and incorporated herein by reference).

10.8                Registration Rights Agreement dated as of September 21, 1999
                    between  Inland,  Holdings,  Portfolio,  JEDI and the  Smith
                    Group filed as Exhibit  10.3 to Inland's  Current  Report on
                    Form 8-K dated September 21, 1999, and (incorporated  herein
                    by reference).


                                       34
<PAGE>

10.9                Severance  Agreement  between  Inland and John E. Dyer dated
                    November 18, 1999 (filed as Exhibit 10.13 to Inland?s Annual
                    Report on Form 10-K for the year ended  December  31,  1999,
                    and incorporated herein by reference).

10.10               Employment Agreement between Inland and William T. War dated
                    effective  as of October 1, 1999 (filed as Exhibit  10.14 to
                    Inland?s  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1999, and incorporated herein by reference).

10.11               Stock Option Agreement between Inland and William T. War
                    dated October 1, 1999 10.11 representing 25,000 post-split
                    shares of Common Stock (filed as Exhibit 10.15 to Inland?s
                    Annual Report on Form 10-K for the year ended December 31,
                    1999, and incorporated herein by reference).

10.12               Amendment to Employment Agreement between Inland and William
                    T. War,  amending the Employment  Agreement filed as Exhibit
                    10.10.

10.13               Employment  Agreement  between Inland and Michael J. Stevens
                    dated effective as of February 1, 2001.

10.14               Employment  Agreement between Inland and Marc MacAluso dated
                    effective as of February 1, 2001.

10.15               Stock  Option  Agreement  between  Inland and Marc  MacAluso
                    dated effective as of February 1, 2001 representing  150,000
                    post-split shares of Common Stock.

10.16               Employment  Agreement  between Inland and Bill I. Pennington
                    dated effective as of February 1, 2001.

10.17               Stock Option Agreement between Inland and Bill I. Pennington
                    dated effective as of February 1, 2001 representing  150,000
                    post-split shares of Common Stock.

10.18               Oil Purchase and Delivery Agreement dated November 7, 2000.

10.19               Common Stock Purchase  Agreement dated August 2, 2001 by and
                    between Inland Holdings, LLC ("Inland Holdings") and Hampton
                    Investments LLC ("Hampton  Investments")(without exhibits or
                    schedules)(filed  as Exhibit 10.1 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).

10.20               Contribution  Agreement  dated  August  2, 2001 by and among
                    Park  Hampton  Holdings  LLC  ("Hampton  Holdings"),   Pengo
                    Securities  Corp.   ("Pengo"),   Smith  Energy   Partnership
                    ("SEP"), the five individuals and Hampton Investments (filed
                    as Exhibit 10.2 to the Company's  Current Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.21               Series E  Preferred  Stock  Purchase  Agreement  dated as of
                    August 2, 2001 by and between Hampton Investments and Inland
                    Holdings  (without exhibits or  schedules)(filed  as Exhibit
                    10.3 to the  Company's  Current  Report  on Form  8-K  dated
                    August 2, 2001, and incorporated herein by reference).

10.22               Termination  Agreement  dated as of  August  2,  2001 by and
                    between Hampton  Investments and Inland (without exhibits or
                    schedules)(filed  as Exhibit 10.4 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).


                                       35
<PAGE>

10.23               Exchange and Note Issuance Agreement dated August 2, 2001 by
                    and among Inland,  Production and Inland  Holdings  (without
                    exhibits  or   schedules)(filed   as  Exhibit  10.5  to  the
                    Company's  Current  Report on Form 8-K dated August 2, 2001,
                    and incorporated herein by reference).

10.24               Termination  Agreement  dated as of  August  2,  2001 by and
                    among  Inland  and  Inland  Holdings  (without  exhibits  or
                    schedules)(filed  as Exhibit 10.6 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).

10.25               Amended and Restated  Registration Rights Agreement dated as
                    of August 2, 2001 by and among Inland,  Inland  Holdings and
                    Hampton Investments (without exhibits or schedules)(filed as
                    Exhibit  10.7 to the  Company's  Current  Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.26               Amended  and  Restated  Shareholders  Agreement  dated as of
                    August 2,  2001 by and among  Inland,  Inland  Holdings  and
                    Hampton Investments (without exhibits or schedules)(filed as
                    Exhibit  10.8 to the  Company's  Current  Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.27               Senior  Subordinated  Note  Purchase  Agreement  dated as of
                    August 2, 2001 by and among Inland, Production and SOLVation
                    (without exhibits or schedules)(filed as Exhibit 10.9 to the
                    Company's  Current  Report on Form 8-K dated August 2, 2001,
                    and incorporated herein by reference).

10.28               Junior  Subordinated  Note  Purchase  Agreement  dated as of
                    August 2, 2001 by and among Inland, Production and SOLVation
                    (without  exhibits or  schedules)(filed  as Exhibit 10.10 to
                    the  Company's  Current  Report on Form 8-K dated  August 2,
                    2001, and incorporated herein by reference).

*21.1               Subsidiaries of Inland.

*23.1               Consent of Arthur Andersen LLP.

*23.2               Consent of Ryder Scott Company, L.P.

*99.1               Letter to Securities and Exchange Commission dated March 26,
                    2002 concerning Arthur Andersen LLP.


*        Filed herewith



                                       36
<PAGE>



  (b)    Reports on Form 8-K

None.





                      [THIS SPACE INTENTIONALLY LEFT BLANK]



                                       37
<PAGE>




                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
Inland has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                    INLAND RESOURCES INC.
March 26, 2002
                                    By:      /s/ MARC MACALUSO
                                    --------------------------------------------
                                    Marc MacAluso
                                    Chief Executive Officer


                                POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Bill I. Pennington as
his attorney-in-fact to sign on his behalf and in the capacity stated below and
to file all amendments to this Annual Report, which amendment or amendments may
make such changes and additions thereto as such attorney-in-fact may deem
necessary or appropriate.

March 26, 2002                 /s/ ARTHUR J. PASMAS
                               Arthur J. Pasmas
                               Chairman of the Board

March 26, 2002                 /s/ MARC MACALUSO
                               Marc MacAluso
                               Director, Chief Executive Officer
                               and Chief Operating Officer
                               (Principal Executive Officer)

March 26, 2002                 /s/ BILL I.  PENNINGTON
                               Bill I. Pennington
                               Director, President and Chief Financial Officer
                               (Principal Financial Officer)

March 26, 2002                 /s/ BRUCE  M. SCHNELWAR
                               Bruce M. Schnelwar
                               Director

March 26, 2002                 /s/ DEWEY A. STRINGER III
                               Dewey A. Stringer III
                               Director


                                       38
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               -----
<S>                                                                                                           <C>
Report of Independent Public Accountants                                                                        F-2
Consolidated Balance Sheets, December 31, 2001 and 2000                                                         F-3
 Consolidated Statements of Operations for the years ended
         December 31, 2001, 2000 and 1999                                                                       F-5
Consolidated Statements of Stockholders' Equity for the
         years ended December 31, 2001, 2000 and 1999                                                           F-7
Consolidated Statements of Cash Flows for the years ended
         December 31, 2001, 2000 and 1999                                                                       F-8
Notes to Consolidated Financial Statements                                                                      F-9

</TABLE>




                                      F-1
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders of
      Inland Resources Inc.:

We have audited the accompanying consolidated balance sheets of Inland Resources
Inc. (a Washington corporation) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three years in the period ended December
31, 2001. 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 auditing standards generally accepted
in the United States. 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 Inland Resources Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

As explained in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for derivative instruments and hedging
activities on January 1, 2001.



                                                         /S/ ARTHUR ANDERSEN LLP




Denver, Colorado,
      March 26, 2002.


                                      F-2
<PAGE>



                                                                     Page 1 of 2



                              INLAND RESOURCES INC.

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                       --------------------------
                                       ASSETS                                              2001            2000
                                       ------                                          ----------      ----------
<S>                                                                                  <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                          $    1,949      $      848
    Accounts receivable and accrued sales                                                   3,320           5,284
    Inventory                                                                               1,192             835
    Other current assets                                                                      443             381
                                                                                            -----           -----
               Total current assets                                                         6,904           7,348
                                                                                            -----           -----
PROPERTY AND EQUIPMENT, AT COST:
    Oil and gas properties (successful efforts method)                                    205,535         183,959
    Accumulated depletion, depreciation and amortization                                  (43,510)        (35,004)
                                                                                          --------        --------
               Total oil and gas properties, net                                          162,025         148,955
    Other property and equipment, net                                                       2,230           1,997
                                                                                            -----           -----
               Total property and equipment, net                                          164,255         150,952

OTHER LONG-TERM ASSETS                                                                      2,217           1,765
                                                                                            -----           -----
               Total assets                                                              $173,376        $160,065
                                                                                         ========        ========
</TABLE>


                   The accompanying notes are an integral part
                       of the consolidated balance sheets.


                                      F-3
<PAGE>


                                                                     Page 2 of 2

                              INLAND RESOURCES INC.

                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)


<TABLE>
<CAPTION>

                                                                                                December 31,
                                                                                       --------------------------
                        LIABILITIES AND STOCKHOLDERS' DEFICIT                             2001             2000
                        -------------------------------------                          ----------      ----------
<S>                                                                                  <C>             <C>
CURRENT LIABILITIES:
    Accounts payable                                                                   $    4,011      $    2,141
    Accrued expenses                                                                        2,321           3,391
                                                                                            -----           -----
               Total current liabilities                                                    6,332           5,532

LONG-TERM DEBT                                                                             83,500          83,500
SENIOR SUBORDINATED UNSECURED DEBT INCLUDING
    ACCRUED INTEREST                                                                        5,228              --
SUBORDINATED UNSECURED DEBT INCLUDING
    ACCRUED INTEREST                                                                      103,500              --
JUNIOR SUBORDINATED UNSECURED DEBT INCLUDING
    ACCRUED INTEREST                                                                        5,228              --
                                                                                          -------          ------
               Total long term liabilities                                                197,456          83,500

COMMITMENTS AND CONTINGENCIES

MANDATORILY REDEEMABLE  PREFERRED STOCK:
    Series D Stock, 0 and 10,757,747 shares issued and outstanding,
        respectively, liquidation preference of  $80.7 million                                 --          68,273
    Accrued Preferred Series D dividends                                                       --          11,994
    Series E Stock, 0 and 121,973 shares issued and outstanding, respectively,
        liquidation preference of $12.2 million                                                --           9,120
    Accrued Preferred Series E dividends                                                       --           1,856

STOCKHOLDERS' DEFICIT:
    Common stock, par value $.001; 25,000,000 shares authorized,
        2,897,732 issued and outstanding                                                        3               3
    Additional paid-in capital                                                             41,431          51,157
    Accumulated other comprehensive income                                                  5,503              --
    Accumulated deficit                                                                   (77,349)        (71,370)
                                                                                          --------        --------
               Total stockholders' deficit                                                (30,412)        (20,210)
                                                                                          --------        --------
               Total liabilities and stockholders' deficit                               $173,376        $160,065
                                                                                         ========        ========
</TABLE>


                   The accompanying notes are an integral part
                       of the consolidated balance sheets.


