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

                                   FORM 10-K/A
                                (Amendment No. 2)


      (Mark One)
      [ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
            Exchange Act of 1934

                   For the fiscal year ended June 30, 2001 or

      [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934

      Commission File No:  0-9261

                              KESTREL ENERGY, INC.
                              --------------------
             (Exact name of registrant as specified in its charter)


      State of Incorporation: Colorado I.R.S. Employer Identification No.
      84-0772451

      1726 Street, Suite 210
      Lakewood, Colorado                                      80401
      (Address of principal executive offices)              (Zip Code)

      Registrant's telephone number, including area code:  (303) 295-0344

      Securities registered pursuant to Section 12(b) of the Act:

                                      None

      Securities registered pursuant to Section 12(g) of the Act:

                               TITLE OF EACH CLASS
                           COMMON STOCK, NO PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                              |X| YES    |_| NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

At August 31, 2001, 7,700,200 common shares (the registrant's only class of
voting stock) were outstanding. The aggregate market value of the 4,674,569
common shares of the registrant held by nonaffiliates on that date (based upon
the mean of the closing bid and asked price on the NASDAQ system) was
$5,399,127.





                                TABLE OF CONTENTS

PART I.......................................................................1

ITEM 1. BUSINESS.............................................................1
        General Description of Business......................................1
        Recent Activities....................................................1
        Operations and Policies..............................................1
        Risk Factors.........................................................2
        Forward-Looking Statements...........................................4
ITEM 2. PROPERTIES...........................................................4
        Oil and Gas Interests................................................4
        Royalty Interests Under Producing Properties.........................5
        Drilling Activities..................................................5
        Farmout Agreements...................................................5
        Oil and Gas Production, Prices and Costs.............................6
        Customers............................................................6
        Office Facilities....................................................6
ITEM 3. LEGAL PROCEEDINGS....................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................7

PART II......................................................................7

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS..................................................7
        Outstanding Shares of Common Stock...................................7
        Stock Price..........................................................7
        Dividend Policy......................................................7
ITEM 6. SELECTED FINANCIAL DATA..............................................8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS................................................8
        Liquidity and Capital Resources......................................8
        Results of Operations...............................................10
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE................................................13

PART III....................................................................13

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................13
ITEM 11. EXECUTIVE COMPENSATION.............................................13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................13

PART IV.....................................................................14

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

SIGNATURES..................................................................16


                                        i




                                     PART I

ITEM 1. BUSINESS.

GENERAL DESCRIPTION OF BUSINESS

Kestrel Energy, Inc. (the "Company") was incorporated under the laws of the
State of Colorado on November 1, 1978. The Company's principal business is the
acquisition, either alone or with others, of interests in proved developed
producing oil and gas leases, and exploratory and developmental drilling.

The Company presently owns oil and gas interests in the states of Louisiana, New
Mexico, Oklahoma, South Dakota, Texas, and Wyoming.

RECENT ACTIVITIES

In September 2001, the Company announced the appointment of Barry D. Lasker as
President, Chief Executive Officer and Director. Mr. Lasker brings to the
Company 20 years of experience in the oil and gas industry. Timothy L. Hoops,
former President and Chief Executive Officer, will remain on the Board of
Directors and will provide consulting services to the Company on a contract
basis.

On June 22, 2001, ( the effective date), the Company filed Articles of Merger of
Victoria Exploration, Inc. into Kestrel Energy, Inc. pursuant to Section
7-111-104 of the Colorado Revised Statutes. In accordance with the Articles of
Merger, on the effective date, Victoria Exploration, Inc. ceased to exist and
Kestrel Energy, Inc. became the surviving corporation. Up until June 22, 2001,
the consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, Victoria Exploration, Inc. All significant inter
company accounts and transactions have been eliminated in consolidation.

In May 2001, the Company restructured its line of credit agreement with Wells
Fargo Bank West. Under the prior terms the Company had a borrowing base of
$2,000,000 with interest paid monthly. The new agreement lowered the borrowing
base to $1,400,000 and required the Company to reduce the principal balance on
the line of credit to $1,400,000 by October 31, 2001 with interest on the
outstanding balance paid monthly. As of October 15, 2001, the principal balance
is $1,455,000.

OPERATIONS AND POLICIES

The Company currently is focusing its exploration, acquisition and development
opportunities in Wyoming, specifically on the Greens Canyon Field. However, the
acquisition, development, production and sale of oil and gas acreage are subject
to many factors outside the Company's control. These factors include worldwide
and domestic economic conditions; proximity to pipelines; existing oil and gas
sales contracts on properties being evaluated; the supply and price of oil and
gas as well as other energy forms; the regulation of prices, production,
transportation and marketing by federal and state governmental authorities; and
the availability of, and interest rates charged on, borrowed funds.

Historically, in attempting to acquire, explore and drill wells on oil and gas
leases, the Company has often been at a competitive disadvantage since it had to
compete with many companies and individuals with greater capital and financial
resources and larger technical staffs. The Company has in the past sought to
mitigate some of these problems by forming acquisition joint ventures with other
companies, including its affiliate, Victoria Petroleum N.L. These joint ventures
allow the Company access to more acquisition candidates and enable the Company
to share the evaluation and other costs among the venture partners.

The Company's operations are subject to various provisions of federal, state and
local laws regarding environmental matters. The impact of these environmental
laws on the Company may necessitate significant capital outlays, which may
materially affect the earnings potential of the Company's oil and gas business
in particular, and could cause material changes in the industry in general. The
Company strongly encourages the operators of the Company's oil and gas wells to
do periodic environmental





assessments of potential liabilities. To date, environmental laws have not
materially hindered nor adversely affected the Company's business. Please see
Item 3, Legal Proceedings, however, for a discussion of potential environmental
litigation involving the Company.

The Company has four full-time employees, including the Company's President,
Barry D. Lasker. The Company also hires outside professional consultants to
handle certain additional aspects of the Company's business. Management believes
this type of contracting for professional services is the most economical and
practical means for the Company to obtain such services at this time.

RISK FACTORS

WE MUST CONTINUE TO EXPAND OUR OPERATIONS

Our long term success is ultimately dependent on our ability to expand our
revenue base through the acquisition of producing properties and, to a much
greater extent, by successful results in our exploration efforts. We will need
to continue to raise capital to make additional acquisitions and to make further
investments in our current portfolio of exploration properties. We have made
significant investments in exploration properties in the Western Green River
Basin in Wyoming. There is no assurance that any of these acquisitions or other
acquisitions will be as successful as originally projected. In fact, while we
have already had some measure of success with these acquisitions, we have also
had some disappointments. All of our exploration projects are subject to failure
and the loss of our investment.

PRICES OF OIL AND NATURAL GAS FLUCTUATE WIDELY BASED ON MARKET CONDITIONS AND
ANY DECLINE WILL ADVERSELY AFFECT OUR FINANCIAL CONDITION

Our revenues, operating results, cash flow and future rate of growth are very
dependent upon prevailing prices for oil and gas. Historically, oil and gas
prices and markets have been volatile and not predictable, and they are likely
to continue to be volatile in the future. Prices for oil and gas are subject to
wide fluctuations in response to relatively minor changes in the supply of and
demand for oil and gas, market uncertainty and a variety of additional factors
that are beyond our control, including:

o the strength of the United States and global economy;
o political conditions in the Middle East and elsewhere;
o the supply and price of foreign oil and gas;
o the level of consumer product demand;
o the price and availability of alternative fuels;
o the effect of federal and state regulation of production and transportation;
  and
o the proximity of our natural gas to pipelines and their capacity.

WE MUST REPLACE THE RESERVES WE PRODUCE

A substantial portion of our oil and gas properties contain proved undeveloped
reserves. Successful development and production of those reserves cannot be
assured. Additional drilling will be necessary in future years both to maintain
production levels and to define the extent and recoverability of existing
reserves. There is no assurance that our present oil and gas wells will continue
to produce at current or anticipated rates of production, that development
drilling will be successful, that production of oil and gas will commence when
expected, that there will be favorable markets for oil and gas which may be
produced in the future or that production rates achieved in early periods can be
maintained.

THERE ARE MANY RISKS IN DRILLING OIL AND GAS WELLS

The cost of drilling, completing and operating wells is often uncertain.
Moreover, drilling may be curtailed, delayed or canceled as a result of many
factors, including title problems, weather conditions, shortages of or delays in
delivery of equipment, as well as the financial instability of well operators,
major working interest owners and well servicing companies. Our gas wells may be
shut-in for lack of a market until a gas pipeline or gathering system with
available capacity is extended into our area. Our oil wells may have

                                        2



production curtailed until production facilities and delivery arrangements are
acquired or developed for them.

WE FACE INTENSE COMPETITION

The oil and natural gas industry is highly competitive. We compete with others
for property acquisitions and for opportunities to explore or to develop and
produce oil and natural gas. We have previously formed acquisition joint
ventures with several other companies, including Victoria Petroleum N.L. and
other affiliates, which have allowed us more access to acquisition candidates
and to share the evaluation costs with them. We face strong competition from
many companies and individuals with greater capital, financial resources and
larger technical staffs. We also face strong competition in procuring services
from a limited pool of laborers, drilling service contractors and equipment
vendors.

THE AMOUNT OF INSURANCE WE CARRY MAY NOT BE SUFFICIENT TO PROTECT US

We, our partners, co-venturers and well operators maintain general liability
insurance but it may not cover all future claims. If a large claim is
successfully asserted against us, we might not be covered by insurance, or it
might be covered but cause us to pay much higher insurance premiums or a large
deductible or co-payment. Furthermore, regardless of the outcome, litigation
involving our operations or even insurance companies disputing coverage could
divert management's attentions and energies away from operations. The nature of
the oil and gas business involves a variety of operating hazards such as fires,
explosions, cratering, blow-outs, adverse weather conditions, pollution and
environmental risks, encountering formations with abnormal pressures, and, in
horizontal wellbores, the increased risk of mechanical failure and collapsed
holes, the occurrence of any of which could result in substantial losses to us.

OUR SUCCESS MAY BE DEPENDENT ON OUR ABILITY TO RETAIN BARRY LASKER, JOHN
KOPCHEFF, BOB PETT AND IRA PASTERNACK AS KEY PERSONNEL

We believe that the oil and gas exploration and development and related
management experience of our key personnel is important to our success. The
active participation in the Company of our new president, Barry Lasker, John T.
Kopcheff, vice president of International, Robert J. Pett, our chairman, and Ira
Pasternack, vice president of Exploration, is a necessity for our continued
operations. We do not have any employment contracts with these individuals and
we do not carry key person life insurance on their lives. We compete with bigger
and better financed oil and gas exploration companies for these individuals. Our
future success may depend on whether we can attract, retain and motivate highly
qualified personnel. We cannot assure you that we will be able to do so.

