10SB12G/A

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                         FORM 10-SB - AMENDMENT NO. 2

                Registration Statement of Small Business Issuer
       pursuant to Section 12(g) of the Securities Exchange Act of 1934

                                TENGASCO, INC.
                Name of Registrant as specified in its charter

         TENNESSEE                                           87-0267438
         ---------                                           ----------
  State of Incorporation                              I.R.S. Employer I.D. No.

       603 Main Avenue, Suite 500
          Knoxville, Tennessee                                    37902
       -------------------------                                 -------
  Address of principal executive offices                         Zip Code

  Issuer's Telephone Number                               (423) 523 - 1124

  Issuer's Facsimile Number                               (423) 523 - 9894

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

                                     None
                                     ----

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

                     $0.001 par value Common Voting Stock
                     ------------------------------------

                  The Company is an electronic filer. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission.
The address of such site is (http:WWW.SEC.GOV)


                        TABLE OF CONTENTS

PART I .........................................................   4

Item 1. Description of Business.................................   4

        Glossary of Terms ......................................   4
        Business Development ...................................   4
        General ................................................   9
        Special Risk Factors ...................................  12
        Limited History ........................................  12
        Going Concern ..........................................  12
        Limited Market for Common Stock ........................  13
        General Economic Risks/Potential .......................  13
        Future Acquisitions ....................................  13
        Future Capital Requirements; Uncertainty of Future
        Funding ................................................  13
        Replacement of Reserves................................   14
        Uncertainty of Reserve Estimates .......................  14
        Operating Hazards   ....................................  15
        Future Sales of Common Stock ...........................  15
        Control by Current Security Holders ....................  16
        Warrants ...............................................  17
        Competition   ..........................................  17
        Dependence on Technical Personnel ......................  17
        Governmental Regulations ...............................  17
        Market for the Shares ..................................  17
        Dividends Unlikely .....................................  18
        Principal Products or Services and Markets .............  18
        Reserve Analyses .......................................  18
        Distribution Methods of Products or Services ...........  19
        Status of Any Publicly Announced New Product or Service.  20
        Competitive Business Conditions, Competitive Position
        in the Industry and Methods of Competition .............  20
        Sources and Availability of Raw Materials and Names of
        Principal Suppliers ....................................  21
        Dependence on One or a Few Major Customers .............  21
        Patents, Trademarks, Licenses, Franchises,
        Concessions, Royalty Agreements, Labor Contracts .......  21
        Need for Governmental Approval of Principal
        Products or Services ...................................  21
        Effect of Existing or Probable Governmental
        Regulations on Business ................................. 22
        Research and Development ................................ 23

                                       1


        Cost and Effects of Compliance with Environmental Laws .  23

        Number of Total Employees and
        Number of Full-Time Employees ..........................  23

Item 2. Management's Discussion and Analysis or Plan of
        Operation ..............................................  24

        Other Significant Plans  ...............................  26
        Results of Operations ..................................  26
        Liquidity ..............................................  27

Item 3. Description of Property ................................  28

        Property Location, Facilities, Size and Nature
        of Ownership ...........................................  28

        Disclosure of Oil and Gas Operations ...................  29

Item 4. Security Ownership of Certain Beneficial Owners and
        Management .............................................  30

        Security Ownership of Certain Beneficial Owners ........  30
        Five Percent Stockholders ..............................  32
        Directors and Executive Officers .......................  32
        Changes in Control .....................................  33

Item 5. Directors, Executive Officers. Promoters and Control
        Persons ................................................  34

        Identification of Directors and Officers ...............  34
        Business Experience ....................................  35
        Committees .............................................  36
        Family Relationships ...................................  36
        Certain Legal Proceedings ..............................  36
        Involvement in Certain Legal Proceedings ...............  36

Item 6. Executive Compensation .................................  38

        Compensation ...........................................  38
        Bonuses and Deferred Compensation ......................  42
        Compensation Pursuant to Plans .........................  42
        Pension Table ..........................................  42
        Other Compensation .....................................  43
        Options Granted ........................................  44
        Compensation of Directors ..............................  45
        Employment Contracts ...................................  45
        Termination of Employment and Change of Control
        Arrangement ............................................  45

Item 7. Certain Relationships and Related Transactions ........   45

        Transactions with Management and Others ................  45
        Certain Business Relationships .........................  47


                                       2


        Indebtedness of Management .............................  48
        Parents of the Issuer ..................................  48
        Transactions with Promoters ............................  48

Item 8. Description of Securities ............................... 49

        Authorized Capital Stock ................................ 49
        Common Stock ............................................ 49

PART II ......................................................... 50

Item 1. Market Price of and Dividends on the Common Stock and
        Other Stockholder Matters ............................... 50

        Market Information ...................................... 50
        Holders ................................................. 51
        Dividends ............................................... 51

Item 2. Legal Proceedings ....................................... 52

Item 3. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure ................................ 53

        Change from David T. Thomson, CPA to
        Charles M. Stivers, CPA ................................. 53
        Change from Charles M. Stivers, CPA,
        to Price-Bednar, LLP, CPA ............................... 55
        Change from Price-Bednar, LLP, CPA
        to Charles M. Stivers, CPA .............................. 56
        Change from Charles M. Stivers, CPA
        to BDO Seidman, LLP ..................................... 58

Item 4. Recent Sales of Unregistered Securities ................. 59

Item 5. Indemnification of Directors and Officers ............... 64

PART F/S ........................................................ 66

PART III ........................................................ 67

Item 1. Index to Exhibits ....................................... 67

SIGNATURES .....................................................  68

                                       3



PART I

Item 1. Description of Business.