                                      F-4
<PAGE>


                                                                     Page 1 of 2

                              INLAND RESOURCES INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                               For the Years Ended December 31,
                                                                          ----------------------------------------
                                                                             2001           2000            1999
                                                                          ---------       --------       ---------
<S>                                                                     <C>             <C>            <C>
REVENUES:
    Oil and gas sales                                                      $ 31,487       $ 28,497       $ 16,399

OPERATING EXPENSES:
    Lease operating expenses                                                  9,344          7,596          7,160
    Production taxes                                                            479            483            192
    Exploration                                                                 143            135            155
    Depletion, depreciation and amortization                                  9,106          7,816          9,882
    General and administrative, net                                           1,486          2,128          3,136
                                                                           --------       --------       --------
               Total operating expenses                                      20,558         18,158         20,525
                                                                           --------       --------       --------
OPERATING INCOME (LOSS):                                                     10,929         10,339         (4,126)
    Interest expense                                                        (12,031)        (8,298)       (15,989)
    Unrealized derivative loss due to time value                             (5,548)             -              -
    Interest and other income                                                   626            103             72
                                                                           --------       --------       --------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS                                 (6,024)         2,144        (20,043)

LOSS FROM DISCONTINUED OPERATIONS                                                --             --         (1,774)

LOSS ON SALE OF DISCONTINUED OPERATIONS                                          --           (250)       (14,500)
                                                                           --------       --------       --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY LOSS
    AND CUMULATIVE EFFECT OF CHANGE IN
    ACCOUNTING PRINCIPLE                                                     (6,024)         1,894        (36,317)

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
    OF DEBT                                                                      --             --           (556)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
    PRINCIPLE                                                                    45             --             --
                                                                           --------       --------       --------
NET INCOME (LOSS):                                                           (5,979)         1,894        (36,873)
    Accrued Preferred Series C dividends                                         --             --           (663)
    Accrued Preferred Series D dividends                                     (6,342)        (9,732)        (2,262)
    Accrued Preferred Series E dividends                                       (980)        (1,506)          (350)
    Accretion of Preferred Series D discount                                 (3,318)        (6,300)        (1,473)
    Accretion of Preferred Series E discount                                   (535)          (900)          (220)
    Excess carrying value of Series E preferred over
        redemption consideration                                             13,083             --             --
                                                                           --------       --------       --------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS                               $ (4,071)      $(16,544)      $(41,841)
                                                                           ========       ========       ========
</TABLE>


                   The accompanying notes are an integral part
                    of the consolidated financial statements.



                                      F-5
<PAGE>


                                                                     Page 2 of 2



                              INLAND RESOURCES INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
                                                                               For the Years Ended December 31,
                                                                          -----------------------------------------
                                                                            2001           2000              1999
                                                                          -------         ------           --------
<S>                                                                   <C>             <C>              <C>
NET INCOME (LOSS)                                                      $  (5,979)     $    1,894         $  (36,873)
BASIC AND DILUTED NET LOSS PER SHARE:
    Continuing operations                                              $   (1.42)     $    (5.62)        $   (17.56)
    Discontinued operations                                                   --              --              (1.25)
    Sale of discontinued operations                                           --           (0.09)            (10.18)
    Extraordinary loss                                                        --              --              (0.38)
    Cumulative effect of change in accounting principle                     0.02              --                 --
                                                                       ---------      ----------          ---------
BASIC AND DILUTED NET LOSS PER SHARE                                   $   (1.40)     $    (5.71)         $  (29.37)
                                                                       =========      ==========          =========
BASIC AND DILUTED WEIGHTED AVERAGE
    COMMON SHARES OUTSTANDING                                          2,897,732       2,897,732          1,424,439
                                                                       =========      ==========          =========
</TABLE>

                   The accompanying notes are an integral part
                    of the consolidated financial statements.




                                      F-6
<PAGE>






                              INLAND RESOURCES INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                      (In thousands, except share amounts)


<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                                 Common Stock          Additional        Other
                                                               --------------------      Paid-In      Comprehensive     Accumulated
                                                               Shares        Amount      Capital          Income          Deficit
                                                               ------        ------      -------          ------          -------
<S>                                                         <C>            <C>         <C>               <C>           <C>
BALANCES, December 31, 1998                                      852,977      $1          $42,766        $    -           $(35,728)
    Accrued Preferred Series C dividends                               -       -                -             -               (663)
    Common stock including Preferred Series Z
        stock issued in exchange of TCW debt                   1,164,295       1           21,698             -                  -
    Common stock issued in exchange of JEDI
        Preferred Series C stock                                 292,098       -            3,600             -                  -
    Other                                                             71       -            -                 -                  -
    Net gain under related party transaction                           -       -            5,836             -                  -
    Accretion of Preferred Series D discount                           -       -           (1,473)            -                  -
    Accretion of Preferred Series E discount                           -       -             (220)            -                  -
    Accrued Preferred Series D dividends                               -       -           (2,262)            -                  -
    Accrued Preferred Series E dividends                               -       -             (350)            -                  -
    Conversion of Preferred Series Z stock to common stock       588,291       1                -             -                  -
    Net loss                                                           -       -                -             -            (36,873)
                                                               ---------     ---           ------         -----            -------
BALANCES, December 31, 1999                                    2,897,732       3           69,595             -            (73,264)

    Accretion of Preferred Series D discount                           -       -           (6,300)            -                  -
    Accretion of Preferred Series E discount                           -       -             (900)            -                  -
    Accrued Preferred Series D dividends                               -       -           (9,732)            -                  -
    Accrued Preferred Series E dividends                               -       -           (1,506)            -                  -
    Net income                                                         -                        -             -              1,894
                                                               ---------     ---           ------         -----            -------
BALANCES, December 31, 2000                                    2,897,732       3           51,157             -            (71,370)

    Accretion of Preferred Series D discount                           -       -           (3,318)            -                  -
    Accretion of Preferred Series E discount                           -       -             (535)            -                  -
    Accrued Preferred Series D dividends                               -       -           (6,342)            -                  -
    Accrued Preferred Series E dividends                               -       -             (980)            -                  -
    Series D liquidation amount upon  redemption                       -       -           (9,092)            -                  -
    Series E liquidation amount upon  redemption                       -       -           (2,542)            -                  -
    Excess carrying value of Series E preferred over
        redemption consideration                                       -       -           13,083             -                  -
    Comprehensive income from value of derivative contracts            -       -                -         5,503                  -
    Net loss                                                           -       -                -             -             (5,979)
                                                               ---------     ---           ------         -----            -------
BALANCES, December 31, 2001                                    2,897,732      $3          $41,431        $5,503           $(77,349)
                                                               =========     ===           ======         =====            =======

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-7
<PAGE>


                              INLAND RESOURCES INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (See Note 10)
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                For the Years Ended December 31,
                                                                              -----------------------------------
                                                                                2001          2000          1999
                                                                              -------       -------       -------
<S>                                                                        <C>          <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                        $ (5,979)     $  1,894      $(36,873)
    Adjustments to reconcile net income (loss) to net cash
        provided (used) by operating activities
           Loss from discontinued operations                                        -           250        16,274
           Depletion, depreciation and amortization                             9,106         7,816         9,882
           Amortization of debt issuance costs and debt discount                  615           480           762
           Loss on disposition of assets                                            -            51             -
           Loss on early extinguishment of debt                                     -             -           556
           Noncash interest consideration                                           -             -         8,592
           Cumulative effect of change in accounting principle                    (45)            -             -
           Non cash changes related to derivatives                              5,548             -             -
           Interest expense converted into debt                                 4,987             -             -
           Effect of changes in assets and liabilities-
               Accounts receivable and accrued sales                            1,964        (3,118)         (800)
               Inventory                                                         (357)          452           128
               Other assets                                                        24          (184)           16
               Accounts payable and accrued expenses                              800           351        (6,050)
                                                                            ---------     ---------     ---------
                  Net cash provided (used) by operating activities             16,663         7,992        (7,513)
                                                                            ---------     ---------     ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Development expenditures and equipment purchases                          (22,289)      (14,137)       (3,772)
                                                                            ---------     ---------     ---------
                  Net cash used in investing activities                       (22,289)      (14,137)       (3,772)
                                                                            ---------     ---------     ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from issuance of long-term debt                                   10,000         4,585        11,581
    Retirement of preferred stock                                              (2,000)            -             -
    Payments of long-term debt                                                      -             -           (86)
    Debt issuance costs                                                        (1,273)         (500)         (493)
    Restructuring costs related to Series D and Series E                            -             -          (500)
                                                                            ---------     ---------     ---------
                  Net cash provided by financing activities                     6,727         4,085        10,502
                                                                            ---------     ---------     ---------
NET CASH AND CASH EQUIVALENTS PROVIDED (USED)
    BY CONTINUING OPERATIONS                                                    1,101        (2,060)         (783)
NET CASH AND CASH EQUIVALENTS PROVIDED
    BY DISCONTINUED OPERATIONS                                                      -         1,890           526
CASH AND CASH EQUIVALENTS, at beginning of period                                 848         1,018         1,275
                                                                            ---------     ---------     ---------
CASH AND CASH EQUIVALENTS, at end of period                                 $   1,949    $      848     $   1,018
                                                                            =========    ==========     =========
</TABLE>


                   The accompanying notes are an integral part
                    of the consolidated financial statements.


                                      F-8
<PAGE>


                              INLAND RESOURCES INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2001



1.   BUSINESS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES:

Business

Inland Resources Inc. ("Inland" or the "Company") is an independent energy
company with substantially all of its producing oil and gas property interests
located in the Monument Butte Field within the Uinta Basin of Northeastern Utah.
During the period from December 31, 1997 to January 31, 2000, the Company also
operated a crude oil refinery located in Woods Cross, Utah (the "Woods Cross
Refinery"). The refinery had a processing capacity of approximately 10,000
barrels per day and tankage capacity of 485,000 barrels. On December 10, 1999,
the Company's board of directors voted to sell the Woods Cross Refinery
operations and a nonoperating refinery pursuant to a plan of dissolution. The
sale of the Woods Cross Refinery and the nonoperating refinery closed on January
31, 2000. Certain current assets were excluded from the sale and were liquidated
pursuant to the plan of dissolution in 2000.

Consolidation

The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions of continuing operations have been
eliminated in consolidation.

Reverse Split

On December 10, 1999, the Company's stockholders approved a 1-for-10 reverse
stock split of the Company's common stock. The effect of the stock split was to
lower the authorized common shares from 25,000,000 shares to 2,500,000 shares
and reduce outstanding common shares from 23,093,689 shares to 2,309,441 shares.
The stockholders further approved an increase in the number of post-split
authorized shares from 2,500,000 shares to 25,000,000. Par value remained at
$0.001 per common share. All per share disclosures including loss per share and
weighted average common and common equivalent shares outstanding as reported on
the consolidated balance sheet, consolidated statement of operations and
consolidated statement of stockholders' deficit have been calculated based on
post-reverse split share amounts.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The impact
of oil and gas prices has a significant influence on estimates made by
management. Changes in oil and gas prices and production rates directly affect
the economics of estimated oil and gas reserves. These economics have
significant effects upon predicted reserve quantities and valuations. These
estimates are the basis for the calculation of depletion, depreciation and
amortization for the Company's oil and gas properties and the need for an
assessment as


                                      F-9
<PAGE>

to whether an  impairment  is  required.  Overall oil and gas pricing  estimates
factor into estimated future cash flow projections used in assessing  impairment
for the oil and gas properties.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and amounts due from banks and
other investments with original maturities of less than three months.