OUR RESERVES ARE UNCERTAIN

Estimating our proved reserves involves many uncertainties, including factors
beyond our control. Our annual report on Form 10-K for fiscal year 2001 contains
estimates of our oil and natural gas reserves and the future cash flow to be
realized from those reserves for fiscal years 2001, 2000 and 1999, as prepared
by independent petroleum engineers. There are uncertainties inherent in
estimating quantities of proved oil and natural gas reserves since petroleum
engineering is not an exact science. Estimates of commercially recoverable oil
and gas reserves and of the future net cash flows from them are based upon a
number of variable factors and assumptions including:

o historical  production from the properties compared with production from
  other producing properties;
o the effects of regulation by governmental agencies;
o future oil and gas prices; and
o future operating costs, severance and excise taxes, abandonment costs,
  development costs and workover and remedial costs.

                                        3



GOVERNMENTAL REGULATION, ENVIRONMENTAL RISKS AND TAXES COULD ADVERSELY AFFECT
OUR OIL AND GAS OPERATIONS IN THE UNITED STATES

Our oil and natural gas operations in the United States are subject to
regulation by federal and state government, including environmental laws. To
date, we have not had to expend significant resources in order to satisfy
environmental laws and regulations presently in effect. However, compliance
costs under any new laws and regulations that might be enacted could adversely
affect our business and increase the costs of planning, designing, drilling,
installing, operating and abandoning our oil and gas wells and other facilities.
Additional matters that are, or have been from time to time, subject to
governmental regulation include land tenure, royalties, production rates,
spacing, completion procedures, water injections, utilization, the maximum price
at which products could be sold, energy taxes and the discharge of materials
into the environment.

FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. We use words such as
"anticipate", "believe", "expect", "future", "may", "will", "should", "plan",
"intend", and similar expressions to identify forward-looking statements. These
statements are based on our beliefs and the assurances we made using information
currently available to us. Because these statements reflect our current views
concerning future events, these statements involve risks, uncertainties and
assumptions. Our actual results could differ materially from the results
discussed in the forward-looking statements. Some, but not all, of the factors
that may cause these differences include those discussed in the risk factors in
this prospectus. You should not place undue reliance on these forward-looking
statements. You should also remember that these statements are made only as of
the date of this prospectus and future events may cause them to be less likely
to prove to be true.

ITEM 2. PROPERTIES.

OIL AND GAS INTERESTS

The following table describes the Company's leasehold interests in developed and
undeveloped oil and gas acreage at June 30, 2001:

                             Total                          Total
                             -----                          -----
                    Developed Acreage (1)(2)      Undeveloped Acreage (1)(2)
        State           Gross        Net           Gross          Net
        ------          -----        ---           -----          ---
       Louisiana           591        248              -0-         -0-
       New Mexico          549        227              -0-         -0-
       Oklahoma          2,887        353              -0-         -0-
       South Dakota        160         20              -0-         -0-
       Texas               993         62              -0-         -0-
       Wyoming           2,636      1,852           36,214      36,214
                         -----      -----           ------      ------
       TOTAL             7,816      2,762           36,214      36,214

       Canada              640         19              -0-         -0-

(1) Gross acres are the total acreage involved in a single lease or group of
leases. Net acres represent the number of acres attributable to an owner's
proportionate working interest in a lease (e.g., a 50% working interest in a
lease covering 320 acres is equivalent to 160 net acres).

(2) The acreage figures are stated on the basis of applicable state oil and gas
spacing regulations.

                                       4



ROYALTY INTERESTS UNDER PRODUCING PROPERTIES

At June 30, 2001, the Company held overriding royalty interests ranging from
0.013% to 9.26% in 124 producing oil and gas wells located on 6,019 gross
developed acres in the United States. The royalty interests from these wells
produce approximately 1.9 barrels of oil equivalent per day, have a PV(10) value
of approximately $69,500 and are included within the Company's Proved Developed
Producing reserves category. At June 30, 2000, the Company held overriding
royalty interests ranging from 0.013% to 9.26% in 116 producing oil and gas
wells located on 6,019 gross developed acres in the United States. At June 30,
1999, the Company also held overriding royalty interest ranging from 0.013% to
9.26% in 116 producing oil and gas wells located on 6,019 gross developed acres
in the United States. These figures are included within the Company's Proved
Developed Producing reserves category for fiscal 2001, 2000 and 1999. The
royalty interests are considered to be immaterial to the Company.

DRILLING ACTIVITIES

The Company participated in drilling eight wells since June 30, 2000. All eight
wells were development wells including the Turner 1-23 and 3-14 wells on the
Amber leasehold in Grady County, Oklahoma and six coal bed methane wells in
Campbell County, Wyoming.

Kestrel Energy, Inc. owned interests in net exploratory and net development
wells for the years ended June 30, 2001, 2000 and 1999 as set forth below. This
information does not include wells drilled under farmout agreements.


                                      United States                     Australia
                             ----------------------------      ---------------------------
                                                                 
                             6/30/01    6/30/00   6/30/99      6/30/01   6/30/00   6/30/99
Net Exploratory Wells: (1)
   Dry (2)                      -           -         -            -         -        0.06
   Productive (3)               -          2.0        -            -         -        0.03
                             -------    -------   -------      -------   -------   -------
                                -          2.0        -            -         -        0.09
                             =======    =======   =======      =======   =======   =======

Net Development Wells: (1)
   Dry (2)                      -           -         -            -         -         -
   Productive (3)              1.76        0.84      0.25          -         -         -
                             ------     -------   -------      -------   -------   -------
                               1.76        0.84      0.25          -         -         -
                             ======     =======   =======      =======   =======   =======


(1)   A net well is deemed to exist when the sum of fractional ownership working
      interests in gross wells equals one. The number of net wells is the sum of
      the fractional working interests owned in gross wells expressed as whole
      numbers and fractions thereof.
(2)   A dry well (hole) is a well found to be incapable of producing either oil
      or natural gas in sufficient quantities to justify completion as an oil or
      natural gas well.
(3)   Productive wells are producing wells and wells capable of production,
      including wells that are shut-in.

FARMOUT AGREEMENTS

Under a farmout agreement, outside parties undertake exploration activities
using prospects owned by Kestrel. This enables the Company to participate in the
exploration prospects without incurring additional capital costs, although with
a substantially reduced ownership interest in each prospect.

During the year ended June 30, 2001, no wells were drilled under farmout
agreements.

                                       5



OIL AND GAS PRODUCTION, PRICES AND COSTS

As of June 30, 2001, the Company had a royalty and/or working interest in 74
gross (10.06 net) wells that produce oil only, 51 gross (11.21 net) wells that
produce gas only, and 229 (6.62 net) wells that produce both oil and gas. All
wells that produced gas are connected to pipelines.

For information concerning the Company's oil and gas production, estimated oil
and gas reserves, and estimated future cash inflows relating to proved oil and
gas reserves, see Note 8 to the consolidated financial statements included in
Item 8 of this Report. The reserve estimates for the reporting year were
prepared by Sproule Associates Inc., an independent petroleum engineering firm.
The Company did not file any oil and gas reserve estimates with any federal
authority or agency during its fiscal year ended June 30, 2001.

For the year ended June 30, 2001, the Company's average operating cost
(including taxes and marketing) per barrel of oil equivalent (BOE) (converting
gas to oil at 6:1) was $11.96. The average operating cost per BOE on an
equivalent basis for fiscal years 2000 and 1999 was $7.98 and $5.46,
respectively. The average sales price per barrel of oil sold was $28.18 for
2001, $24.78 for 2000, and $10.01 for 1999. The average sales price per mcf of
gas sold was $4.75 for 2001, $2.59 for 2000, and $1.26 for 1999.

CUSTOMERS

During fiscal year 2001, the Company had two major customers: Kaiser Francis Oil
Company and Duke Energy. Sales to these customers accounted for 26% and 15%,
respectfully, of oil and gas sales in 2001. The Company does not believe that it
is dependent on a single customer. The Company has the option at most properties
to change purchasers if conditions so warrant.

OFFICE FACILITIES

The Company's executive offices are located at 999 18th Street, Suite 2490,
Denver, Colorado 80202, which is comprised of approximately 3,953 square feet,
at an annual rate of $73,900. The Company's current lease obligation expires
February 28, 2003.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of conducting its business, the Company becomes involved
in litigation, administrative proceedings and governmental investigations,
including environmental matters.

In May of 2000, the Company received a notice letter from the U.S. Environmental
Protection Agency (EPA) stating that the Company is a potentially responsible
party under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA") for the Casmalia Waste Disposal Site in Santa
Barbara County, California. If the Company is ultimately determined to be a
responsible party, it may be obligated to conduct remedial investigations,
feasibility studies, remediation and/or removal of alleged releases of hazardous
substances or to reimburse the EPA for such activities.

The Company does not believe that it has any liability under CERCLA for wastes
disposed at Casmalia and believes that the EPA's notice was issued in error. The
Company has responded to the EPA, explaining that the Company did not arrange to
dispose of any waste at Casmalia. The Company's involvement with Casmalia is
limited to the purchase of assets from another entity, which disposed of waste
at Casmalia. The Company intends to defend allegations of its responsibility, if
any, and will also rely upon an indemnification given by the previous owner of
the properties at Casmalia, which previous owner has confirmed that the
indemnification would apply to any such allegations.

The Company is unable to estimate the dollar amount of exposure to loss in
connection with the above-referenced matter; however, the ultimate site-wide
clean up costs, which could be borne by the persons or entities found to be
responsible parties, have been estimated by the EPA at approximately $271.9
million.

                                       6



It is the opinion of Company's management that the outcome of these proceedings,
individually or in the aggregate, will not have a material adverse effect on the
Company's financial position, results of operations, or cash flows.

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

None.

                                     PART II

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

OUTSTANDING SHARES OF COMMON STOCK

The Company's common stock trades over-the-counter on the NASDAQ SmallCap Market
under the symbol "KEST." At June 30, 2001, the Company had 7,700,200 shares
outstanding. At June 30, 2001, the Company had approximately 1,300 shareholders
of record, although the Company believes that there are more beneficial owners
of its stock, the number of which is unknown.

STOCK PRICE

These quotations reflect inter-dealer prices, without retail mark-up, markdown
or commission and may not necessarily represent actual transactions.

      Fiscal Year June 30, 2000                       Sales Price
                                                      -----------
                                                High               Low
                                                ----               ---
      First Quarter                            $3.25              $1.06
      Second Quarter                            3.25               2.00
      Third Quarter                             3.50               2.50
      Fourth Quarter                            3.62               1.75

      Fiscal Year June 30, 2001                       Sales Price
                                                      -----------
                                                High               Low
                                                ----               ---
      First Quarter                            $3.43              $1.38
      Second Quarter                            2.41               1.56
      Third Quarter                             2.00               1.06
      Fourth Quarter                            1.89                .75

DIVIDEND POLICY

While there are no covenants or other aspects of any finance agreements or
bylaws that restrict the declaration or payment of cash dividends, the Company
has not paid any dividends on its common stock and does not expect to do so in
the foreseeable future.

                                       7



ITEM 6. SELECTED FINANCIAL DATA.