Glossary of Terms

                  Confirmed Structure: A structure that is defined due to
actual geological testing and information.

                  Farmout Agreement: A form of agreement between oil and gas
operators whereby the owner of a lease who is not interested in drilling at
the time, agrees to assign the lease or a portion of it to another operator
who wishes to drill the acreage. The assignor may or may not retain an
interest (royalty or production payment) in the production.

                  Hydrocarbons: Organic chemical compounds of hydrogen and
carbon atoms. There are a vast number of these compounds, and they
form the basis of all petroleum products. They may exist as gases,
liquids or solids. An example of each is methane, hexane and asphalt.

                  Verified Structure: A structure that is verified by actual
geological testing and/or penetration.

                  Wildcat: A term applied to a mining company organized, or to
a mine or well dug, in an attempt to develop unproven ground far from previous
production. Any risky venture in the mining or petroleum industry.

                  Shut-in Well: A well that is not in production because of
a lack of a market or a pipeline connection.

                  Shut-in Royalty: Payment to royalty owners under the terms
of a mineral lease that allows the operator or lessee to defer
production from a shut-in well.

Business Development.

                  The Company is in the business of exploring for and
producing oil and gas and marketing gas in Tennessee produced by others. The
Company's activities in the oil and gas business did not commence until May 2,
1995. At present it has no producing properties. However, it has drilled 5
wells in the Swan Creek field all of which have commercial quantities of gas.
Two additional wells are currently being drilled in that field and are
expected to be completed by December 15, 1997.

                  The Company was initially organized under the laws of the
State of Utah on April 18, 1916, under the name "Gold Deposit Mining & Milling
Company." The Company was formed for the purpose of mining, reducing and
smelting mineral ores. Copies of the initial Articles


                                       4





of Incorporation and the current Bylaws of the Company are attached
hereto and incorporated herein by reference. See the Exhibit Index.

                  The Company's Articles of Incorporation were amended on
April 12, 1966, by unanimous vote of the shareholders, to provide that the
Company shall have a perpetual existence. A copy of the Articles of Amendment
effecting this change is attached hereto and incorporated herein by reference.
See the Exhibit Index.

                  On November 10, 1972, the Company conveyed to an
unaffiliated entity substantially all of the Company's assets at that time,
and the Company ceased all business operations.

                  On July 12, 1984, the Company's Articles of Incorporation
were again amended to: (i) authorize it to engage in any business or
enterprise deemed to be beneficial to the Company; (ii) increase the
authorized capital of the Company from 1,000,000 shares to 50,000,000 shares
of common stock (which allowed the Company to issue the "unregistered" and
"restricted" shares referred to in the preceding paragraph); (iii) reduce the
par value of its common stock from $0.10 to $0.001; (iv) provide that
fully-paid stock shall not be liable for any further call or assessment; and
(v) provide that stockholders shall not have preemptive rights to acquire
unissued shares. There were 980,778 outstanding voting securities of the
Company on the date of the adoption of this amendment by the stockholders of
the Company, and 696,146 shares were voted in favor of these amendments with
none opposing and none abstaining. A copy of the Articles of Amendment
effecting these changes is attached hereto and incorporated herein by
reference. See the Exhibit Index.

                  From approximately 1983 to 1991, the operations of the
Company were limited to seeking out the acquisition of assets, property or
businesses.

                  In contemplation of completing a "reverse" reorganization
with Onasco Biotechnologies, Inc. (" Onasco Texas"), the stockholders of the
Company adopted, ratified and approved the following amendments to the
Company's Articles of Incorporation: (i) a forward split of the then
outstanding 2,480,778 shares of common stock of the Company on a basis of
2.015496 for one, resulting in 5,000,000 post-split shares being outstanding,
and retaining the par value at $0.001 per share, with the appropriate
adjustments being made in the additional paid-in capital and stated capital
accounts of the Company; and (ii) a change of the Company's name to "Onasco
Companies, Inc." These amendments were subject to the completion of the
contemplated reorganization.

                  The Company entered into an Agreement and Plan of
Reorganization with Onasco Texas and all of its stockholders on December 17,
1991 (the "Onasco Plan"). Pursuant to the Onasco Plan, the Company acquired
all of the issued and outstanding shares of common stock of Onasco Texas in
consideration of the Company's



                                       5




issuance of an aggregate total of 15,000,000 post-split "unregistered" and
"restricted" shares of its $0.001 par value common stock to the stockholders
of Onasco Texas, pro rata, in accordance with their respective interests in
Onasco Texas.