Concentrations of Credit Risk

The Company regularly has cash held by a single financial institution, that
exceeds depository insurance limits. The Company places such deposits with
institutions that management believes are of high credit quality. The Company
has not experienced any credit losses. Substantially all of the Company's
receivables are within the oil and gas industry, primarily from its oil and gas
purchasers and joint interest owners. Although diversified within many
companies, collectibility is dependent upon the general economic conditions of
the industry.

Fair Value of Financial Instruments

The Company's financial instruments consist of cash, trade receivables, trade
payables, accrued liabilities, long-term debt and derivative instruments. The
carrying value of cash and cash equivalents, trade receivables and trade
payables are considered to be representative of their fair market value, due to
the short maturity of these instruments. The fair value of variable interest
rate long-term debt approximates fair value. The fixed rate debt is unique to
the Company, as such, the fair value is not readily determinable. The estimated
fair value of derivative contracts are estimated based on market conditions in
effect at the end of each reporting period.

Inventories

Inventories consist of tubular goods valued at the lower of average cost or
market. Materials and supplies inventories are stated at cost and are charged to
capital or expense, as appropriate, when used.

Accounting for Oil and Gas Operations

The Company follows the successful efforts method of accounting for oil and gas
operations. The use of this method results in the capitalization of those costs
associated with the acquisition, exploration and development of properties that
produce revenue or are anticipated to produce future revenue. The Company does
not capitalize general and administrative expenses directly identifiable with
such activities or lease operating expenses associated with secondary recovery
startup projects. Costs of unsuccessful exploration efforts are expensed in the
period it is determined that such costs are not recoverable through future
revenues. Geological and geophysical costs are expensed as incurred. The cost of
development wells are capitalized whether productive or nonproductive. Upon the
sale of proved properties, the cost and accumulated depletion are removed from
the accounts. Any gain or loss is recorded in the results of operations.
Interest is capitalized during the drilling and completion period of wells and
on other major projects.

The provision for depletion, depreciation and amortization of developed oil and
gas properties is based on the units of production method. This method utilizes
proved oil and gas reserves determined using market prices at the end of each
reporting period. Dismantlement, restoration and abandonment costs are, in
management's opinion, offset by residual values of lease and well equipment. As
a result, no accrual for such costs is provided.


                                      F-10
<PAGE>


Impairment Review

The Company reviews and evaluates its long-lived assets for impairment when
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. An impairment loss is measured as the amount by which
asset carrying value exceeds fair value. A calculation of the aggregate
before-tax undiscounted future net revenues is performed for the oil and gas
properties. The Company utilizes an estimated price scenario based on its budget
and future estimates of oil and gas prices from industry projections and quoted
futures prices. The assumptions used at December 31, 2001 were based on an
average oil price of $16.84 per barrel and $2.23 per Mcf over the remaining
estimated life of the properties.

The Company also periodically assesses unproved oil and gas properties for
impairment. Impairment represents management's estimate of the decline in
realizable value experienced during the period for leases not expected to be
utilized by the Company.

In August 2001, SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued. The statement established a single accounting
model, based on the framework of SFAS No. 121 ("Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"), for the
long-lived assets to be disposed of by sale. The statement was adopted on
January 1, 2002 and the Company did not have any material impact upon adoption.

Property and Equipment

Property and equipment is recorded at cost. Replacements and major improvements
are capitalized, while maintenance and repairs are charged to expense as
incurred. Upon sale or retirement, the asset cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets, generally ranging from three to
thirty years. Maintenance and repairs are expensed as incurred. Major
improvements are capitalized and the assets replaced are retired.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under the
liability method, deferred income taxes are recorded for differences between the
book and tax basis of assets and liabilities at tax rates in effect when the
balances are expected to reverse. A valuation allowance against deferred tax
assets is recorded when the conclusion by Company management is reached that the
tax benefits, based on available evidence, are not expected to be realized.

Revenue Recognition

Sales of crude oil and natural gas are recorded upon delivery to purchasers.

Loss Per Share

Net loss per share is presented for basic and diluted net loss and, if
applicable, for net loss from discontinued operations and extraordinary losses.
Basic earnings per share is computed by dividing net loss attributable to common
stockholders by the weighted-average number of common shares for the period. The
computation of diluted earnings per share includes the effects of additional
common shares that would have been outstanding if potentially dilutive common
shares had been issued. As the Company was in a net loss available to common
stockholders position for each of the periods presented, all outstanding options
were considered antidilutive.


                                      F-11
<PAGE>


Comprehensive Income (Loss)

In addition to net income (loss), comprehensive loss includes all changes in
equity during a period, except those resulting from investments by and
distributions to owners. Beginning January 1, 2001, with the adoption of SFAS
No. 133, the portion of changes in fair value of derivative instruments that
qualify or had qualified for cash flow hedges is included in accumulated
comprehensive income (loss).

Recently Adopted Accounting Standards

In June 2001, SFAS No. 141 "Business Combination" and SFAS No. 142 "Goodwill and
Other Intangible Assets" were issued, which requires all business combinations
to be accounted for using the purchase method and also changes the treatment of
goodwill created in a business combination to discontinue amortization of
goodwill. The adoption of these two statements did not have an impact on the
Company's financial position or results of operations.

Additionally, SFAS No. 143 "Accounting for Asset Retirement Obligations" was
issued in July 2001. This standard requires entities to record the discounted
fair value of a liability for an asset retirement obligation as a liability.
When the liability is initially recorded, the entity capitalizes the cost by
increasing the carrying amount of the related long-lived asset. The carrying
amount of the liability is accreted to its full liability as interest expense,
and the asset previously recorded is then depreciated over the estimated useful
life. The present value of the retirement obligation is adjusted each reporting
period. The Company has not yet determined the impact of adopting this
statement, which will be required on January 1, 2003.

2.       COMPREHENSIVE INCOME (LOSS):

Comprehensive loss of the Company for the year ended December 31, 2001 is as
follows:

<TABLE>

<S>                                                                 <C>                 <C>
Net loss                                                                                  $(5,979)
Components of other comprehensive income-
    Cumulative effect of change in accounting principle               $(1,972)
    Change in the fair value of derivative contracts                    4,534
    Derivative contract settlements                                     2,941
                                                                      -------
    Ending accumulated other comprehensive income                                           5,503
                                                                                          -------
Comprehensive loss                                                                       $   (476)
                                                                                          =======

</TABLE>

For years ended December 31, 2000 and 1999, comprehensive income (loss) was
equal to net income (loss).

Reclassifications

Certain amounts in prior years have been reclassified to conform to the 2001
presentation.

3.    FINANCIAL INSTRUMENTS:

Periodically, the Company enters into commodity contracts to hedge or otherwise
reduce the impact of oil price fluctuations. The amortized cost and the monthly
settlement gain or loss are reported as adjustments to revenue in the period in
which the related oil is sold. Hedging activities do not affect the actual sales
price for the Company's crude oil. The Company is subject to the
creditworthiness of its counterparties


                                      F-12
<PAGE>

since the contracts are not collateralized.  The Company entered into all of its
hedging contracts with Enron North America Corp. ("ENAC").

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133") was issued. This statement establishes accounting
and reporting standards for derivative instruments and hedging activity. SFAS
No. 133 requires recognition of all derivative instruments on the balance sheet
as either assets or liabilities measured at fair value. Changes in the
derivative's fair value are recognized currently in earnings unless specific
hedge accounting criteria are met. Gains and losses on derivative hedging
instruments must be recorded in either other comprehensive income or current
earnings, depending on the nature and designation of the instrument. The impact
of adopting SFAS No. 133 on January 1, 2001 resulted in recording a current
liability of $1,927,000 and recording a cumulative effect of a change in
accounting principle as accumulated comprehensive loss in the equity section of
$1,972,000 and income recorded as a cumulative effect of a change in accounting
principle of $45,000.

On December 2, 2001, ENAC filed for Chapter 11 bankruptcy . The ENAC bankruptcy
caused a default on all of the Company's hedging contracts from November 2001
through September 30, 2003. The Company recorded a non-cash loss of $5.5 million
to the statement of operations to reflect ineffectiveness of the derivative
contracts following the filing of Chapter 11 bankruptcy of ENAC. The amount that
had been deferred in accumulated other comprehensive income will be reclassified
to earnings based on the originally scheduled settlement periods of the
contracts. Non-cash amounts expected to be reclassified to earnings in 2002 and
2003 are $3,993,000 and $1,510,000, respectively. On January 30, 2002, the
Company terminated all of its hedging contracts with ENAC and determined a
potential bankruptcy claim against ENAC in excess of $7.5 million.

Crude Oil Hedging Activities

As mentioned above, the Company terminated all of its hedging contracts with
ENAC on January 30, 2002 for the years 2002 and 2003.

During the year 2001, the Company hedged 990,000 net barrels of crude oil
production under various collars and swaps from ENAC. The Company recorded a
reduction of revenue of $2.9 million under these contracts upon settlement.
During the year 2000, the Company hedged 720,000 net barrels of crude oil
production under various collars from ENAC. The Company recorded a reduction of
revenue of $6.1 million under these contracts. During the period April 1, 1999
to December 31, 1999, the Company hedged oil production under two contracts from
ENAC. The contracts were structured as swaps covering 80,000 net barrels per
month at an average strike price of $14.28. The Company recorded a reduction to
revenue of $4.9 million under these contracts during 1999.

On March 11, 2002, the Company hedged 30,000 net barrels per month with Equiva
Trading Company for the April 2002 to December 2002 period using a swap with a
settlement amount of $23.90 per barrel.