The summary of selected financial data for the Company for its last five fiscal
years is as follows:


                                                              Years ended June 30,

                                   2001              2000             1999              1998              1997
                                   ----              ----             ----              ----              ----
                                                                                      
Oil and Gas Sales             $  2,195,189      $  1,061,638     $    632,030      $    895,017      $  1,278,502
Total Revenue                    2,328,958         2,993,459          772,795         1,204,261         1,420,056

Net Earnings (Loss)               (104,371)          943,977       (1,441,424)       (2,018,692)       (1,312,365)


Basic Earnings (Loss) per
  Share                               (.01)              .14             (.32)             (.46)             (.56)

Diluted Earnings (Loss)
  Per Share                           (.01)              .13             (.32)             (.46)             (.56)

At June 30,
Total Assets                    12,911,302        12,270,459        4,059,234         5,560,022         7,638,626
Stockholders' Equity            10,756,633        10,806,435        3,966,297         5,398,346         7,432,443



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

LIQUIDITY AND CAPITAL RESOURCES

       Working Capital and Cash Flows: Net working capital deficit at June 30,
2001, was $1,750,853 compared to a working capital deficit of $748,831 at June
30, 2000 and positive working capital of $560,207 at June 30, 1999. The decrease
in working capital of $1,002,021 resulted from short term borrowings on the
Company's line of credit which allowed the Company to re-complete the Greens
Canyon 27-3 well and to fund the drilling of eight development wells in
Oklahoma. The Company restructured the line of credit with Wells Fargo Bank in
May 2001 and anticipates renewing that line by October 31, 2001.

The decrease in working capital was $1,309,038 for the year 2000, largely the
result of capital expenditures made by the Company to develop the Greens Canyon
Field and the related pipeline. The Company funded its working capital deficit
at June 30, 2000 by drawing on the line of credit at Wells Fargo Bank, and
utilizing additional revenues from oil and gas sales resulting from higher oil
and gas prices.

Net cash used by operating activities was $994,010 for fiscal 2001 as compared
to cash provided of $646,114 in fiscal 2000, a decrease of $1,640,124. The
decrease in operating cash flows is primarily attributable to the reduction of
accounts payable from fiscal 2000 levels.

Net cash provided by operating activities totaled $646,114 for fiscal 2000 as
compared to cash used by operating activities of $752,395 for fiscal 1999, a
change of $1,398,509. The change was primarily a result of the increase in oil
and gas revenues and in trade accounts payable, which increased as a result of
the Company's drilling and completing two Greens Canyon gas wells and a pipeline
to transport gas to market.

Net cash used by investing activities was $1,270,999 in fiscal 2001 as compared
to $6,432,902 in fiscal 2000. For the year ended June 30, 2001, $1,384,692 was
used to acquire and develop proved and unproved oil and gas interests, finish
the gas pipeline and purchase equipment. Proved property expenditures included
the re-completion of the Greens Canyon 27-3 at an approximate cost of $538,000,
the balance of the completion of the Poitevent #1 and Greens Canyon 29-2 wells
for $139,000, the drilling

                                       8



and completion of the Turner 1-23 and 3-14 wells in Wyoming at a cost of
$579,000, the $50,000 drilling and completion of six coal bed methane wells in
Wyoming and the acquisition of additional acreage and analysis of seismic
studies on various properties for $24,000. The Company also finished its gas
pipeline for $36,000 and purchased office equipment and computers for $5,000.
Unproved property acquisitions included $14,000 to acquire various lease acreage
on the Brown Ranch Prospect in Wyoming. The Company received $22,597 from the
sale of shallow rights on the Oxbow Prospect in Wyoming and sale of a
submersible pump on the Pierce Unit. The Company also wrote off its investment
in a joint venture in Farpura, recording a loss to the Company of $9,878. The
Company also received $91,096 from the sale of 3,000,000 Victoria Petroleum, NL
shares during the fiscal year ended June 30, 2001. The shares were acquired in
May 2000 as part of the merger agreement between the Company and Victoria
Petroleum, NL. The sale resulted in a gain of $3,440. The unrealized gain or
loss on the Company's investment in Victoria Petroleum, NL shares is recorded as
Other Accumulated Comprehensive Income on the Company's balance sheet as of June
30, 2001.

Net cash used by investing activities was $6,432,902 in fiscal 2000 as compared
to $775,181 provided in fiscal 1999. During the fiscal year ended June 30, 2000,
$6,728,902 was used to acquire, explore and develop proved and unproved oil and
gas property interests, construct a gas pipeline on the Greens Canyon Field, and
purchase equipment. Proved property investments included $2,937,600 to drill and
complete the Greens Canyon 27-3 well, $2,199,400 to drill and complete the
Greens Canyon 29-2 well, $100,000 to finalize completion of the Poitevent #1
well, and $470,000 to acquire additional acreage and conduct a seismic study on
the Greens Canyon Field. Approximately $25,000 was expended to continue
development in various coalbed methane wells on the Wagensen Field in Wyoming.
Additionally, the Company constructed a 17 mile gas pipeline on the Greens
Canyon Field at a cost to the Company of approximately $772,000. Unproved
property acquisitions included $202,000 to acquire lease acreage on the Fire
Hole Canyon Prospect in Wyoming and $6,500 for the continued development of the
Kaye Unit in Wyoming. The Company also spent approximately $16,400 on computers
and related software. Proceeds from the sales of property and equipment were
$296,000 for fiscal 2000 as compared to $1,000 in the previous year. The Company
received $35,000 for its entire working interest in the Sally Persons Unit in
Wyoming, and $261,000 for the Company's entire working interests in 16 wells
located on the Porcupine leasehold in Wyoming. There were no sales of short-term
investments during fiscal 2000 as compared to sales of $2,330,831 in fiscal
1999.

Net cash provided by financing activities was $1,882,000 for fiscal 2001 versus
$5,893,842 a year ago. The cash provided during fiscal 2001 came from the
Company's line of credit with Wells Fargo Bank. Under the terms of the
agreement, the Company has a revolving line of credit with a borrowing base of
$1,400,000. The Company restructured the line of credit with Wells Fargo Bank in
May 2001, which requires the Company to make scheduled principal payments to
reduce the amount outstanding to $1,400,000 by the October 31, 2001 due date.
The funds were used to existing accounts payable and capital expenditures.

Net cash provided by financing activities was $5,893,842 for fiscal 2000. The
Company completed three private offerings (described below) which provided cash
to the Company of $5,878,842 net of offering expenses. In August 1999 the
Company completed a private offering of 1,880,000 shares of its common stock at
$1.25 per share. Net proceeds to the Company were $2,299,038 after offering and
related expenses of $50,962. In December 1999 the Company completed a private
offering of 950,000 shares of its common stock at $2.70 per share. Net proceeds
to the Company were $2,532,176 after offering and related expenses of $32,824.
In April 2000 the Company completed a private offering of 374,000 shares of its
common stock at $3.00 per share. Net proceeds to the Company were $1,047,628
after offering and related expenses of $74,372. The shares sold in the offerings
were sold to offshore purchasers in accordance with SEC Regulation S but the
Company has since registered the shares with the SEC on Form S-3 for resale in
the United States. The Company also received $15,000 from the exercise of
non-qualified stock options by Company employees.

       Stockholders' Equity: Stockholders' equity decreased $49,802 to
$10,756,633 from $10,806,435 a year ago. The decrease is a result of the net
loss for the year offset by common shares issued to third

                                       9



parties of $24,800, director compensation from stock options of $3,338, and
unrealized gain on securities of $26,431.

       Debt Obligations: The Company had no long-term debt at June 30, 2001,
2000 and 1999.

       Reserves and Future Cash Flows: For the fiscal year ended June 30, 2001,
the Company's proved oil reserves decreased approximately 32,000 bbls. to
356,000 bbls., or 8%, from 388,000 in 2000. The Company's proved gas reserves
decreased 11,133 Mmcf to 13,384 Mmcf, or 45%, from 24,517 Mmcf in 2001. The
decrease in proved reserves is primarily attributable to a reduction in the
go-forward working interest in the Company's greens canyon project from 100% to
30%. Accordingly, a significant reduction in gas reserve of 10.34 bcf was
recorded. Additionally, the poor performance of the Greens Canyon field during
the year resulted in a further reduction of 1.88 bcf of proved gas reserves,
which was offset, in part, by an increase in reserves of 1.1 bcf principally
from 2 additional wells at the Amber Northeast field in Grady County, Oklahoma.

The Company's undiscounted net future cash flows have been estimated by Sproule
Associates Inc., an independent petroleum engineering firm, to be approximately
$27,647,000 as of June 30, 2001. This compares to $70,983,000 in 2000 and
$8,862,000 in 1999. The decrease in the current year is the result of revisions
of previous quantity estimates, new discoveries and extensions and lower oil and
gas prices.

       Gas Balancing: The Company at June 30, 2001 was under-produced by
approximately 22,245 Mcf. The Company at June 30, 2000 was underproduced by
approximately 5,828 Mcf. At June 30, 1999, the Company was underproduced
approximately 6,234 Mcf. These amounts are reflected in the reserves and
estimated net future cash flows.

       Natural Gas Sales Contracts: The Company's gas production is generally
sold under short term contracts with pricing set on current spot markets with
adjustments for marketing and transportation costs. All contracts are cancelable
within 30-90 days notice by the Company. The Company has no contracts that are
based on a fixed natural gas price.

       Net Operating Loss and Tax Credit Carryforwards: At June 30, 2001, the
Company estimated that, for United States federal income tax purposes, it had
consolidated net operating loss carryforwards of approximately $9,171,000. The
utilization of approximately $496,000 of these carryforwards are limited to an
estimated $80,000 annually. Of the balance of the loss carryforwards, $1,497,000
is limited to the extent of future taxable income generated by the Company's
subsidiary, Victoria Exploration, Inc., and $7,178,000 is available to offset
any future taxable income of the Company. If not utilized, the net operating
loss carryforwards will expire during the period from 2002 through 2021.

RESULTS OF OPERATIONS

FISCAL 2001 VS. FISCAL 2000

       Net Earnings: The Company reported a net loss of $104,371 in fiscal 2001
compared to net earnings of $943,977 in 2000, which was a decrease of
$1,048,348. The net loss in fiscal 2001 is attributable to higher abandonment
and impaired expenses, higher depreciation and depletion expenses and higher
interest expense despite significantly higher oil and gas revenues.

       Revenue: Total revenues decreased in fiscal 2001 by $664,501, or 22%, to
$2,328,958 versus $2,993,459 in 2000. The decrease in revenues was a result of
substantially lower gain on sale of assets which declined $1,799,859. Excluding
a $1,594,929 gain on one-time sale of assets to an affiliate for shares of the
affiliate's stock in fiscal 2000, year over year revenues were up $930,428. This
increase in revenues was a result of significantly higher oil and gas revenues
as discussed below.

Revenue from oil and gas sales increased $1,134,181, or 107%, to $2,195,819 from
$1,061,638 a year ago. The increase in revenues was a result of higher oil and
gas prices despite lower sales volumes for oil. Average prices per barrel of oil
increased 14% to $28.18 from $24.78 a year ago. Average prices received per

                                       10



Mcf of gas increased 83% to $4.75 from $2.59 a year ago. Sales volumes for oil
decreased 6% to 18,688 from 19,939 a year ago. Sales volumes for gas increased
61% to 350 Mmcf from 218 Mmcf a year ago. The increase in gas volumes can be
attributed to the completion of the Turner 1-23 and 3-14 wells and the coal bed
methane wells.