                                      F-13
<PAGE>


4.    LOSS PER SHARE:

The calculation of loss per share for the years ended December 31, 2001, 2000
and 1999 is as follows (in thousands, except per share data):


<TABLE>
<CAPTION>
                                                      2001                       2000                       1999
                                            --------------------------   ------------------------   -------------------------
                                            Income           Per Share                  Per Share                   Per Share
                                            (Loss)   Shares   Amount     Loss   Shares    Amount    Loss    Shares   Amount
                                            ------   ------   ------     ----   ------    ------    ----    ------   ------

<S>                                        <C>      <C>      <C>      <C>      <C>       <C>    <C>        <C>      <C>
    Income (loss) from continuing
        operations                          $(6,024)                   $ 2,144                   $(20,043)
    Accrued Preferred Series C dividends         --                         --                       (663)
    Accrued Preferred Series D dividends     (6,342)                    (9,732)                    (2,262)
    Accrued Preferred Series E dividends       (980)                    (1,506)                      (350)
    Accretion of Series D discount           (3,318)                    (6,300)                    (1,473)
    Accretion of Series E discount             (535)                      (900)                      (220)
    Excess carrying value of Series E
        Preferred over redemption
        consideration                        13,083                         --                         --
                                            -------                    -------                    -------
BASIC AND DILUTED LOSS
    PER SHARE:
        Loss from continuing operations
           attributable to common
           stockholders                     $(4,116)  2,898   $(1.42)  $(16,294) 2,898    $(5.62) $(25,011)  1,424     $(17.56)
                                            ========          =======  ========            =====   =======              ======

</TABLE>


5.    RESTRUCTURING TRANSACTIONS:

1999 Exchange Agreement

On September 21, 1999, the Company entered into an Exchange Agreement (the
"Exchange Agreement") with Trust Company of the West and affiliated entities
("TCW") and Joint Energy Development Investments II Limited Partnership ("JEDI")
pursuant to which TCW agreed to exchange certain indebtedness and warrants to
purchase Common Stock, for shares of Common Stock and two new series of
Preferred Stock of the Company, and JEDI agreed to exchange 100,000 shares of
Series C Preferred Stock of the Company for shares of Common Stock and a third
new series of Preferred Stock of the Company.

Pursuant to the Exchange Agreement, TCW agreed to exchange $75.0 million of
subordinated indebtedness plus accrued interest of $5.7 million and warrants to
purchase 15,852 shares of Common Stock for the following securities of the
Company: (i) 10,757,747 shares of newly designated Series D Redeemable Preferred
Stock of the Company ("Series D Preferred Stock"), (ii) 5,882,901 shares of
newly designated Series Z Convertible Preferred Stock of the Company ("Series Z
Preferred Stock") and (iii) 1,164,295 shares of Common Stock. On December 14,
1999, all shares of Series Z Preferred Stock were converted into 588,291 shares
of Common Stock. In addition, JEDI agreed to exchange 100,000 shares ($10.0
million par value) of the Company's Series C Cumulative Convertible Preferred
Stock ("Series C Preferred Stock") owned by JEDI, together with $2.2 million of
accumulated dividends thereon, for (i) 121,973 shares of newly designated Series
E Redeemable Preferred Stock of the Company ("Series E Preferred Stock") and
(ii) 292,098 shares of Common Stock.

The Series D Preferred Stock accrued dividends at a rate of $0.16875 per share
per quarter (9% annual rate) if paid in cash on a current basis or $0.2109375
per share per quarter (11.25% annual rate compounded quarterly) if accumulated
and not paid on a current basis. No dividends were paid on Common Stock or any
other series of preferred stock as there were accrued and unpaid dividends on
the Series D Preferred Stock. The Series D Preferred Stock also had liquidation
preference over all other classes and series of stock, in an amount equal to
$7.50 per share ($80.7 million). The difference between the book value and the
liquidation value of the Series D Preferred Stock at the exchange date ($20.2



                                      F-14
<PAGE>

million) was being accreted over the minimum redemption period beginning on
April 1, 2002, and resulted in a charge against earnings available for common
stockholders until it was exchanged on August 2, 2001 as discussed below.

The Series E Preferred Stock accrued dividends at a rate of $2.3125 per share
per quarter (9.25% annual rate) if paid in cash on a current basis or $2.875 per
share per quarter (11.5% annual rate compounded quarterly) if accumulated and
not paid on a current basis. No dividends were paid on Common Stock as there
were accrued and unpaid dividends on the Series E Preferred Stock. The Series E
Preferred Stock also had liquidation preference over all other classes and
series of stock, except the Series D Preferred Stock, in an amount equal to
$100.00 per share ($12.2 million). The difference between the book value and the
liquidation value of the Series E Preferred Stock at the exchange date ($4.2
million) was being accreted over the minimum redemption period to April 1, 2004,
and resulted in a charge against earnings available for common stockholders
until exchanged on August 2, 2001, as discussed below.

One of the conditions to closing the Exchange Agreement in 1999 was that
Inland's senior lenders would enter into a restructuring of the senior credit
facility acceptable to TCW, JEDI and the Company. As a result, effective as of
September 21, 1999, the Company entered into the Second Amended and Restated
Credit Agreement (the "Fortis Credit Agreement") whose current participants are
Fortis Capital Corp. and U.S. Bank National Association (the "Senior Lenders")
pursuant to which the Senior Lenders agreed to increase the borrowing base from
$73.25 million to $83.5 million, inclusive of a sublimit for letters of credit
of $4.0 million.

The Company also amended its Farmout Agreement with Smith Energy Partnership
("Smith") in conjunction with the financial restructuring on September 21, 1999.
As a result of this Amendment, and the fact that the Company has no further
obligations in relation to these properties, the production loan previously
recorded by the Company was no longer considered outstanding. The $5.8 million
gain recognized upon the removal of previously recorded account balances was
charged directly to equity due to the related-party nature of the transaction.
The Farmout Agreement continues to provide that Smith will reconvey all
drillsites to the Company once Smith has recovered from production an amount
equal to 100% of its expenditures, including management fees and production
taxes, plus an additional sum equal to 18% per annum on such expended sums.

March  2001 Transaction

On March 20, 2001, Hampton Investments LLC ("Hampton") an affiliate of Smith
Management LLC, purchased from JEDI the 121,973 shares of Series E Preferred
Stock and 292,098 shares of Common Stock acquired by JEDI in the Exchange
Agreement. Following closing of the Exchange Agreement and the purchase by
Hampton of JEDI's shares, TCW owned at that time 1,752,586 shares of Common
Stock, representing approximately 60.5% of the outstanding shares of Common
Stock, and Hampton owned at that time 292,098 shares of Common Stock,
representing approximately 10.1% of the outstanding shares of Common Stock.
Various persons and entities that may be considered related to Hampton owned an
additional 548,338 shares of Common Stock, so that together with Hampton such
persons, entities and Hampton, owned an aggregate of 840,436 shares of Common
Stock at the time of the March 2001 transaction.

August 2001 Transaction

On August 2, 2001, the Company closed two subordinated debt transactions
totaling $10 million in aggregate with SOLVation Inc. ("SOLVation"), a company
affiliated with Smith Management LLC, and entered into other restructuring
transactions as described below. The first of the two debt transactions with
SOLVation was the issuance of a $5 million unsecured senior subordinated note to
SOLVation due July 1, 2007. The interest rate is 11% per annum compounded
quarterly.

                                      F-15
<PAGE>


The Company also issued a second $5 million unsecured junior subordinated note
to SOLVation. The interest rate is 11% per annum compounded quarterly. The
maturity date is the earlier of (i) 120 days after payment in full of the TCW
subordinated debt or (ii) March 31, 2010. Interest is payable in arrears in cash
subject to the approval from the senior bank group and accumulates if not paid
in cash.

In conjunction with the issuance of the two subordinated notes to SOLVation, the
Series D Preferred and Series E Preferred stock held by Inland Holdings LLC, a
company controlled by TCW were exchanged for an unsecured subordinated note due
September 30, 2009 and $2 million in cash from the Company. The note amount was
for $98,968,964 that represented the face value plus accrued dividends of the
Series D Preferred stock as of August 2, 2001. The interest rate on this debt is
11% per annum compounded quarterly. As a result of the exchange, the Company
retired both the Series D and Series E Preferred stock. Due to the related party
nature of this transaction, the difference between the aggregate subordinated
note balance and $2 million cash paid to TCW, and the aggregate liquidation
value of the Series D and Series E Preferred Stock plus accrued dividends, was
recorded as an increase of $13,083,000 to additional paid-in capital.

As part of this restructuring, TCW also sold to Hampton 1,455,390 shares of
common stock in the Company held by TCW (consequently, Hampton now controls
approximately 80% of the issued and outstanding shares of the Company),
terminated any existing option rights to the Company's common stock, and
relinquished the right to elect four persons to the Company's Board of
Directors. However, TCW has the right to nominate one person to the Company's
Board. Remaining Board members will be nominated by the Company's stockholders.
As long as Hampton or its affiliates own at least a majority of the common stock
of the Company, Hampton has agreed with TCW that Hampton will have the right to
appoint at least two members to the Board.

6.    DISCONTINUED OPERATIONS:

Pursuant to a decision by the Company's Board of Directors on December 10, 1999
to dispose of the Company's refinery operations, 100% of the stock in Inland
Refining, Inc., a wholly owned subsidiary, was sold on January 31, 2000 to
Silver Eagle Refining, Inc. ("Silver Eagle"). This subsidiary owned the Woods
Cross Refinery and a nonoperating refinery located in Roosevelt, Utah. The Woods
Cross Refinery was originally purchased on December 31, 1997 for $22.9 million
and the Roosevelt refinery was originally purchased on September 16, 1998 for
$2.25 million. The sales price was $500,000 together with the assumption by
Silver Eagle of refinery assets, liabilities and obligations including all
environmental related liabilities. Prior to the sale, the Company transferred
the existing inventory, cash, accounts receivable and a note receivable to
another wholly owned subsidiary of the Company. This subsidiary also agreed to
satisfy various accounts payable and accrued liabilities not assumed by Silver
Eagle. These assets and liabilities were disposed of during 2000.

As a result of this sale, the Company is no longer involved in the refining of
crude oil or the sale of refined products. As a result, all refining operations
have been classified as discontinued operations in the accompanying consolidated
financial statements. To account for the sale, the Company recorded a loss on
sale of discontinued operations of $14.5 million at December 31, 1999. The
Company recorded an additional loss of $250,000 to reflect adjustments to the
final disposal costs associated with the refinery. In addition, certain prior
year amounts were reclassified as discontinued operations, with no net effect on
net loss or accumulated deficit as previously reported. Revenue from
discontinued operations was $70.3 million during the year ended December 31,
1999.


                                      F-16
<PAGE>


7.    OTHER PROPERTY AND EQUIPMENT:


<TABLE>
<CAPTION>
                                                            December 31,
                                                   ---------------------------
                                                      2001               2000
                                                   ---------           -------
                                                           (in thousands)
                                   Estimated
                                 Useful Lives
                                 ------------
<S>                            <C>             <C>                  <C>
Vehicles                             3 Years      $  1,554             $ 1,599
Buildings                        20-30 Years         1,013                 967
Furniture and fixtures               3 Years         1,326               1,258
Leasehold improvements               5 Years            86                  86
Land                                                    36                  36
                                                     -----               -----
                                                     4,015               3,946
Less:  accumulated depreciation                     (1,785)             (1,949)
                                                     -----               -----
Total                                             $  2,230             $ 1,997
                                                  ========             =======
</TABLE>


8.    LONG-TERM DEBT (See Note 5):

Fortis Credit Agreement

Effective  September 21, 1999, the Company entered into a credit  agreement (the
"Fortis Credit  Agreement") whose current  participants are Fortis Capital Corp.
and U.S. Bank National Association (the "Senior Lenders").

In conjunction with the August 2, 2001 SOLVation financing, the Senior Lenders
amended the Fortis Credit Agreement to change the maturity date to June 30, 2007
from April 1, 2002, or potentially earlier if the borrowing base is determined
to be insufficient. Interest accrues under the Fortis Credit Agreement, at the
Company's option, at either (i) 2% above the prime rate or (ii) at various rates
above the London Interbank Offering Rate ("LIBOR") rate. The LIBOR rates will be
determined by the senior debt to EBITDA ratios starting August 2, 2001. If the
senior debt to EBITDA ratio is greater than 4.00 to 1.00, the rate is 3.25%
above the LIBOR rate; if the senior debt to EBITDA ratio is equal to or less
than 4.00 to 1.00 but greater than 3.00 to 1.00, the rate is 2.75% above the
LIBOR rate; if the senior debt to EBITDA ratio is less than 3.00 to 1.00, the
rate is 2.25% above the LIBOR rate. As of December 31, 2001, $83 million and
$500,000 were borrowed under the LIBOR option at interest rates of 6.27% and
4.65%, respectively. The revolving termination date is June 30, 2004 at which
time the loan converts into a term loan payable in 12 equal quarterly
installments of principal, with accrued interest, beginning September 30, 2004.
The Fortis Credit Agreement has covenants that restrict the payment of cash
dividends, borrowings, sale of assets, loans to others, investments, merger
activity and hedging contracts without the prior consent of the lenders and
requires the Company to maintain certain net worth, interest coverage and
working capital ratios. The borrowing base is calculated as the collateral value
of proved reserves. The borrowing base is subject to ongoing redeterminations on
or before March 31, 2002 and with subsequent determinations to be made on each
subsequent October 1 and April 1. The April 1, 2002 determination was received
on March 26, 2002 and was $83.5 million. If the borrowing base is lower than the
outstanding principal balance then drawn, the Company must immediately pay the
difference. The Company was in compliance of its bank covenants as December 31,
2001. The Fortis Credit Agreement is secured by a first lien on substantially
all assets of the Company. At December 31, 2001, the Company had advanced all
funds under its current borrowing base of $83.5 million. The Fortis Credit
Agreement was amended on March 25, 2002.


                                      F-17
<PAGE>


Subordinated Unsecured Debt to
SOLVation Inc.

As discussed in Note 5, on August 2, 2001, the Company closed two subordinated
debt transactions totaling $10 million in aggregate with SOLVation Inc. The
first of the two debt transactions with SOLVation was the issuance of a $5
million unsecured senior subordinated note to SOLVation due July 1, 2007. The
interest rate is 11% per annum compounded quarterly. The interest payment is
payable in arrears in cash subject to the approval from the senior bank group
and accumulates if not paid in cash. The Company is not required to make any
principal payments prior to the July 1, 2007 maturity date. However, the Company
is required to make payments of principal and interest in the same amounts as
any principal payment or interest payments on the TCW subordinated debt
(described below). Prior to the July 1, 2007 maturity date, subject to the bank
subordination agreement, the Company may prepay the senior subordinated note in
whole or in part with no penalty.

The Company also issued a second $5 million unsecured junior subordinated note
to SOLVation. The interest rate is 11% per annum compounded quarterly. The
maturity date is the earlier of (i) 120 days after payment in full of the TCW
subordinated debt or (ii) March 31, 2010. Interest is payable in arrears in cash
subject to the approval from the senior bank group and accumulates if not paid
in cash. The Company is not required to make any principal payments prior to the
March 31, 2010 maturity date. Prior to the March 31, 2010 maturity date, subject
to both bank and subordination agreements, the Company may prepay the junior
subordinated note in whole or in part with no penalty. A portion of the proceeds
from the senior and junior subordinated notes was used to fund a $2 million
payment to TCW and other Company working capital needs.

Subordinated Unsecured Debt to TCW

As discussed in Note 5, in conjunction with the issuance of the two subordinated
notes to SOLVation, the Series D Preferred and Series E Preferred stock held by
Inland Holdings LLC, a company controlled by TCW, were exchanged for an
unsecured subordinated note due September 30, 2009 and $2 million in cash from
the Company. The note amount was for $98,968,964 that represented the face value
plus accrued dividends of the Series D Preferred stock as of August 2, 2001. The
interest rate is 11% per annum compounded quarterly. Interest shall be payable
in arrears in cash subject to the approval from the senior bank group and
accumulates if not paid in cash. Interest payments will be made quarterly,
commencing on the earlier of September 30, 2005 or the end of the first calendar
quarter after the senior bank debt has been reduced to $40 million or less,
subject to both bank and senior subordination agreements. Beginning the earlier
of two years prior to the maturity date or the first December 30 after the
repayment in full of the senior bank debt, subject to both bank and senior
subordination agreements, the Company will make equal annual principal payments
of one third of the aggregate principal amount of the TCW subordinated note. Any
unpaid principal or interest amounts are due in full on the September 30, 2009
maturity date. Prior to the September 30, 2009 maturity date, subject to both
bank and senior subordination agreements, the Company may prepay the TCW
subordinated note in whole or in part with no penalty.


                                      F-18
<PAGE>



A summary of the Company's long-term debt (including accrued unpaid interest)
follows (in thousands):

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                    ----------------------
                                                                                     2001            2000
                                                                                    -------        -------
     <S>                                                                          <C>            <C>
       Fortis Credit Agreement                                                      $83,500        $83,500
       Senior Subordinated Unsecured Debt including accrued interest                  5,228         -
       Subordinated Unsecured Debt including accrued interest                       103,500         -
       Junior Subordinated Unsecured Debt including accrued interest                  5,228         -
                                                                                    -------         ------
           Total long-term debt                                                    $197,456        $83,500
                                                                                    =======         ======
Outstanding debt at December 31, 2001 is payable as follows (in thousands):

                  2002                                                                     $  -
                  2003                                                                        -
                  2004                                                                     13,918
                  2005                                                                     36,894
                  2006                                                                     27,832
                  Thereafter                                                              118,812
                                                                                          -------
                     Total long-term debt                                                $197,456
                                                                                          =======
</TABLE>


9.    INCOME TAXES:

In 2001, 2000 and 1999, no income tax provision or benefit was recognized due to
the effect of net operating losses and the recording of a valuation allowance
against portions of the deferred tax assets that did not meet the utilization
criteria of more likely than not. Deferred income taxes reflect the impact of
temporary differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. The tax effect of
the temporary differences and carryforwards giving rise to the Company's
deferred tax assets and liabilities at December 31, 2001 and 2000 is as follows
(in thousands):

<TABLE>
<CAPTION>
                                                                           December 31,          December 31,
                                                                               2001                  2000
                                                                           -----------           ------------
      <S>                                                                <C>                  <C>
         Deferred tax assets:
             Net operating loss carryforwards                               $  32,158            $  29,051
             Derivative loss                                                    2,052                    -
         Valuation allowance                                                  (21,608)             (19,397)
                                                                             --------             --------
                   Deferred tax assets                                         12,602                9,654
                                                                             --------             --------
         Deferred tax liabilities:
             Depletion, depreciation and amortization
                of property and equipment                                     (12,602)              (9,654)
                                                                             --------             --------
                   Deferred tax liabilities                                   (12,602)              (9,654)
                                                                             --------             --------
                   Net deferred tax assets                                  $     -              $     -
                                                                             ========             ========
</TABLE>


                                      F-19
<PAGE>


A valuation allowance is to be provided if it is more likely than not that some
portion or all of a deferred tax asset will not be realized. The Company's
ability to realize the benefit of its tax assets depends on the generation of
future taxable income through profitable operations and expansion of the
Company's oil and gas producing properties. The market, capital and
environmental risks associated with that growth requirement caused the Company
to conclude that a valuation allowance should be provided, except to the extent
that the benefit of operating loss carryforwards can be used to offset future
reversals of existing deferred tax liabilities. The Company will continue to
monitor the need for the valuation allowance that has been provided.

Income tax expense for 2001, 2000 and 1999 differed from amounts computed by
applying the statutory federal income tax rate as follows (in thousands):


<TABLE>
<CAPTION>
                                                                              For the Year December 31,
                                                                      -----------------------------------------
                                                                       2001              2000             1999
                                                                      ------           -------          -------
<S>                                                                <C>              <C>              <C>
Expected statutory tax expenses at 34%                               $(2,032)         $    644         $(12,537)
Change in valuation allowance, net                                     2,211              (492)          12,514
Other                                                                   (179)             (152)              23
                                                                      ------           -------          -------
        Net tax expense                                              $    -           $     -          $     -
                                                                      ======           =======          =======
</TABLE>


No state or federal income taxes are payable at December 31, 2001 or 2000, and
the Company did not pay any income taxes in 2001, 2000 or 1999. At December 31,
2001, the Company had tax basis net operating loss carryforwards available to
offset future regular and alternative taxable income of $86 million that expire
from 2002 to 2021. Utilization of the net operating loss carryforwards are
limited under the change of ownership tax rules.

10.   SUPPLEMENTAL DISCLOSURE OF
      CASH FLOW INFORMATION:

Cash paid for interest during 2001, 2000 and 1999 was approximately $6,428,000,
$7,857,000 and $6,112,000, respectively.

As a result of the restructuring discussed in Note 5, the Company converted
Preferred Stock to debt in the amount of $98,968,964, during 2001.

In 2000, the Company sold surface land to a former officer of the Company for
the assumption of a note payable of $167,000, by the former officer, that had
previously been recorded on the Company's financial statements.

As part of the Smith Farmout restructuring described in Note 5, the following
accounts were impacted in 1999:

<TABLE>

<S>                                                                          <C>
Oil and gas properties                                                         $(13,833)
Accumulated depletion, depreciation and amortization                              2,837
Deferred debt offering costs                                                       (233)
Smith Farmout loan                                                               15,085
Smith Farmout accrued interest                                                    2,792
Additional paid-in capital                                                       (5,837)

</TABLE>



                                      F-20
<PAGE>


11.   COMMITMENTS AND CONTINGENCIES:

Lease Commitments

The Company leases 16,500 square feet of office space under a noncancellable
operating lease that expires in 2002. Future payments under this lease are
estimated at $300,000 for 2002. Total lease expense during 2001, 2000 and 1999
was $299,000, $300,000 and $264,000, respectively.

401(k) Plan

The Company provides a voluntary 401(k) employee savings plan which covers all
full-time employees who meet certain eligibility requirements. Voluntary
contributions are made to the 401(k) plan by participants. In addition, the
Company matches 100% of the first 6% of salary contributed by each employee.
During the period January 1, 1999 to September 30, 1999, the Company match was
reduced to 100% of the first 2% of salary contributed. Matching contributions of
$224,000, $191,000 and $104,000 were made by the Company during 2001, 2000 and
1999, respectively.

Legal Proceedings

The Company is from time to time involved in various legal proceedings
characterized as normally incidental to the business. Management believes its
defenses to any existing litigation will be meritorious and any adverse
decisions in any pending or threatened proceedings or any amounts which it may
be required to pay by reason thereof will not have a material adverse effect on
its financial condition or results of operations.