The Company recorded gain on sale of property and equipment of $16,159. The
Company sold the shallow rights on the Oxbow Prospect for $7,972 and sold a
submersible pump on the Pierce Unit for $14,625 and wrote off its cost of $9,878
in an international joint venture which dissolved in fiscal 2001. The Company
also sold 3,000,000 shares of common stock of Victoria Petroleum, NL in the
fourth quarter of fiscal 2001. The common stock was acquired as part of the
merger with Victoria Petroleum, NL in May of 2000. The Company received $91,096
in proceeds from the sale and recorded a gain of $3,440.

Other income rose $46,213 to $111,141 from $64,928 a year ago. The increase is
attributable to overhead charges to a related party for the use of the Company's
office space and personnel.

       Lease Operating Expenses: Lease operating expenses increased $471,447, or
105%, to $920,692 from $449,245 a year ago. The caption "Lease Operating
Expenses" includes not only the direct costs of operating a well, but workover
costs and production taxes. Direct lease expense increased 100% to $575,296 from
$287,956 a year ago. Workover costs increased 180% to $151,390 from $53,993 last
year. Production taxes increased 81% to $194,006 from $107,296 a year ago. The
increase in direct lease expenses is attributable to the addition of eight new
wells, initial expenses on the Greens Canyon wells and higher lease expenses on
the Pierce and Grady Units in Wyoming. The increase in workover expenses is
attributable to the workover conducted on the Pierce Unit in Wyoming and the
Burditt #1 well in Texas. The increase in production taxes was a result of
higher oil and gas revenues and higher gas volumes. Lease operating costs on a
BOE (barrel of oil equivalent) increased 50% to $11.96 from $7.98 a year ago.

       Exploration Expenses: Exploration expenses decreased $289,444, or 74%, to
$101,131 from $390,575 in 2000. The decrease in exploration expense reflected
the slower pace of the Company's exploration program during fiscal 2001 as the
Company's emphasis has been on the development of the Greens Canyon Field. The
decrease was a result of lower geological and geophysical costs as well as lower
delay rentals paid on exploration acreage.

       Dry Holes, Abandoned and Impaired Properties: Dry holes, abandoned and
impaired property costs were $101,459 in fiscal 2001 as compared to $25,125 a
year ago, an increase of $76,334, or 304%. No dry hole costs were recorded for
fiscal 2001 or 2000. Abandonment costs increased 100% to $29,000 for fiscal
2001. The Company abandoned the Pinon Ridge Prospect in Colorado. Impairment
expenses increased $47,334 or 188% to $72,459 from $25,125 a year ago. The
impairment was a result of the analysis of the Company's properties as required
by SFAS 121.

       General and Administrative Expense: General and administrative expenses
decreased $187,499, or 17%, to $898,430 as compared to $1,086,551 a year ago.
The decrease in general and administrative expenses is attributable to lower
company personnel costs as well as lower legal and accounting expenses. The
Company continues to review ways to reduce overhead expenses as a result of the
current oil and gas pricing structure.

       Interest Expense: Interest expense totaled $126,907 for the fiscal year
ended June 30, 2001. The interest is attributable to the line of credit the
Company has with Wells Fargo Bank.

RESULTS OF OPERATIONS

FISCAL 2000 VS. FISCAL 1999

       Net Earnings: The Company reported net earnings of $943,977 in fiscal
2000 compared to a loss of $1,441,424 in 1999, which was a decrease of
$2,385,401. The net earnings in fiscal 2000 was

                                       11



attributable to a gain on sale of property and equipment and significantly
higher oil and gas revenues as a result of higher oil and gas prices.

       Revenue: Total revenues increased in fiscal 2000 by $2,220,664, or 287%,
to $2,993,459 versus $772,795 in 1999. The increase in overall revenues was a
result of higher oil and gas revenues due to higher oil and gas prices, and
higher gain on sale of property and equipment as described more fully below.

Revenue from oil and gas sales increased $429,608, or 68%, to $1,061,638 from
$632,030 in 1999. The increase in revenues was a result of higher oil and gas
prices despite lower sales volumes for oil and gas. Average prices per barrel of
oil increased 148% to $24.78 from $10.01 in 1999. Average prices received per
Mcf of gas increased 106% to $2.59 from $1.26 a year ago. Sales volumes for oil
decreased 18% to 19,939 from 24,319 in 1999. Sales volumes for gas decreased 29%
to 218 Mmcf from 308 Mmcf in 1999.

The Company recorded gains on sale of equipment and property of $1,816,018 in
2000 versus a loss of $788 in 1999. On May 5, 2000, the Company sold six
international permits with a net book value of approximately $143,179 for
petroleum drilling in Western Australia and New Guinea to Victoria Petroleum
USA, Inc. (VP/USA), a Colorado corporation and wholly owned subsidiary of VP, in
exchange for 8,250,000 shares of VP Common Stock. The stock was valued at
$0.0292/share and resulted in a gain on the sale of $97,721. Also, on May 5,
2000, KEC, VP, and VP/USA entered into an Agreement and Plan of Merger (Merger
Agreement). Pursuant to the Merger Agreement, on May 12, 2000, the Company, as
sole shareholder of KEC, acquired 66,750,000 shares of VP common stock and
VP/USA acquired all of the issued and outstanding share of KEC through a merger
of KEC with and into VP/USA, with KEC as the surviving corporation. The stock
was valued at $0.292/share and resulted in a gain on sale of $1,497,208. The
Company sold its entire interest in the Sally Persons Unit, located in Wyoming,
for $35,000, which resulted in a gain on sale of $27,836. Additionally, the
Company sold its entire working interests in 16 wells located in the Porcupine
Field, Wyoming for $261,000 which resulted in a gain on sale of $193,254.

       Lease Operating Expenses: Lease operating expenses increased $36,617, or
9%, to $449,245 from $412,628 in 1999. The increase in lease operating expense
is attributable to higher production taxes resulting from the increase in oil
and gas revenues despite lower operating costs on various properties. Lease
operating costs on a BOE (barrel of oil equivalent) increased 46% to $7.98 from
$5.46 in 1999 as a result of lower sales volumes of oil and gas.

       Exploration Expenses: Exploration expenses decreased $69,761, or 15%, to
$390,575 from $460,336 in 1999. The decrease in exploration expense reflected
the slower pace of the Company's exploration program during fiscal 2000 as the
Company's emphasis has been on the development of the Greens Canyon Field. The
decrease was a result of lower geological and geophysical costs as well as lower
delay rentals paid on exploration acreage.

       Dry Holes, Abandoned and Impaired Properties: Dry holes, abandoned and
impaired property costs were $25,125 in fiscal 2000 as compared to $388,612 in
1999, a decrease of $363,487, or 94%. No dry hole costs were recorded in fiscal
2000 versus $144,515 in 1999. The decrease in dry hole costs reflected the
Company's successful drilling efforts on the Greens Canyon Field during fiscal
2000. Abandonment costs decreased $17,857, or 100% from fiscal 1999. Impairment
expense decreased $201,115, or 89%, to $25,125 from $226,240 in 1999. The
Company recorded impairment expense of $25,125 related to various international
permits prior to their sale.

       General and Administrative Expense: General and administrative expenses
increased $308,322, or 40%, to $1,086,551 as compared to $778,229 in 1999. The
increase in general and administrative expenses is attributable to higher
company personnel costs as well as higher legal and accounting expenses. Company
personnel costs rose as a direct result of the increase in the Company's
development of the Greens Canyon Field. Legal and accounting costs increased as
a result of the Company expensing previously incurred legal and accounting fees
associated with the potential listing of the Company's stock on the Australian
Stock Exchange, the Company's warrant dividend issue in January 2000, and the
merger with VP in May 2000.

                                       12



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Until fiscal 2000, the Company did not invest in or hold market risk sensitive
or interest rate sensitive instruments and the only currency exchange rate risk
borne by the Company stemmed from the Company's obligations to fund its
international drilling in foreign currencies. During the fiscal year ended June
30, 2000, the Company received 75,000,000 shares of VP Common Stock as a result
of the merger and sale of international permits discussed above. (See
Management's Discussion and Analysis-Results of Operations--Fiscal 2000 vs.
Fiscal 1999.) The investment in VP Common Stock is classified as
available-for-sale. Net unrealized gains and losses on the investment are
recorded to other comprehensive income or loss. At June 30, 2001 the unrealized
gain on the investment was $26,431. The Common Stock of VP was trading for $.058
cents per share in Australian dollars as of June 30, 2001. The Company applies
the exchange rate between the U.S. dollar and Australian dollar as quoted in the
Wall Street Journal. On June 30, 2001, the exchange rate in dollar terms was
$.5101 which resulted in a U.S. dollar share price of $.0296 cents per share.
The Company sold 3,000,000 shares of VP Stock in June 2001 which provided
$91,096 in proceeds to the Company and a corresponding gain on sale of $3,440
was recorded.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

       See pages F-1 through F-18 for this information.

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

       None

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       The information required herein is incorporated by reference from the
       Company's definitive proxy statement for the 2001 annual meeting of
       shareholders.

ITEM 11. EXECUTIVE COMPENSATION.

       The information required herein is incorporated by reference from the
       Company's definitive proxy statement for the 2001 annual meeting of
       shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

       The information required herein is incorporated by reference from the
       Company's definitive proxy statement for the 2001 annual meeting of
       shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

       The information required herein is incorporated by reference from the
       Company's definitive proxy statement for the 2001 annual meeting of
       shareholders.

                                       13



                                     PART IV

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

      (a)  Exhibits
           Exhibit No.    Description
           -----------    -----------
              3.1         Amended and Restated Articles of Incorporation, as
                          filed with the Secretary of State of Colorado on
                          March 16, 1995, filed as Exhibit (3)1 to the Annual
                          Report on Form 10-K/A for the fiscal year ended
                          June 30, 1994 and incorporated herein by reference.

              3.2         Amended and Restated Bylaws, as adopted by the Board
                          of Directors on January 16, 1995, filed as
                          Exhibit (3)2 to the Annual Report on Form 10-K/A for
                          the fiscal year ended June 30, 1994 and incorporated
                          herein by reference.

              4.1         The form of common stock share certificate filed as
                          Exhibits 5.1 to the Registrant's Form S-2 Registration
                          Statement (No. 2-65317) and Article II of the
                          Registrant's Articles of Incorporation filed as
                          Exhibit 4.1 thereto, as amended on March 4, 1994 and
                          filed with the Annual Report on Form 10-K for the
                          fiscal year ended June 30, 1994 are incorporated
                          herein by reference.

              4.2         Warrant Agreement dated January 18, 2000 with American
                          Securities Transfer & Trust, Inc. filed as Exhibit 4.1
                          to the Registrant's Form 8-A Registration Statement
                          filed January 20, 2000 and incorporated herein by
                          reference.

              4.3         Form of Warrant Certificate filed as Exhibit 4.2 to
                          the Registrant's Form 8-A Registration Statement filed
                          January 20, 2000 and incorporated herein by reference.

             10.1         Amended and Restated Incentive Stock Option Plan as
                          amended March 14, 1995 and filed as Exhibit 10.7 with
                          the Annual Report on Form 10-K for the fiscal year
                          ended June 30, 1995 and incorporated herein by
                          reference.