Consulting and Employment Agreements

The Company entered into a consulting agreement on September 21, 1999 with a
former director of the Company that was also an officer of Smith Management
pursuant to which this individual will receive $200,000 annually, paid in equal
monthly installments for consulting services to be provided to the Company until
September 21, 2002. The consulting agreement was terminated as part of the
SOLVation transaction as described in Note 5.

The Company has employment agreement with certain employees of the Company which
provide for payment to the employees upon termination following a change in
control.

12.   STOCK OPTIONS:

1988 Stock Option Plan

On August 25, 1988, the Company's Board of Directors adopted an incentive stock
option plan (the "1988 Plan") for the benefit of key employees and directors of
the Company. A total of 21,280 shares of common stock are reserved for issuance
under the 1988 Plan. All options under the 1988 Plan are granted, exercisable
and expire 10 years from the date of grant.

1997 Stock Option Plan

On April 30, 1997, the Company's Board of Directors adopted an incentive stock
option plan (the "1997 Plan") for the benefit of key employees and directors of
the Company. Options under the 1997 Plan vest based upon the determination made
by the Company's Compensation Committee at the time of grant, and expire 10
years from the date of grant. The Company reserved 50,000 shares for grant under
the 1997 Plan of which 41,850 options were granted through December 31, 2001 at
prices equal to the market


                                      F-21
<PAGE>

value of the  Company's  stock on the date of grant.  All  granted  options  are
vested. There are 8,150 shares available for grant as of December 31, 2001.

A summary of option grants, exercises and average prices under both the 1988
Plan and the 1997 Plan is presented below:


<TABLE>
<CAPTION>
                                                             Weighted                Option             Weighted
                                                              Average               Exercise           Fair Value
                                            Number of        Exercise                 Price             of Options
                                             Options           Price                  Range              Granted
                                            ---------       ---------           ----------------       -----------

<S>                                        <C>             <C>               <C>                      <C>
Balance, December 31, 1998                    24,590          $76.40            $25.00 - $115.00
    Granted                                   30,000           10.00             10.00 -   10.00           $ 8.23
                                                                                                            =====
    Cancelled                                 (4,474)          39.10             25.00 -   68.70
    Expired                                   (1,800)         115.00            115.00 -  115.00
                                             --------         ------            -----------------
Balance, December 31, 1999                    48,316           37.20             10.00 -  110.00
    Cancelled                                (26,580)          29.50             10.00 -  110.00
                                             --------         ------            -----------------
Balance, December 31, 2000                    21,736           46.88             10.00 -  110.00
    Cancelled                                (11,340)          47.94             10.00 -  110.00
    Expired                                   (1,156)          51.27             10.00 -  110.00
                                             --------         ------            -----------------
Balance, December 31, 2001                     9,240        $  45.02            $10.00 - $110.00
                                             =======        ========            ================
Plan options exercisable as of
    December 31, 2001                          9,240        $  45.02
                                             =======        ========
</TABLE>



Non-Plan Grants

From time to time the Company grants nonqualified ("Non-Plan") options to
purchase common stock to its executive officers. The grants have vesting periods
of three to five years. These grants were made at fair value. The grants' lives
are six to eight years. The table below summarizes the activities associated
with these grants to executive officers:

<TABLE>
<CAPTION>
                                                             Weighted               Option             Weighted
                                                             Average               Exercise           Fair Value
                                            Number of        Exercise                 Price             of Options
                                             Options           Price                  Range              Granted
                                            ---------        --------           ----------------      ------------

<S>                                        <C>              <C>               <C>                      <C>
Balance, December 31, 1998                    94,692            $82.10          $ 31.30 - $110.00
        Granted                              141,700              9.38             9.38 -    9.38          $7.22
                                                                                                           =====
        Cancelled                            (90,192)            82.60            31.25 -  110.00
                                            --------            ------          -----------------
Balance, December 31, 1999                   146,200             10.42             9.38 -  100.00
        Cancelled                             (4,500)            95.56            90.00 -  100.00
                                            --------            ------          -----------------
Balance, December 31, 2000                   141,700              9.38             9.38 -    9.38
        Granted                              300,000              2.11             1.63 -    2.84          $1.49
                                                                                                           =====
        Cancelled                           (116,700)             9.38             9.38 -    9.38
                                            --------            ------          -----------------
Balance, December 31, 2001                   325,000            $ 2.67          $  1.63 -    9.38
                                            ========            ======          =================

Non-Plan options exercisable
    as of December 31, 2001                  225,000            $ 2.92
                                            ========            ======

</TABLE>


                                      F-22
<PAGE>


The  following  table  summarizes  information  for  options  outstanding  as of
December 31, 2001 for all Plan and Non-Plan options.

<TABLE>
<CAPTION>
                                         Options Outstanding                             Options Exercisable
                          -----------------------------------------------         ------------------------------
                                            Weighted
                                             Average             Weighted                              Weighted
                                            Remaining           Average                                Average
      Range of                            Contractual Life       Exercise                              Exercise
   Exercise Price         Number             (Years)              Price             Number              Price
   --------------         ------          ----------------      ---------         ---------           ---------
<S>                    <C>                  <C>               <C>               <C>                <C>
$  1.68 - $  2.84        300,000               6.3              $    2.11          200,000            $    2.11
$  9.38 - $ 10.00         29,000               7.9                   9.46           29,000                 9.46
$ 25.00 - $ 37.50          1,160               2.5                  32.97            1,160                32.97
$ 40.63 - $ 50.00            880               2.9                  45.99              880                45.99
$ 84.40 - $ 90.00          2,400               5.9                  87.20            2,400                87.20
$110.00                      800               6.9                 110.00              800               110.00
                         -------               ---              ---------          -------            ---------
                         334,240               6.4              $    3.84          234,240            $    4.58
                         =======               ===              =========          =======            =========
</TABLE>


All options cancelled and reissued are subject to the criteria of the FASB
Interpretation No. 44 "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25" ("FIN 44"). In 1999,
33,500 options were cancelled and reissued at market price. These options are
being accounted for as a variable option grant based on the market price on July
1, 2000. These options have been marked-to-market with gains and losses recorded
in income for each reporting period subsequent to July 1, 2000 to the extent
there are increases in the Company's stock price above the market rate value of
the stock on July 1, 2000. There was no adjustment made for these options in the
years ended December 31, 2001 and 2000 as the stock price has not exceeded the
stock price in effect on July 1, 2000. During 2001, 116,700 Non-Plan options at
an exercise price of $9.38 were cancelled and 300,000 new Non-Plan options were
granted. The grant price for the new options was $1.63 for 180,000 and $2.84 for
120,000. These options are accounted for as variable option grants. There were
no adjustments made for these options in the year ended December 31, 2001, as
the market rate of the Company's stock has not exceeded the grant price of the
options.

The Company has elected to account for grants of stock options and warrants
granted to employees and non-employee directors of the Company under APB Opinion
No. 25 and its interpretations. If compensation expense for grants of stock
options and warrants had been determined consistent with Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net loss and loss per share ("LPS") would have been the following pro
forma amounts (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                         2001           2000          1999
                                                                         ----           ----          ----
       <S>                                     <C>                    <C>         <C>         <C>
         Net loss, attributable
             to common stockholders              As reported            $(4,071)    $(16,544)    $(41,841)
                                                 Pro forma               (4,419)     (16,991)     (42,376)

         Basic and Diluted LPS                   As reported            $ (1.40)    $  (5.71)    $ (29.37)
                                                 Pro forma                (1.53)       (5.86)      (29.76)
</TABLE>


                                      F-23
<PAGE>


The pro forma adjustments are calculated using an estimate of the fair value of
each option on the date of grant. The options granted in 2001 and 1999 were
estimated using the following weighted average assumptions. No options were
granted during 2000.

<TABLE>
<CAPTION>
                                                              2001               1999
                                                             -------           -------
<S>                                                        <C>               <C>
Weighted average remaining life                              5 years           5 years
Risk-free interest rate                                         4.7%              6.0%
Expected dividend yield                                           0%                0%
Expected lives                                               5 years           5 years
Expected volatility                                           152.4%            113.2%

</TABLE>

13.   OIL AND GAS PRODUCING ACTIVITIES:

Major Customers

Sales to the following companies represented 10% or more of the Company's
revenues, not including effects of hedging, (in thousands):

<TABLE>
<CAPTION>
                                                                      2001          2000             1999
                                                                    -------        -------          ------
     <S>                                                          <C>           <C>             <C>
       Crude Oil:
              BP                                                    $15,101        $17,016          $4,858
              Chevron                                                 9,497         11,611               -
       Gas:
              Wasatch                                                 7,622          5,556               -

</TABLE>

Cost Incurred in Oil and Gas Producing Activities (in thousands):

<TABLE>
<CAPTION>
                                                                      2001           2000             1999
                                                                     ------         ------           ------
     <S>                                                         <C>            <C>              <C>
         Unproved property acquisition cost                         $     -        $    33          $    -
         Development cost                                            21,576         13,709           3,512
         Exploration cost                                               143            135             155
                                                                     ------         ------           -----
                Total                                               $21,719        $13,877          $3,667
                                                                     ======         ======           =====
</TABLE>




                                      F-24
<PAGE>


Net Capital Costs

Net capitalized costs related to the Company's oil and gas producing activities
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      2001           2000             1999
                                                                     ------         ------           ------
     <S>                                                         <C>            <C>              <C>
         Unproved properties                                         $  2,894       $  3,797      $  4,410
         Proved properties                                            195,769        174,348       160,889
         Gas transportation facilities                                  6,872          5,814         4,918
                                                                     --------       --------      --------
                Total                                                 205,535        183,959       170,217
         Accumulated depletion, depreciation and
             amortization                                             (43,510)       (35,004)      (27,805)
                                                                     --------       --------      --------
                Total                                                $162,025       $148,955      $142,412
                                                                     ========       ========      ========
</TABLE>

Standardized Measure of Discounted
      Future Net Cash Flows (Unaudited)

SFAS No. 69 "Disclosures about Oil and Gas Producing Activities" ("SFAS No. 69")
prescribes guidelines for computing a standardized measure of future net cash
flow and changes therein relating to estimated proved reserves. The Company has
followed these guidelines which are briefly discussed below.

Future cash inflows and future production and development costs are determined
by applying yearend prices and costs to the estimated quantities of oil and gas
to be produced. Estimated future income taxes are computed using current
statutory income tax rates including consideration for estimated future
statutory depletion. The resulting future net cash flows are reduced to present
value amounts by applying a 10% ("PV10%") annual discount factor.

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.

The following summary sets forth the Company's future net cash flows relating to
proved oil and gas reserves based on the standardized measure prescribed in SFAS
No. 69 (in thousands):

<TABLE>
<CAPTION>
                                                                                December 31,
                                                                 ------------------------------------------
                                                                    2001             2000            1999
                                                                 ----------        ---------      ---------
      <S>                                                    <C>               <C>            <C>
         Future cash inflows                                    $ 1,102,973       $1,633,382     $1,127,531
         Future production costs                                   (351,973)        (292,305)      (259,022)
         Future development costs                                  (192,672)        (202,071)      (189,297)
         Future income tax provision                               (145,950)        (369,220)      (188,630)
                                                                 ----------        ---------      ---------
         Future net cash flows                                      412,378          769,786        490,582
         Less effect of 10% discount factor                        (254,683)        (445,360)      (292,270)
                                                                 ----------        ---------      ---------
         Standardized measure of discounted
             future net cash flows                               $  157,695       $  324,426     $  198,312
                                                                 ==========       ==========     ==========
</TABLE>



                                      F-25
<PAGE>


The principal sources of changes in the standardized measure of discounted
future net cash flows are as follows for the years ended December 31, 2001, 2000
and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                                      2001           2000             1999
                                                                     ------         ------           ------
     <S>                                                         <C>            <C>              <C>
         Standardized measure, beginning of year                   $324,426         $198,312      $  54,113
         Sales of reserves in place                                       -                -        (15,548)
         Sales of oil and gas produced excluding
             hedging, net of production costs                       (24,276)         (26,501)       (13,919)
         Net change in sales prices and production costs           (271,039)         168,192        123,905
         Extensions, discoveries and improved
             recovery, net                                            5,566           12,269        -
         Revisions of previous quantity estimates                    44,898            8,667        349,080
         Change in future development costs                          12,176           (7,396)      (111,348)
         Net change in income taxes                                  87,208          (66,753)       (55,855)
         Accretion of discount                                       44,703           25,417          5,411
         Changes in production rates and other                      (65,967)          12,219       (137,527)
                                                                   --------         --------      ---------
         Standardized measure, end of year                         $157,695         $324,426      $ 198,312
                                                                   ========         ========      =========
</TABLE>


Oil and Gas Reserve Quantities (Unaudited)

The reserve information presented below is based upon reports prepared by the
Company's in-house petroleum engineer. The independent petroleum engineering
firm of Ryder Scott Company, L.P. reviewed 80% of the PV10% value of the
reserves. The Company emphasizes that reserve estimates are inherently imprecise
and that estimates of new discoveries are more imprecise than those of producing
oil and gas properties. As a result, revisions to previous estimates are
expected to occur as additional production data becomes available or economic
factors change.

Proved oil and gas reserves are estimated quantities of crude oil, natural gas
and natural gas liquids 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 those expected to be recovered through existing wells with existing
equipment and operating methods. The fluctuation of oil and gas prices has a
significant impact on the standardized measure. Future increases or decreases in
oil or gas prices increase or decrease the value of the standardized measure
accordingly. As of December 31, 2001, the Company used prices of $16.84 per Bbl
and $2.23 per Mcf which is reflective of the market price at yearend. Prices
used by the Company in 2000 were $23.78 per Bbl and $7.73 per Mcf. Prices used
by the Company in 1999 were $21.56 per Bbl and $1.83 per Mcf.




                                      F-26
<PAGE>


Presented below is a summary of the changes in estimated proved reserves of the
Company, all of which are located in the United States, for the years ended
December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                    2001                         2000                        1999
                                         -------------------------     ------------------------    ------------------------
                                         Oil (MBbl)     Gas (MMcf)     Oil (MBbl)    Gas (MMcf)    Oil (MBbl)    Gas (MMcf)
                                         ----------     ----------     ----------    ----------    ----------    ----------
<S>                                    <C>           <C>             <C>           <C>          <C>           <C>
Proved reserves, beginning of year        47,159        66,187          47,129        60,935       18,602        18,063
Sales of reserves in place                     -            -                -             -       (2,487)       (3,100)
Extensions and discoveries                     -            -              660         1,584            -             -
Improved recoveries                        1,324           629             400           200            -             -
Production                                (1,212)       (2,423)         (1,072)       (2,289)      (1,165)       (2,901)
Revisions of previous estimates            7,300        18,114              42         5,757       32,179        48,873
                                          ------        ------          ------        ------       ------        ------
Proved reserves, end of year              54,571        82,507          47,159        66,187       47,129        60,935
                                          ======        ======          ======        ======       ======        ======
Proved developed reserves,
    end of year                           18,409        20,682          17,531        13,647       16,634        15,476
                                          ======        ======          ======        ======       ======        ======

</TABLE>

14.   QUARTERLY EARNINGS (UNAUDITED):

Summarized unaudited quarterly financial data for 2001 and 2000 is as follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                       Quarter Ended
                                            -------------------------------------------------------------------
                                              March 31,         June 30,       September 30,       December 31,
                                                 2001             2001              2001               2001
                                           -------------      ---------          --------         -------------
  <S>                                   <C>                <C>                <C>              <C>
    Revenues                                 $ 8,169             $8,572            $8,103          $ 6,643
    Operating income                           3,287 (1)          3,384             2,772            1,486
    Net income (loss)                            867 (1)          1,720              (310)          (8,256) (2)
    Basic and diluted loss
        per share attributable to
        common stockholders                  $(1.42) (1)         $(1.01)           $ 3.87          $ (2.84)

</TABLE>

<TABLE>
<CAPTION>
                                                                           Quarter Ended
                                                  ----------------------------------------------------------------
                                                  March 31,         June 30,       September 30,       December 31,
                                                    2000             2000              2000               2000
                                                  --------         --------        ------------        -----------
  <S>                                           <C>             <C>               <C>                <C>
    Revenues                                       $ 6,094         $ 7,063           $ 7,461            $ 7,879
    Operating income                                 2,059           2,878             2,638              2,764
    Net income                                          77             847               209                761
    Basic and diluted loss
        per share attributable to
        common stockholders                        $(1.56)         $(1.30)           $(1.52)             $(1.33)

</TABLE>

(1)  Operating income and net income for the quarter ended March 31, 2001 were
     adjusted for the reversal of a non-cash charge related to the stock option
     repricing discussed in Note 12.

(2)  Includes a non-cash loss of $5.5 million related to the loss of
     effectiveness of derivative contracts following the filing of Chapter 11
     bankruptcy of ENAC, as discussed in Note 3.

15.   SUBSEQUENT EVENT (UNAUDITED):

     On March 22, 2002, Questar Pipeline Company ("QPC") curtailed all gas
producers in the Monument Butte Field, including Inland, for not meeting certain
QPC specifications. After curtailment, Inland is producing and transporting
approximately 50% of its total gas capacity. The Company is in the process of
installing a gas liquid plant in the Field that would bring all of its gas up to
QPC's pipeline specifications. The gas liquid plant will be operational in
approximately 60 days. The Company believes that the current gas curtailment is
not significant to the Company's operations.

                                      F-27
<PAGE>
                                 Exhibit Index

Item
Number               Description
------               -----------


2.1                 Agreement and Plan of Merger between  Inland  Resources Inc.
                    ("Inland"),  IRI  Acquisition  Corp.  and Lomax  Exploration
                    Company (exclusive of all exhibits) (filed as Exhibit 2.1 to
                    Inland's  Registration  Statement on Form S-4,  Registration
                    No. 33-80392, and incorporated herein by this reference).

3.1                 Amended and Restated Articles of  Incorporation,  as amended
                    through  December 14, 1999 (filed as Exhibit 3.1 to Inland's
                    Current  Report on Form 8-K dated  September  21, 1999,  and
                    incorporated herein by reference).

3.2                 By-Laws  of  Inland   (filed  as  Exhibit  3.2  to  Inland's
                    Registration  Statement  on  Form  S-18,   Registration  No.
                    33-11870-F, and incorporated herein by reference).

3.2.1               Amendment  to Article IV,  Section 1 of the Bylaws of Inland
                    adopted  February  23,  1993  (filed  as  Exhibit  3.2.1  to
                    Inland's  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1992, and incorporated herein by reference).

3.2.2               Amendment  to the  Bylaws  of Inland  adopted  April 8, 1994
                    (filed as Exhibit 3.2.2 to Inland's  Registration  Statement
                    on Form S-4,  Registration  No.  33-80392,  and incorporated
                    herein by reference).

3.2.3               Amendment  to the Bylaws of Inland  adopted  April 27,  1994
                    (filed as Exhibit 3.2.3 to Inland's  Registration  Statement
                    on Form S-4,  Registration  No.  33-80392,  and incorporated
                    herein by reference).

4.1                 Credit  Agreement  dated  September 23, 1997 between  Inland
                    Production  Company  ("IPC"),  Inland,  ING  (U.S.)  Capital
                    Corporation,  as Agent, and Certain Financial  Institutions,
                    as banks (filed as Exhibit 4.1 to Inland's Current Report on
                    Form 8-K dated September 23, 1997, and  incorporated  herein
                    by reference).

4.1.1               Third Amendment to Credit Agreement entered into as of April
                    22, 1998,  amending  Exhibit 4.1 (filed as Exhibit  4.1.1 to
                    Inland's Quarterly Report on Form 10-Q for the quarter ended
                    March 31, 1998, and incorporated herein by reference).

4.1.2               Amended and Restated Credit  Agreement dated as of September
                    11,  1998  amending  and  restating  Exhibit  4.1  (filed as
                    Exhibit 4.1.2 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).


<PAGE>


4.1.3               First  Amendment  to Amended and Restated  Credit  Agreement
                    dated as of March 5, 1999  amending  Exhibit 4.1.2 (filed as
                    Exhibit 4.1.3 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.1.4               Second Amended and Restated Credit Agreement dated September
                    15, 1999,  but effective as of September 21, 1999,  amending
                    and  restating  Exhibit 4.1 (without  exhibits or schedules)
                    (filed as Exhibit 4.1 to Inland's Current Report on Form 8-K
                    dated  September  21,  1999,  and  incorporated   herein  by
                    reference).


4.2                 Credit  Agreement  dated  September  23,  1997,  among  IPC,
                    Inland,  Trust Company of the West, and TCW Asset Management
                    Company,  in the  capacities  described  therein  (filed  as
                    Exhibit  4.2 to  Inland's  Current  Report on Form 8-K dated
                    September 23, 1997, and incorporated herein by reference).

4.2.1               Second  Amendment  to Credit  Agreement  entered  into as of
                    April 22, 1998, amending Exhibit 4.2 (filed as Exhibit 4.2.1
                    to  Inland's  Quarterly  Report on Form 10-Q for the quarter
                    ended March 31, 1998, and incorporated herein by reference).

4.2.2               Amended and Restated Credit  Agreement dated as of September
                    11,  1998,  amending  and  restating  Exhibit  4.2 (filed as
                    Exhibit 4.2.2 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.2.3               First  Amendment  to Amended and Restated  Credit  Agreement
                    dated as of March 5, 1999,  amending Exhibit 4.2.2 (filed as
                    Exhibit 4.2.3 to Inland's Annual Report on Form 10-K for the
                    year ended  December 31, 1998,  and  incorporated  herein by
                    reference).