             10.2         Kestrel Energy, Inc. Stock Option Plan as amended
                          December 19, 2000 and January 3, 2001 and filed as
                          Exhibit 4 to the Registrant's Form S-8 Registration
                          Statement (No. 333-68086) and incorporated herein by
                          reference.

             10.3         Line of Credit with Norwest Bank, Colorado National
                          Association dated February 21, 2000 as Exhibit 10.1 to
                          the Registrant's Form 10-Q for the period ended
                          March 31, 2000 and incorporated herein by reference.

             10.4         Articles of Merger for Kestrel Energy California, Inc.
                          and Victoria Petroleum USA, Inc. filed as Exhibit 10.2
                          to the Registrant's Form 10-Q for the period ended
                          March 31, 2000 and incorporated herein by reference.

             10.5         Letter Amendment to Wells Fargo Bank West, N.A.
                          Agreement dated September 27, 2000 filed as Exhibit 10
                          to the Registrant's Form 10-Q for the period ended
                          September 30, 2000 and incorporated herein by
                          reference.

             10.6*        Articles of Merger for Victoria Exploration, Inc.

             23.1         Consent of KPMG LLP

                                       14



             23.2         Consent of Sproule Associates Inc.

             99.1         Certification of President and Principal Financial
                          Officer

       * Previously filed

       (b) Financial Statements.
           Independent Auditors' Report                            F-1
           Consolidated Balance Sheets                             F-2
           Consolidated Statements of Operations                   F-3
           Consolidated Statements of Stockholders' Equity         F-4
           Consolidated Statements of Cash Flows                   F-5
           Notes to Consolidated Financial Statements              F-6

       (c) Reports on Form 8-K.
           None


                                       15



                                   SIGNATURES

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

                                             KESTREL ENERGY, INC.
                                             (Registrant)

Date:  July 15, 2003
                                             By: /s/ BARRY D. LASKER
                                                -------------------------------
                                                Barry D. Lasker, President,
                                                Chief Executive Officer,
                                                Chief Financial Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.


Date:  July 15, 2003                         By: /s/ BARRY D. LASKER
                                                -------------------------------
                                                Barry D. Lasker, President,
                                                Chief Executive Officer,
                                                Chief Financial Officer

Date:  _______, 2003                         By:
                                                -------------------------------
                                                Robert J. Pett, Chairman of
                                                the Board

Date:  July 15, 2003                         By: /s/ KENNETH W. NICKERSON
                                                -------------------------------
                                                Kenneth W. Nickerson, Director

Date:  _______, 2003                         By:
                                                -------------------------------
                                                John T. Kopcheff, Director

Date:  July 15, 2003                         By: /s/ MARK A. E. SYROPOULO
                                                -------------------------------
                                                Mark A. E. Syropoulo, Director

Date:  July 15, 2003                         By: /s/ TIMOTHY L. HOOPS
                                                -------------------------------
                                                Timothy L. Hoops, Director

Date:  _______, 2003                         By:
                                                -------------------------------
                                                Neil T. MacLachlan, Director

                                       16




                                 CERTIFICATIONS


I, Barry D. Lasker, certify that:

   1. I have reviewed this annual report on Form 10-K/A of Kestrel Energy, Inc.;

   2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

   3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this annual
report;

   4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and we have:

      (a) Designed such disclosure controls and procedures to ensure that
      material information relating to the registrant, including its
      consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;

      (b) Evaluated the effectiveness of the small business issuer's disclosure
      controls and procedures as of a date within 90 days prior to the filing
      date of this annual report (the "Evaluation Date");

      (c) presented in this annual report our conclusions about the
      effectiveness of the disclosure controls and procedures based on our
      evaluation as of the Evaluation Date;

   5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation, to the small business issuer's
auditors and the audit committee of small business issuer's board of directors
(or persons performing the equivalent functions):

      (a) All significant deficiencies in the design or operation of internal
      controls which could adversely affect the small business issuer's ability
      to record, process, summarize and report financial information and have
      identified for the small business issuer's auditors any material
      weaknesses in internal controls; and

      (b) Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the small business issuer's
      internal control reporting; and

   6. The small business issuer's other certifying officers and I have indicated
in this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weakness

   Date: July 15, 2003


/s/Barry D. Lasker
--------------------------------------
Barry D. Lasker
President, Chief Executive Officer and
Principal Financial Officer



                              KESTREL ENERGY, INC.
                                AND SUBSIDIARIES

                        Consolidated Financial Statements

                             June 30, 2001 and 2000

                   (With Independent Auditors' Report Thereon)





                          INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Kestrel Energy, Inc.:

We have audited the accompanying consolidated balance sheets of Kestrel Energy,
Inc. and subsidiaries as of June 30, 2001 and 2000, and the related consolidated
statements of operations and comprehensive income, stockholders' equity and cash
flows for each of the years in the three-year period ended June 30, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kestrel Energy, Inc.
and subsidiaries as of June 30, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States of America.



Denver, Colorado
September 14, 2001


                                      F-1





                              KESTREL ENERGY, INC.
                                AND SUBSIDIARIES

                           Consolidated Balance Sheets

                             June 30, 2001 and 2000



                       ASSETS                                  2001                    2000
                                                               -----                   -----
                                                                  
Current assets:
  Cash and cash equivalents                               $       119,025        $       502,034
  Accounts receivable                                             278,834                181,075
  Related party receivable                                             --                    524
  Other current assets                                              5,957                 31,560
                                                           --------------         --------------
           Total current assets                                   403,816                715,193
                                                           --------------         --------------
Property and equipment, at cost:
  Oil and gas properties, successful
   efforts method of accounting (note 8):
      Unproved                                                    217,941                353,027
      Proved                                                   12,398,775             10,933,518
  Pipeline and facilities                                         807,851                772,164
  Furniture and equipment                                         143,724                138,970
                                                           --------------         --------------
                                                               13,568,291             12,197,679

  Accumulated depreciation and depletion                       (3,190,983)            (2,833,816)
                                                           --------------         --------------
           Net property and equipment                          10,377,308              9,363,863
                                                           --------------         --------------
Investment in related party (note 2)                            2,130,178              2,191,403
                                                           --------------         --------------
                                                          $    12,911,302        $    12,270,459
                                                           ==============         ==============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable:
      Trade                                               $       121,464              1,419,429
      Related party                                                26,397                  9,399
  Accrued liabilities                                             124,808                 35,196
  Line of credit, bank (note 3)                                 1,882,000                      -
                                                           --------------         --------------
           Total current liabilities                            2,154,669              1,464,024
                                                           --------------         --------------

Stockholders' equity (note 4):
  Preferred stock, $1 par value. 1,000,000 shares
    authorized; none issued                                                                 -                        -
  Common stock, no par value. 20,000,000 shares
    authorized; 7,700,200 and 7,680,000 shares
    issued and outstanding at
    June 30, 2001 and 2000, respectively                       19,073,023             19,044,885
  Accumulated other comprehensive income                           26,431                      -
  Accumulated deficit                                          (8,342,821)            (8,238,450)
                                                           --------------         --------------
           Total stockholders' equity                          10,756,633             10,806,435
                                                           --------------         --------------
Commitments (notes 3 and 6)
                                                          $    12,911,302        $    12,270,459
                                                           ==============         ==============


See accompanying notes to consolidated financial statements.


                                       F-2





                              KESTREL ENERGY, INC.
                                AND SUBSIDIARIES

         Consolidated Statements of Operations and Comprehensive Income

                    Years ended June 30, 2001, 2000 and 1999


                                              2001             2000            1999
                                              -----            -----           -----
                                                                   
Revenue:
  Oil and gas sales                      $  2,195,819        1,061,638          632,030
  Gain (loss) on sale of
    property and equipment                     12,719        1,816,018             (788)
  Gain on sale of
    available-for-sale securities               3,440               --               --
  Interest income                               5,839           50,875           76,490
  Other, net                                  111,141           64,928           65,063
                                          -----------      -----------      -----------
           Total revenue                    2,328,958        2,993,459          772,795
                                          -----------      -----------      -----------

Costs and expenses:
  Lease operating expenses                    920,692          449,245          412,628
  Dry holes, abandoned and
    impaired properties                       101,459           25,125          388,612
  Exploration expenses                        101,131          390,575          460,336
  Depreciation and depletion                  284,710           97,986          174,414
  General and administrative                  898,430        1,086,551          778,229
  Interest expense                            126,907               --               --
                                         ------------      -----------      -----------
           Total costs and expenses         2,433,329        2,049,482        2,214,219
                                         ------------      -----------      -----------
           Net earnings (loss)               (104,371)         943,977       (1,441,424)

Other comprehensive income (loss)-
  unrealized gain (loss) from
  available-for-sale securities                26,431               --                -
                                         ------------      -----------      -----------

           Comprehensive income
            (loss)                      $     (77,940)         943,977       (1,441,424)
                                         ============      ===========      ===========
Basic earnings (loss) per share         $        (.01)            0.14            (0.32)
                                         ============      ===========      ===========
Diluted earnings (loss) per share       $       (0.01)            0.13            (0.32)
                                         ============      ===========      ===========
Weighted average number of
  common shares outstanding                 7,684,110        6,787,104        4,451,833
                                         ============      ===========      ===========


See accompanying notes to consolidated financial statements.


                                      F-3





                              KESTREL ENERGY, INC.
                                AND SUBSIDIARIES

                 Consolidated Statements of Stockholders' Equity

                    Years ended June 30, 2001, 2000 and 1999



                                                                                              Accumulated
                                                   Common stock                                  other            Total
                                         -----------------------------      Accumulated      comprehensive    stockholders'
                                            Shares          Amount           deficit            income           equity
                                         ------------    -------------     ------------    ----------------   -------------
                                                                                               
Balance June 30, 1998                       4,431,000    $  13,139,349      (7,741,003)                --        5,398,346

Shares issued for property                     25,000            9,375               -                 --            9,375
Net loss                                           --               --      (1,441,424)                --       (1,441,424)
                                         ------------     ------------     ------------      ------------     ------------
Balance June 30, 1999                       4,456,000       13,148,724      (9,182,427)                --        3,966,297

Common shares issued, net of offering
  costs of $158,158 (note 4)                3,204,000        5,878,842              --                 --        5,878,842
Exercise of stock options (note 4)             20,000           15,000              --                 --           15,000
Stock options issued as compensation               --            2,319              --                 --            2,319
Net earnings                                       --               --         943,977                 --          943,977
                                         ------------     ------------     ------------      ------------     ------------
Balance June 30, 2000                       7,680,000       19,044,885      (8,238,450)                --       10,806,435

Adjustment for previously issued
  and unrecorded shares (note 4)                  200               --              --                 --               --
Common shares issued (note 4)                  20,000           24,800              --                 --           24,800
Stock options issued as compensation               --            3,338              --                 --            3,338
Unrealized gain on securities
  classified as available for sale                 --               --              --             26,431           26,431
Net loss                                           --               --        (104,371)                --         (104,371)
                                         ------------     ------------     -----------       ------------     ------------
Balance June 30, 2001                       7,700,200    $ 19,073,023       (8,342,821)             26,431       10,756,633
                                         ============     ============     ===========       ============     ============



See accompanying notes to consolidated financial statements.


                                      F-4





                              KESTREL ENERGY, INC.
                                AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows

                    Years ended June 30, 2001, 2000 and 1999



                                                         2001                2000                1999
                                                       --------            --------            --------
                                                                                      
Cash flows from operating activities:
  Net earnings (loss)                               $    (104,371)            943,977          (1,441,424)
  Adjustments to reconcile net income (loss)
    to net cash provided (used)
    by operating activities:
      Depreciation and depletion                          284,710              97,986             174,414
      Abandoned and impaired properties                   101,459                  --             244,097
      Gain on sale of available-for-sale
        securities                                         (3,440)                 --                  --
      Loss (gain) on sale of property
        and equipment                                     (12,719)         (1,816,018)                788
      Noncash compensation expense for
        stock options issued                                3,338               2,319                  --
      Changes in operating assets and
        liabilities, net of dispositions:
        (Increase) decrease in accounts
           receivable                                     (97,759)            (70,195)             55,688
        (Increase) decrease in related
           party receivables                                  524              59,482             333,169
        (Increase) decrease in other
           current assets                                  25,603              55,476             (50,388)
        Increase (decrease) in accounts
           payable - trade                             (1,297,965)          1,378,036             (92,237)
        Increase (decrease) in accounts
           payable - related party                         16,998             (10,773)             20,172
        Increase (decrease) in accrued
           liabilities                                     89,612               5,824               3,326
                                                     ------------        ------------        ------------
             Net cash provided (used) by
             operating activities                        (994,010)            646,114            (752,395)
                                                     ------------        ------------        ------------

Cash flows from investing activities:
  Capital expenditures                                 (1,384,692)         (6,728,902)         (1,556,650)
  Proceeds from sale of securities                         91,096                  --           2,330,831
  Proceeds from sales of property
    and equipment                                          22,597             296,000               1,000
                                                     ------------        ------------        ------------
             Net cash provided (used) by
             investing activities                      (1,270,999)         (6,432,902)            775,181
                                                     ------------        ------------        ------------
Cash flows from financing activities:
  Net proceeds from line of credit                      1,882,000                                      --                  --
  Proceeds from issuance of common stock,
    net of offering costs                                      --           5,878,842                  --
  Proceeds from exercise of stock options                      --              15,000                  --
                                                     ------------        ------------         -----------

             Net cash provided by financing
             activities                                 1,882,000           5,893,842                  --
                                                     ------------        ------------        ------------
             Net increase (decrease) in
             cash and cash equivalents                   (383,009)            107,054              22,786

Cash and cash equivalents, beginning of year              502,034             394,980             372,194
                                                     ------------         -----------        ------------
Cash and cash equivalents, end of year              $     119,025             502,034             394,980
                                                     ============         ===========        ============
Supplemental cash flow information -- cash
  paid for interest                                 $     113,084                  --                  --
                                                     ============         ===========        ============
Supplemental disclosure of noncash
  investing activities:
      Common stock issued for property
      and equipment                                 $      24,800                  --                  --
                                                     ============         ===========        ============
      Unrealized holding gain on
      available-for-sale securities                 $      26,431                  --                  --
                                                     ============         ===========        ============


See accompanying notes to consolidated financial statements.


                                      F-5





(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     (a) ORGANIZATION

         Kestrel Energy, Inc. (the Company) was incorporated under the laws of
         the State of Colorado on November 1, 1978. The Company's principal
         business is the acquisition, either alone or with others, of interests
         in proved developed producing oil and gas leases, and exploratory and
         development drilling.

         The Company presently owns oil and gas interests in the states of
         Louisiana, New Mexico, Oklahoma, South Dakota, Texas and Wyoming.

         Victoria Petroleum N. L. (VP) owns 18% of the common shares of the
         Company and the Company owns 15% of VP at June 30, 2000.

     (b) PRINCIPLES OF CONSOLIDATION

         Up until June 22, 2001, the consolidated financial statements included
         the accounts of the Company and its wholly owned subsidiary, Victoria
         Exploration, Inc. (Victoria). All significant intercompany accounts and
         transactions have been eliminated in consolidation.

         On June 22, 2001 (the Effective Date), the Company filed Articles of
         Merger of Victoria Exploration, Inc. into Kestrel Energy, Inc. pursuant
         to Section 7-111-104 of the Colorado Revised Statutes. In accordance
         with the agreement, on the Effective Date, Victoria ceased to exist and
         Kestrel Energy, Inc. became the surviving corporation.

     (c) ESTIMATES

         The preparation of financial statements in conformity with accounting
         principles generally accepted in the United States of America 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.

     (d) CASH EQUIVALENTS

         Cash equivalents consist of money market funds. For purposes of the
         consolidated statements of cash flows, the Company considers all highly
         liquid investments with original maturities of three months or less to
         be cash equivalents.

     (e) PROPERTY AND EQUIPMENT

         The Company follows the successful efforts method of accounting for its
         oil and gas activities. Accordingly, costs associated with the
         acquisition, drilling and equipping of successful exploratory wells are
         capitalized. Geological and geophysical costs, delay and surface
         rentals and drilling costs of unsuccessful exploratory wells are
         charged to expense as incurred. Costs of drilling development wells,
         both successful and unsuccessful, are capitalized. Upon the sale or
         retirement of oil and gas properties, the cost thereof and the
         accumulated depreciation or depletion are removed from the accounts and
         any gain or loss is credited or charged to operations.

         Depreciation and depletion of capitalized oil and gas properties is
         computed on the units-of-production method by individual fields as the
         related proved reserves are produced. A reserve is provided for
         estimated future costs of site restoration, dismantlement, and
         abandonment activities, net of residual salvage value, as a component
         of depletion.

                                      F-6





         Pipeline and facilities are stated at original cost. Depreciation of
         pipeline and facilities is provided on a straight-line basis over the
         estimated useful life of the pipeline of twenty years.

         Furniture and equipment are depreciated using the straight-line method
         over estimated lives ranging from three to seven years.

         Management periodically evaluates capitalized costs of unproved
         properties and provides for impairment, if necessary, through a charge
         to operations.

         Proved oil and gas properties are assessed for impairment on a
         field-by-field basis. If the net capitalized costs of proved properties
         exceeds the estimated undiscounted future net cash flows from the
         property, a provision for impairment is recorded to reduce the carrying
         value of the property to its estimated fair value. The Company recorded
         a provision for impairment of its proved oil and gas properties of
         approximately $101,000 and $25,000 for the years ended June 30, 2001
         and 2000, respectively.

     (f) GAS BALANCING

         The Company uses the sales method of accounting for gas balancing of
         gas production. Under this method, all proceeds from production
         credited to the Company are recorded as revenue until such time as the
         Company has produced its share of related reserves. Thereafter,
         additional amounts received are recorded as a liability.

         As of June 30, 2001 and 2000, the Company is in an under-produced
         position of approximately 22,245 MCFs and 5,828 MCFs, respectively.
         Accordingly, these amounts have been included in the reserve quantities
         as set forth in note 8.

     (g) INCOME TAXES

         The Company accounts for income taxes under the provisions of Statement
         of Financial Accounting Standards No. 109 (SFAS No. 109), Accounting
         for Income Taxes. Under the asset and liability method of SFAS No. 109,
         deferred tax assets and liabilities are recognized for the future tax
         consequences attributable to differences between the financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases and operating loss and tax credit carryforwards.
         Deferred tax assets and liabilities are measured using enacted income
         tax rates expected to apply to taxable income in the years in which
         those differences are expected to be recovered or settled. Under SFAS
         No. 109, the effect on deferred tax assets and liabilities of a change
         in income tax rates is recognized in the results of operations in the
         period that includes the enactment date.

     (h)  STOCK-BASED COMPENSATION

         In October 1995, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation (SFAS 123), effective for fiscal years
         beginning after December 15, 1995. This statement defines a fair value
         method of accounting for employee stock options and encourages
         entities to adopt that method of accounting for its stock compensation
         plans. SFAS 123 allows an entity to continue to measure compensation
         costs for these plans using the intrinsic value based method of
         accounting as prescribed in Accounting Pronouncement Bulletin Opinion
         No. 25, Accounting for Stock Issued to Employees (APB 25). The Company
         has elected to continue to account for its employee stock compensation
         plans as prescribed under APB 25. The pro forma disclosures of net
         loss and loss per share required by SFAS 123 are included in note 2.

                                      F-7




     (i) EARNINGS (LOSS) PER SHARE

         Basic earnings (loss) per share is based on the weighted average number
         of common shares outstanding during the period.

         Diluted earnings (loss) per share is computed by adjusting the weighted
         average number of common shares outstanding for the dilutive effect, if
         any, of stock options and warrants.

         The following sets forth the calculation of basic and diluted earnings
         (loss) per common share for the years ended June 30:


                                                2001 (1)    2000 (2)     1999 (3)
                                               ----------  ----------  -----------
                                                              
         Net earnings (loss)                  $ (104,371)    943,977   (1,441,424)
                                               ==========  ==========  ===========

         Weighted average common shares
           outstanding during the period       7,684,110   6,787,104    4,451,833

         Add dilutive effects of -
           employee options                           --     408,174           --
                                              ----------  ----------  -----------

         Weighted average common shares
           outstanding during the period
           including the effects of
           dilutive securities                 7,684,110   7,195,278   4,451,833
                                              ==========  ==========  ==========

         Basic earnings (loss) per common
           share                             $     (0.01)       0.14        (0.32)
                                              ==========  ==========  ===========

         Diluted earnings (loss) per
           common share                      $     (0.01)       0.13        (0.32)
                                              ==========  ==========  ===========


         (1) At  June 30, 2001, all outstanding options were excluded from the
             computation of diluted loss per share for the year ended June 30,
             2001. The effect of the assumed exercises of these options was
             antidilutive.

         (2) At June 30, 2000, options to purchase 40,000 shares of common stock
             at prices ranging from $8.38 to $25.00 per share were outstanding,
             but were not included in the computation of diluted earnings per
             share for the year ended June 30, 2000. The exercise prices of
             these options were greater than the average market price of the
             common shares.

         (3) At June 30, 1999, all outstanding options were excluded from the
             computation of diluted loss per share for the year ended June 30,
             1999. The effect of the assumed exercises of these options was
             antidilutive.

     (j) RECENTLY ISSUED ACCOUNTING STANDARDS AND PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued SFAS No.
         141, Business Combinations, and SFAS No. 142, Goodwill and Other
         Intangible Assets and approved for issuance SFAS No. 143, Accounting
         for Asset Retirement Allocations. SFAS No. 141 requires that the
         purchase method of accounting be used for all business combinations
         initiated or completed after June 30, 2001. SFAS No. 141 also
         specifies criteria that intangible assets acquired in a purchase
         method business combination must be recognized and reported apart from
         goodwill. The adoption of SFAS No. 141 as of July 1, 2001 will have no
         impact on Kestrel's 2001 financial statements.