4.2.4               Exchange  Agreement  dated as of  September  21, 1999 by and
                    between Inland, IPC, Refining,  Trust Company of the West, a
                    California trust company,  as Sub-Custodian  for Mellon Bank
                    for  the  benefit  of  Account  No.  CPFF  873-3032,  Inland
                    Holdings  LLC,  TCW  Portfolio  No.  1555  DR V  Sub-Custody
                    Partnership,  L.P. and Joint Energy Development  Investments
                    II Limited  Partnership  (without  exhibits  or  schedules),
                    terminating Exhibits 4.2 and 4.3, as previously amended, and
                    Exhibits 4.4, 4.5, 10.10 and 10.11 (filed as Exhibit 10.1 to
                    Inland's  Current  Report  on Form 8-K dated  September  21,
                    1999, and incorporated herein by reference).

4.3                 Intercreditor  Agreement dated  September 23, 1997,  between
                    IPC, TCW Asset Management Company, Trust Company of the West
                    and ING (U.S.) Capital  Corporation (filed as Exhibit 4.3 to
                    Inland's  Current  Report  on Form 8-K dated  September  23,
                    1997, and incorporated herein by reference).

4.3.1               Third Amendment to Intercreditor  Agreement  entered into as
                    of April 22,  1998,  amending  Exhibit 4.3 (filed as Exhibit
                    4.3.1 to  Inland?s  Quarterly  Report  on Form  10-Q for the
                    quarter  ended March 31, 1998,  and  incorporated  herein by
                    reference).

4.3.2               Amended and  Restated  Intercreditor  Agreement  dated as of
                    September  11,  1998,  amending  and  restating  Exhibit 4.3
                    (filed as Exhibit  4.3.2 to Inland's  Annual  Report on Form
                    10-K for the year ended December 31, 1998, and  incorporated
                    herein by reference).

4.3.3               First  Amendment  to  Amended  and  Restated   Intercreditor
                    Agreement dated as of March 5, 1999,  amending Exhibit 4.3.2
                    (filed as Exhibit  4.3.3 to Inland's  Annual  Report on Form
                    10-K for the year ended December 31, 1998, and  incorporated
                    herein by reference).

4.4                 Warrant  Agreement by and between  Inland and TCW  Portfolio
                    No. 1555 DR V Sub-Custody Partnership,  L.P. dated September
                    23, 1997 (filed as Exhibit 4.4 to

<PAGE>


                    Inland's  Current  Report  on Form 8-K dated  September  23,
                    1997, and incorporated herein by reference).

4.5                 Warrant issued by Inland pursuant to the Warrant  Agreement,
                    dated September 23, 1997, representing the right to purchase
                    100,000  shares of Inland's  Common  Stock (filed as Exhibit
                    4.5 to Inland's  Current Report on Form 8-K dated  September
                    23, 1997, and incorporated  herein by reference).  10.1 1988
                    Option  Plan of  Inland  Gold and  Silver  Corp.  (filed  as
                    Exhibit  10(15) to Inland's  Annual  Report on Form 10-K for
                    the year ended December 31, 1988, and incorporated herein by
                    reference).

10.1.1              Amended  1988 Option  Plan of Inland  Gold and Silver  Corp.
                    (filed as Exhibit  10.10.1 to Inland's Annual Report on Form
                    10-K for the year ended December 31, 1992, and  incorporated
                    herein by reference).

10.1.2              Amended  1988  Option  Plan of Inland,  as  amended  through
                    August 29, 1994 (including  amendments increasing the number
                    of shares to 212,800 and changing "formula award") (filed as
                    Exhibit 10.1.2 to Inland's  Annual Report on Form 10-KSB for
                    the year ended December 31, 1994, and incorporated herein by
                    reference).

10.1.3              Automatic  Adjustment to Number of Shares Covered by Amended
                    1988 Option Plan executed  effective  June 3, 1996 (filed as
                    Exhibit 10.1 to Inland's Quarterly Report on Form 10-QSB for
                    the quarter ended June 30, 1996, and incorporated  herein by
                    reference).

10.2                Letter  agreement  dated October 30, 1996 between Inland and
                    Johnson Water  District  (filed as Exhibit 10.41 to Inland's
                    Annual Report on Form 10-KSB for the year ended December 31,
                    1996, and incorporated herein by reference).

10.3                Interest Rate Cap Agreement dated April 30, 1998 between IPC
                    and  Enron  Capital  and  Trade  Resources  Corp.  (filed as
                    Exhibit 10.4 to Inland?s  Quarterly  Report on Form 10-Q for
                    the quarter ended March 31, 1998, and incorporated herein by
                    reference).

10.4                Farmout  Agreement  between Inland and Smith  Management LLC
                    dated effective as of June 1, 1998 (filed as Exhibit 10.1 to
                    Inland?s  Current Report on Form 8-K dated June 1, 1998, and
                    incorporated herein by reference).

10.5                Warrant  Agreement  dated as of March 5, 1999 between Inland
                    Resources  Inc. and TCW  Portfolio No. 1555 DR V Sub-Custody
                    Partnership, L.P. (filed as Exhibit 10.20 to Inland's Annual
                    Report on Form 10-K for the year ended  December  31,  1998,
                    and incorporated herein by reference).

10.6                Warrant  Certificate  dated March 5, 1999 between Inland and
                    TCW Portfolio No. 1555 DR V  Sub-Custody  Partnership,  L.P.
                    representing   5,852  shares  (filed  as  Exhibit  10.21  to
                    Inland's  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1998, and incorporated herein by reference).

10.7                Shareholders  Agreement  dated  as  of  September  21,  1999
                    between Inland,  Holdings, Fund V, JEDI and Pengo Securities
                    Corp., Smith Energy Partnership,  Randall D. Smith,  Jeffrey
                    A. Smith, Barbara Stovall Smith, John W. Adams and Arthur J.
                    Pasmas  (collectively,  the "Smith Group") (filed as Exhibit
                    10.2 to Inland's  Current Report on Form 8-K dated September
                    21, 1999, and incorporated herein by reference).

10.8                Registration Rights Agreement dated as of September 21, 1999
                    between  Inland,  Holdings,  Portfolio,  JEDI and the  Smith
                    Group filed as Exhibit  10.3 to Inland's  Current  Report on
                    Form 8-K dated September 21, 1999, and (incorporated  herein
                    by reference).

<PAGE>

10.9                Severance  Agreement  between  Inland and John E. Dyer dated
                    November 18, 1999 (filed as Exhibit 10.13 to Inland?s Annual
                    Report on Form 10-K for the year ended  December  31,  1999,
                    and incorporated herein by reference).



10.10               Employment Agreement between Inland and William T. War dated
                    effective  as of October 1, 1999 (filed as Exhibit  10.14 to
                    Inland?s  Annual  Report  on Form  10-K for the  year  ended
                    December 31, 1999, and incorporated herein by reference).

10.11               Stock Option Agreement between Inland and William T. War
                    dated October 1, 1999 10.11 representing 25,000 post-split
                    shares of Common Stock (filed as Exhibit 10.15 to Inland?s
                    Annual Report on Form 10-K for the year ended December 31,
                    1999, and incorporated herein by reference).

10.12               Amendment to Employment Agreement between Inland and William
                    T. War,  amending the Employment  Agreement filed as Exhibit
                    10.10.

10.13               Employment  Agreement  between Inland and Michael J. Stevens
                    dated effective as of February 1, 2001.

10.14               Employment  Agreement between Inland and Marc MacAluso dated
                    effective as of February 1, 2001.

10.15               Stock  Option  Agreement  between  Inland and Marc  MacAluso
                    dated effective as of February 1, 2001 representing  150,000
                    post-split shares of Common Stock.

10.16               Employment  Agreement  between Inland and Bill I. Pennington
                    dated effective as of February 1, 2001.

10.17               Stock Option Agreement between Inland and Bill I. Pennington
                    dated effective as of February 1, 2001 representing  150,000
                    post-split shares of Common Stock.

10.18               Oil Purchase and Delivery Agreement dated November 7, 2000.

10.19               Common Stock Purchase  Agreement dated August 2, 2001 by and
                    between Inland Holdings, LLC ("Inland Holdings") and Hampton
                    Investments LLC ("Hampton  Investments")(without exhibits or
                    schedules)(filed  as Exhibit 10.1 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).

10.20               Contribution  Agreement  dated  August  2, 2001 by and among
                    Park  Hampton  Holdings  LLC  ("Hampton  Holdings"),   Pengo
                    Securities  Corp.   ("Pengo"),   Smith  Energy   Partnership
                    ("SEP"), the five individuals and Hampton Investments (filed
                    as Exhibit 10.2 to the Company's  Current Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.21               Series E  Preferred  Stock  Purchase  Agreement  dated as of
                    August 2, 2001 by and between Hampton Investments and Inland
                    Holdings  (without exhibits or  schedules)(filed  as Exhibit
                    10.3 to the  Company's  Current  Report  on Form  8-K  dated
                    August 2, 2001, and incorporated herein by reference).

10.22               Termination  Agreement  dated as of  August  2,  2001 by and
                    between Hampton  Investments and Inland (without exhibits or
                    schedules)(filed  as Exhibit 10.4 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).

<PAGE>

10.23               Exchange and Note Issuance Agreement dated August 2, 2001 by
                    and among Inland,  Production and Inland  Holdings  (without
                    exhibits  or   schedules)(filed   as  Exhibit  10.5  to  the
                    Company's  Current  Report on Form 8-K dated August 2, 2001,
                    and incorporated herein by reference).

10.24               Termination  Agreement  dated as of  August  2,  2001 by and
                    among  Inland  and  Inland  Holdings  (without  exhibits  or
                    schedules)(filed  as Exhibit 10.6 to the  Company's  Current
                    Report on Form 8-K dated  August 2, 2001,  and  incorporated
                    herein by reference).

10.25               Amended and Restated  Registration Rights Agreement dated as
                    of August 2, 2001 by and among Inland,  Inland  Holdings and
                    Hampton Investments (without exhibits or schedules)(filed as
                    Exhibit  10.7 to the  Company's  Current  Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.26               Amended  and  Restated  Shareholders  Agreement  dated as of
                    August 2,  2001 by and among  Inland,  Inland  Holdings  and
                    Hampton Investments (without exhibits or schedules)(filed as
                    Exhibit  10.8 to the  Company's  Current  Report on Form 8-K
                    dated August 2, 2001, and incorporated herein by reference).

10.27               Senior  Subordinated  Note  Purchase  Agreement  dated as of
                    August 2, 2001 by and among Inland, Production and SOLVation
                    (without exhibits or schedules)(filed as Exhibit 10.9 to the
                    Company's  Current  Report on Form 8-K dated August 2, 2001,
                    and incorporated herein by reference).

10.28               Junior  Subordinated  Note  Purchase  Agreement  dated as of
                    August 2, 2001 by and among Inland, Production and SOLVation
                    (without  exhibits or  schedules)(filed  as Exhibit 10.10 to
                    the  Company's  Current  Report on Form 8-K dated  August 2,
                    2001, and incorporated herein by reference).

*21.1               Subsidiaries of Inland.

*23.1               Consent of Arthur Andersen LLP.

*23.2               Consent of Ryder Scott Company Petroleum Engineers.

*99.1               Letter to Securities and Exchange Commission dated March 26,
                    2002 concerning Arthur Andersen LLP.


*        Filed herewith