         SFAS No. 142 requires that goodwill no longer be amortized, but instead
         tested for impairment at least annually in accordance with the
         provisions of SFAS No. 142. Any goodwill and any intangible asset
         determined to have an indefinite useful life that are

                                      F-8



         acquired in a purchase business combination completed after June 30,
         2001 will not be amortized, but will be evaluated for impairment in
         accordance with the appropriate existing accounting literature.
         Goodwill and intangible assets acquired in business combinations
         completed before July 1, 2001 will continue to be amortized prior to
         the adoption of SFAS No. 142. The adoption of SFAS No. 142 will have
         no impact on Kestrel's 2001 financial statements.

         SFAS No. 143 requires entities to record the fair value of a liability
         for an asset retirement obligation in the period in which it is
         incurred and a corresponding increase in the carrying amount of the
         related long-lived asset and is effective for fiscal years beginning
         after June 15, 2002. The Company is currently assessing the impact SFAS
         No. 143 will have on its financial condition and results of operations.

     (k) RECLASSIFICATION

         Certain amounts in the 2000 financial statements have been reclassified
         to conform to the 2001 financial statement presentation.

(2)  INVESTMENT IN RELATED PARTY

     On May 5, 2000, the Company sold six international permits with a net book
     value of $143,179 for petroleum drilling in Western Australia and New
     Guinea to Victoria Petroleum USA, Inc. (VP/USA), a Colorado corporation and
     wholly owned subsidiary of VP, in exchange for 8,250,000 shares of VP
     Common Stock. The stock was valued at $0.029 per share and resulted in a
     gain on the sale of $97,721. The investment is recorded at cost.

     Also, on May 5, 2000, KEC, VP and VP/USA entered into an Agreement and Plan
     of Merger (Merger Agreement). Pursuant to the Merger Agreement, on May 12,
     2000, the Company, as sole shareholder of KEC, acquired 66,750,000 shares
     of VP common stock and VP/USA acquired all of the issued and outstanding
     shares of KEC through a merger of KEC into VP/USA, with KEC as the
     surviving corporation. The stock was valued at $0.029 per share and
     resulted in a gain on the sale of $1,497,208, based upon sales of other
     assets totaling $242, accounts payable totaling $2,000, and property and
     equipment with a net book value of $454,899. The investment is recorded at
     cost.

     As a result of the above transactions, the Company owns 15% of VP at
     June 30, 2001.

(3)  LINE OF CREDIT

     On February 21, 2000, the Company entered into a $2,000,000 Line of Credit
     agreement with Wells Fargo Bank, formerly Norwest Banks Colorado, N.A.,
     which provided the Company with an initial borrowing base of $600,000,
     based on reserves with interest at Wells Fargo's prime rate plus 2.5%. On
     September 27, 2000, the Company and Wells Fargo amended the Line of Credit
     Agreement to provide the Company with a borrowing base of $2,000,000 and
     reduced the interest rate to 1.5% over the Wells Fargo prime rate. On May
     31, 2001, Wells Fargo reduced the borrowing base to $1,400,000. As a result
     of the reduction to the borrowing base, the Company is required to make
     scheduled principal payments to reduce the amount outstanding to $1,400,000
     by October 31, 2001, the maturity date of the line of credit. The line of
     credit is secured by Deeds of Trust on various oil and gas producing
     properties held by the Company. As of June 30, 2001, $1,882,000 was
     outstanding on the line of credit.

                                      F-9




(4)  STOCKHOLDERS' EQUITY

     (a)  PREFERRED STOCK

         The Company is authorized to issue up to 1 million shares of $1 par
         value preferred stock, the rights and preferences of which are to be
         determined by the Board of Directors at or prior to the time of
         issuance.

     (b) COMMON STOCK

         In September 1998, the Company acquired oil and gas properties by
         issuing 25,000 shares of common stock valued at $9,375.

         In August 1999, the Company completed a private offering of 1,880,000
         shares of its common stock at $1.25 per share. Net proceeds to the
         Company were $2,299,038 after offering and related expenses of $50,962.

         In December 1999, the Company completed a private offering of 950,000
         shares of its common stock at $2.70 per share. Net proceeds to the
         Company were $2,532,176 after offering and related expenses of $32,824.

         On January 18, 2000, the Board of Directors of the Company declared a
         dividend distribution of 10 Warrants for every 100 shares of
         outstanding common stock of the Company held of record by the
         shareholders at the close of business on February 4, 2000 (record
         date). The Warrant Certificates were only issued in increments of 10
         Warrants based upon a rounding of individual shareholders' record
         holdings. No Warrants were issued to shareholders holding less than 100
         shares as of the Record Date.

         Each Warrant entitled the registered holder to purchase from the
         Company one share of Common Stock at a price of $3.125 per share,
         subject to adjustment. The Warrants were to expire on February 4, 2001.
         On January 24, 2001 the Board of Directors reduced the exercise price
         to $2.50 and extended the exercise period to September 4, 2002.

         In April 2000, the Company completed a private offering of 374,000
         shares of its common stock at $3.00 per share. Net proceeds to the
         Company were $1,047,628 after offering and related expenses of $74,372.

         In April 2001, the Company paid $6,000 and issued 20,000 shares of its
         common stock at $1.24 per share to an unrelated third party in exchange
         for geophysical data.

         During 2001, certificates for previously issued shares of the Company's
         common stock, representing 200 shares were presented for transfer.
         Prior to presentment, such shares had not been recorded as issued by
         the Company.

     (c) STOCK OPTION PLANS

         The Company has reserved 36,000 shares of its no par common stock for
         key employees of the Company under its 1993 Amended Restated Stock
         Incentive Plan (the Incentive Plan). Under the terms of the Incentive
         Plan, no stock options are exercisable more than ten years after the
         date of grant (five years after date of grant for 10% shareholders). As
         of June 30, 1998, all 36,000 options had been granted under the
         Incentive Plan.

         The Company has reserved 75,000 shares of its no par common stock for
         employees, officers, directors, consultants and advisors of the Company
         under its 1993 Nonqualified Stock Option Plan (the Nonqualified Plan).
         Under the terms of the Nonqualified Plan, no

                                      F-10



         stock options are exercisable more than ten years after the date of
         grant (five years after date of grant for 10% shareholders).

         During fiscal 1998, the Company merged the Incentive Plan and the
         Nonqualified Plan into the Stock Option Plan (the Plan). The Company
         has reserved 1,200,000 shares of its no par common stock for employees,
         officers, directors, consultants and advisors of the Company under the
         Plan. Under the terms of the Plan, no stock options are exercisable
         more than ten years after the date of grant (five years after date of
         grant for 10% shareholders).

         During fiscal 2001, 2000 and 1999, the Board of Directors granted
         options to purchase shares of common stock to key employees and
         directors pursuant to the Plan. The exercise prices of the options
         range from $.50 to $3.00 per share. The options granted are exercisable
         upon issuance.

         On December 1, 1998, the Board of Directors reduced the number of
         options outstanding and repriced certain options. The exercise prices
         of the repriced options range from $1.875 to $2.00 per share. The
         options are immediately exercisable.

         The Company applies APB Opinion 25 and related interpretations in
         accounting for its plan. Accordingly, no compensation cost has been
         recognized for stock options granted at or above market value at the
         date of the grant to key employees and directors. Compensation expense
         of $3,338 and $2,319 has been recorded during fiscal 2001 and 2000,
         respectively, for options granted below the market value, based on the
         difference between the option price and the quoted market price at the
         date of grant. Had compensation cost for the Company's two stock-based
         compensation plans been determined based on the fair value at the grant
         dates for awards under those plans consistent with the method
         prescribed in FASB Statement 123, the Company's net earnings (loss) and
         earnings (loss) per share would have been increased to the pro forma
         amounts indicated below:


                                                   Years Ended June 30,
                                         ------------------------------------------
                                            2001           2000           1999
                                         ------------   ------------   ------------
                                                              
            Net earnings (loss):
               As reported               $(104,371)       943,977      (1,441,424)
               Pro forma                  (346,240)       305,625      (1,605,422)

            Earnings (loss) per share:
               As reported                 (0.01)          0.14          (0.32)
               Pro forma                   (0.05)          0.05          (0.36)


         The fair value of each option grant is estimated on the date of grant
         using the Black-Scholes option-pricing model with the following
         assumptions used for grants in fiscal 2001, 2000 and 1999,
         respectively: no dividend yield for all years; expected volatility of
         146%, 129% and 137%; weighted average risk-free interest rates of 5.36%
         in fiscal 2001, 5.86% in fiscal 2000 and 5.06% in fiscal 1999; and
         expected lives of seven years for all years.

                                      F-11



         A summary of the status of the Company's fixed stock options plan as of
         June 30, 2001, 2000 and 1999, and changes during the years then ended
         is presented below:



                                       2001                             2000                             1999
                           ---------------------------     ----------------------------     ----------------------------
                                             Weighted                        Weighted                         Weighted
                                             Average                         Average                           Average
                                            Exercise                        Exercise                          Exercise
    Fixed Options             Shares          Price           Shares          Price           Shares            Price
----------------------     -----------     -----------     -----------     ------------     ------------     -----------
                                                                                           
Outstanding at
   beginning of
   year                     1,133,964      $  1.60            691,758      $   1.69             625,616      $  2.55
Granted                       135,000         1.85            472,206          1.43             510,642         1.64
Exercised                          --            --           (20,000)         .75                   --            --
Cancelled                          --            --                --          --              (439,000)        2.94
Expired                      (120,000)        2.14            (10,000)         1.03              (5,500)        2.20
                           -----------     -----------     -----------     ------------     ------------     -----------

Outstanding at end
   of year                  1,148,964      $  1.58          1,133,964      $   1.60             691,758      $  1.69
                           ===========                     ===========                      ============

Options exercisable
   at year end              1,123,964                       1,133,964                           691,758
Weighted average
   fair value of
   options granted
   during the year         $   1.79                        $   1.35                         $   0.87


         The following table summarizes information about fixed stock options
         outstanding at June 30, 2001 (of which 1,123,964 are exercisable):


                                                 Weighted
                                                  average
                                                 remaining              Weighted
  Range of exercise          Number             contractual              average
        price              outstanding        life (in years)        exercise price
--------------------      -------------      -----------------      ----------------
                                                        
$   0.50 - 1.10              165,000                7.8             $     0.89
    1.25 - 1.38              483,706                7.7                   1.37
    1.88 - 2.08              470,258                4.4                   1.97
    2.25 - 3.00               30,000                3.5                   2.76
                          -------------

$   0.50 - 3.00            1,148,964                6.3             $     1.58
                          =============


(5)  INCOME TAXES

     At June 30, 2001 and 2000, the Company's significant deferred tax assets
     and liabilities are as follows:


                                                       2001          2000
                                                    -----------   -----------
                                                             
      Deferred tax assets:
        Net operating loss carryforwards         $   3,383,000     3,055,000
        Depletion carryforwards                        225,000       188,000
        Oil and gas properties, principally
          due to differences in depreciation,
          depletion and impairment                      30,000        10,000
                                                    -----------   -----------
                                                     3,638,000     3,253,000

                                      F-12



                                                       2001          2000
                                                    -----------   -----------
      Deferred liabilities:
        Oil and gas properties, principally
          due to differences in depreciation,
          depletion and impairment                   (564,000)     (493,000)
        Investment in related parties                       --      (584,000)
                                                    -----------   -----------
                                                      (564,000)   (1,077,000)
                                                    -----------   -----------
      Valuation allowance                           (3,074,000)   (2,176,000)
                                                    -----------   -----------
            Net deferred tax assets              $          --            --
                                                    ===========   ===========


     The valuation allowance for deferred tax assets as of June 30, 2001 was
     $3,074,000. The net change in the valuation allowance for the year ended
     June 30, 2001 was an increase of $898,000.

     At June 30, 2001, the Company had net operating loss carryforwards of
     approximately $9,171,000. The utilization of approximately $496,000 of
     these loss carryforwards is limited to an estimated $80,000 per year as a
     result of a change of ownership which occurred June 30, 1994. Of the
     balance of the net operating loss carryforwards, $1,497,000 is limited to
     the extent of future taxable income generated by Victoria, and $7,178,000
     is available to offset future taxable income of the Company. If not
     utilized, the tax net operating losses will expire during the period from
     2002 through 2021.

     Income tax expense is different from amounts computed by applying the
     statutory federal income tax rate due primarily to the change in valuation
     allowance for net deferred tax assets and the expiration of tax
     carryforwards.

(6)  LEASE COMMITMENTS

     The Company has noncancelable operating leases, primarily for rent of
     office facilities that expire over the next five years. Rental expense for
     operating leases was $73,903, $63,683 and $60,336 for the years ended June
     30, 2001, 2000 and 1999, respectively.

     Future minimum rental commitments under noncancelable operating leases as
     of June 30, 2001 are as follows:

                     Fiscal year:
                       2002                      $    67,655
                       2003                           46,736
                       2004                            1,929
                                                    -----------
                                                 $   116,320
                                                    ===========

(7)  CONTINGENCIES

     In the ordinary course of conducting its business, the Company becomes
     involved in litigation, administrative proceedings and governmental
     investigations, including environmental matters.

     In May 2000, the Company received a notice letter from the U.S.
     Environmental Protection Agency (EPA) stating that the Company is a
     potentially responsible party under the federal Comprehensive Environmental
     Response, Compensation and Liability Act of 1980 (CERCLA) at the Casmalia
     Waste Disposal Site in Santa Barbara County, California. If the Company is
     ultimately determined to be a responsible party, it may be obligated to
     conduct remedial

                                      F-13



     investigations, feasibility studies, remediation and/or removal of alleged
     releases of hazardous substances or to reimburse the EPA for such
     activities.

     The Company does not believe that it has any liability under CERCLA for
     wastes disposed at Casmalia and believes that the EPA's notice was issued
     in error. The Company has responded to the EPA, explaining that the Company
     did not arrange to dispose of any waste at Casmalia. The Company's
     involvement with Casmalia is limited to the purchase of assets from another
     entity, which disposed of waste at Casmalia. The Company intends to defend
     allegations of its responsibility, if any, and will also reply upon an
     indemnification given by the previous owner of the properties at Casmalia,
     which previous owner has confirmed that the indemnification would apply to
     any such allegations.

     The Company is unable to estimate the dollar amount of exposure to loss in
     connection with the above-referenced matter; however, it has been estimated
     that the ultimate site-wide clean up costs will be approximately $271.9
     million.

     It is the opinion of Company's management that the outcome of these
     proceedings, individually or in the aggregate, will not have a material
     adverse effect on the Company's financial position, results of operations
     or cash flows.

(8)  DISCLOSURES ABOUT CAPITALIZED COSTS, COSTS INCURRED AND MAJOR CUSTOMERS

     Capitalized costs related to oil and gas-producing activities are as
     follows:


                                                        June 30,
                                                -------------------------
                                                   2001          2000
                                                -----------   -----------
                                                        
      Unproved - Domestic                     $    217,941       353,027
      Proved                                    12,398,775    10,933,518
                                                -----------   -----------

                                                12,616,716    11,286,545

      Accumulated depletion and impairment      (3,039,413)   (2,747,285)
                                                -----------   -----------

                                              $  9,577,303     8,539,260
                                                ===========   ===========


     Costs incurred in oil and gas producing activities for the years ended
     June 30, 2001, 2000 and 1999 were approximately as follows:


                                                   2001           2000          1999
                                              -----------    -----------   -----------
                                                                  
      Unproved property acquisition costs     $   13,557        208,827       127,557
      Proved property acquisition costs           38,594            500         2,752
      Development costs                          523,668        100,300        71,819
      Exploration costs                          654,035      5,631,600     1,345,487


     During fiscal 2001, the Company had two major customers. Sales to these
     customers accounted for approximately 26% and 15% of fiscal 2001 oil and
     gas sales. During fiscal 2000, the Company had two major customers. Sales
     to these customers accounted for approximately 13% each of fiscal 2000 oil
     and gas sales. During fiscal 1999, the Company had three major customers.
     Sales to these customers accounted for approximately 25%, 12% and 10% of
     fiscal 1999 oil and gas sales.

     During fiscal 2001, the Company spent approximately $514,000 converting
     proved undeveloped reserves at Amber field (2 wells) and Wagensen
     Waterflood field (4 wells) into proved producing

                                      F-14



     reserves. During fiscal 2000, the Company spent approximately $100,000
     converting proved undeveloped reserves at Poitevent Federal into proved
     producing reserves. During fiscal 1999, the Company did not spend any money
     converting proved undeveloped reserves into proved producing reserves.

(9)  INFORMATION REGARDING PROVED OIL AND GAS RESERVES (UNAUDITED)

     The information presented below regarding the Company's oil and gas
     reserves were prepared by independent petroleum engineering consultants.
     All reserves are located within the continental United States.

     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 operating conditions.

     Proved developed oil and gas reserves are those expected to be recovered
     through existing wells with existing equipment and operating methods. The
     determination of oil and gas reserves is highly complex and interpretive.
     The estimates are subject to continuing changes as additional information
     becomes available.

     Estimated net quantities of proved developed and undeveloped reserves of
     oil and gas for the years ended June 30, 2001, 2000 and 1999 are as
     follows:


                                          2001                          2000                         1999
                                --------------------------   ---------------------------   ------------------------
                                   Oil           Gas             Oil          Gas            Oil          Gas
                                  (BBLS)        (MCF)          (BBLS)        (MCF)          (BBLS)       (MCF)
                                ----------   -------------   -----------   -------------   ----------   -----------
                                                                                       
     Beginning of year           388,000       24,517,000      288,000       6,334,000      222,000      3,483,000
     Revisions of previous
       quantity estimates        (13,000)     (12,739,000)     136,000         684,000       89,000        482,000
     Extensions, discoveries
       and improved recovery          --        1,956,000           --      18,053,000        2,000      2,677,000
     Sales of reserves in place       --               --      (16,000)       (336,000)      (1,000)            --
     Production                  (19,000)        (350,000)     (20,000)       (218,000)     (24,000)      (308,000)
                                ----------   -------------   -----------   -------------   ----------   -----------
     End of year                 356,000       13,384,000      388,000      24,517,000      288,000      6,334,000
                                ==========   =============   ===========   =============   ==========   ===========
     Proved developed
       reserves-end of year      283,000        6,189,000      315,000       8,630,000      213,000      3,469,000
                                ==========   =============   ===========   =============   ==========   ===========


     STANDARDIZED MEASURE OF DISCOUNTED FUTURE
     NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES

     Future net cash flows presented below are computed using year-end prices
     and costs. Future corporate overhead expenses and interest expense have not
     been included.


                                                             2001               2000               1999
                                                       ---------------    ---------------    ---------------
                                                                                       
     Future cash inflows                              $   46,149,000        107,497,000         16,549,000
     Future costs:
       Production                                        (13,843,000)       (26,027,000)        (6,597,000)
       Development                                        (4,659,000)       (10,487,000)        (1,090,000)
                                                       ---------------    ---------------    ---------------
     Future net cash flows                                27,647,000         70,983,000          8,862,000
     10% discount factor                                 (13,822,000)       (34,980,000)        (4,583,000)
                                                       ---------------    ---------------    ---------------

                                      F-15



                                                             2001               2000               1999
                                                       ---------------    ---------------    ---------------

             Standardized measure of discounted
                future net cash flows                 $   13,825,000         36,003,000          4,279,000
                                                       ===============    ===============    ===============


     To achieve the 2001 future cash inflows reported, the capital expenditure
     of approximately $0.04mm in fiscal 2002, $2.4mm in fiscal 2003 and $0.99mm
     in fiscal 2004 will be required to develop existing proved undeveloped
     reserves. The capital expenditure of approximately $0.96mm in fiscal 2003
     and $0.25mm in fiscal 2004 will be required to develop existing proved
     developed non-producing reserves.

     The principal sources of changes in the standardized measure of discounted
     future net cash flows during the years ended June 30, 2001, 2000 and 1999,
     are as follows:



                                                                2001              2000               1999
                                                           ---------------    --------------     --------------
                                                                                           
     Beginning of year                                    $   36,003,000         4,279,000          2,877,000
     Sales of oil and gas produced during the period,
       net of production costs                                (1,275,000)         (612,000)          (219,000)
     Net change in prices and production costs               (16,108,000)        5,988,000            216,000
     Changes in estimated future development costs             3,319,000          (248,000)           (80,000)
     Extensions, discoveries and improved recovery             1,852,000        22,850,000          1,656,000
     Revisions of previous quantity estimates and other      (13,566,000)        3,510,000           (414,000)
     Sales of reserves in place                                       --          (192,000)                --
     Purchase of reserves in place                                    --                --            (45,000)
     Accretion of discount                                     3,600,000           428,000            288,000
                                                           ---------------    --------------     --------------
     End of year                                          $   13,825,000        36,003,000          4,279,000
                                                           ===============    ==============     ==============


     The standardized measure of discounted future net cash flows relating to
     proved oil and gas reserves and the changes in standardized measure of
     discounted future net cash flows relating to proved oil and gas reserves
     were prepared in accordance with the provisions of Statement of Financial
     Accounting Standards No. 69. Future cash inflows were computed by applying
     current prices at year-end to estimated future production. Future
     production and development costs are computed by estimating the
     expenditures to be incurred in developing and producing the proved oil and
     gas reserves at year-end, based on year-end costs and assuming continuation
     of existing economic conditions. Future income tax expenses are calculated
     by applying appropriate year-end tax rates to future pretax net cash flows
     relating to proved oil and gas reserves, less the tax basis of properties
     involved and tax credits and loss carryforwards relating to oil and gas
     producing activities. Future net cash flows are discounted at a rate of 10%
     annually to derive the standardized measure of discounted future net cash
     flows. This calculation procedure does not necessarily result in an
     estimate of the fair market value or the present value of the Company's oil
     and gas properties.

     The complete definition of proved oil and gas reserves appears at
     Regulation S-X 4-10(a)(2), 17 CFR 210.4-10(a)(2). The complete definition
     of proved developed oil and gas reserves appears at Regulation S-X
     4-10(a)(3), 17 CFR 210.4-10(a)(3). The complete definition of proved
     undeveloped reserves appears at Regulation S-X 4-10(a)(4), 17 CFR
     210.4-10(a)(4). These regulations are available on the SEC's website,
     WWW.SEC.GOV/DIVISIONS/CORPFIN/FORMS/REGSX.HTM#GAS.

                                      F-16