                  The Onasco Plan was effective as of December 18, 1991, the
date on which the aforesaid Articles of Amendment respecting the
reorganization with Onasco Texas were filed with the Department of Commerce of
the State of Utah. There were 2,480,778 outstanding voting securities of the
Company on the date of the adoption of this amendment by the stockholders of
the Company, and 1,339,146 shares were voted in favor of these amendments with
none opposing and none abstaining. A copy of the Articles of Amendment
effecting these changes is attached hereto and incorporated herein by
reference. See the Exhibit Index.

                  Onasco Texas, which became a wholly owned subsidiary of the
Company following the completion of the Onasco Plan, was organized under the
laws of the State of Texas on October 17, 1991. The Company carried on the
business operations previously conducted by Onasco Texas, which consisted of
the development of diagnostic kits to screen for the presence of Type D
retrovirus in humans and monkeys and a putative, synthetic vaccine against
such viruses. These operations, which primarily involved research and
development activities, proved unsuccessful and were discontinued in June,
1994, and Onasco Texas was dissolved by resolution of the Board of Directors
on or about April 10, 1995. The dissolution did not involve any bankruptcy or
similar proceeding.

                  In accordance with the Utah Revised Business Corporation
Law, which became effective in 1991, on September 11, 1992, the Company's
Articles of Incorporation were further amended (i) to authorize the
stockholders of the Company to take any action without a meeting, that could
have been taken at a meeting of the stockholders, if consents are signed by
stockholders holding at least the number of shares that would be necessary to
take the action at a meeting (this action was not possible under prior law);
and (ii) to provide for the reclassification of each outstanding share of its
common stock to become one-twentieth of one share of new common stock
(designated "Reconstituted Common Stock"), effective September 15, 1992, with
no fractional shares being created and no stockholder to hold less than one
share, and with no change in the par value or the authorized capital. The net
effect of this reclassification was a one share for twenty reverse split of
the outstanding shares of common stock. There were 20,259,987 outstanding
voting securities of the Company on the date of the adoption of this amendment
by the stockholders of the Company, and 14,800,000 shares were voted in favor
of these amendments with none opposing and none abstaining; the outstanding
voting securities of the Company were reduced to 1,012,999 shares as a result
of the reverse split. A copy of the Articles of Amendment effecting these
changes is attached hereto and incorporated herein by reference. See the
Exhibit Index.



                                       6




                  In connection with a change in control of the Company in the
summer of 1994, Duane S. Jenson and his son, Jeffrey D. Jenson, purchased
697,500 shares of the Company's common stock, constituting approximately 67%
of the then outstanding voting securities of the Company, from Dr. Robert C.
Bohannon, Ph.D. and his family, in consideration of the sum of $10,000. Dr.
Bohannon was formerly the principal stockholder of Onasco Texas, and had
served as the President, CEO, Vice President and a director of the Company
since the completion of the Onasco Plan. Dr. Bohannon resigned these positions
with the Company, effective June 13, 1994, compromised a debt of the Company
to him for past services rendered to the Company prior to the change in
control, and designated Jeffrey D. Jenson to serve as President, CEO,
Secretary/Treasurer and a director of the Company. At the time of the change
of control, Dr. Bohannon was the sole director and executive officer of the
Company. The remaining 33% of the Company's stock was held by original public
shareholders. Subsequent to the change in control, Dr. Bohannon did not
perform any services for the Company. Prior to the change in control, no
director of the Company received compensation in excess of $100,000 per annum.

                  At a special meeting of stockholders held on April 28, 1995,
the Company's stockholders voted

                  (i) to approve the execution of an agreement (" the Purchase
Agreement") pursuant to which the Company would acquire certain oil and gas
leases, equipment, securities and vehicles owned by Industrial Resources
Corporation ("IRC"), a Kentucky corporation, in consideration of the issuance
of 4,000,000 post-split (as described below) "unregistered" and "restricted"
shares of the Company's common stock;

                  (ii) to amend the Articles of Incorporation of the Company
to effect a reverse split of the Company's outstanding $0.001 par value common
stock on a basis of one share for two, retaining the par value at $0.001 per
share, with appropriate adjustments being made in the additional paid in
capital and stated capital accounts of the Company;

                  (iii) to change the name of the Company to "Tengasco, Inc.";
and

                  (iv) to change the domicile of the Company from the State of
Utah to the State of Tennessee by merging the Company into Tengasco, Inc., a
Tennessee corporation, formed by the Company solely for this purpose.

                  The Purchase Agreement was duly executed by the Company and
IRC, effective May 2, 1995. The reverse split, name change and change of
domicile became effective on May 4, 1995, the date on which duly executed
Articles of Merger effecting these changes were filed with the Secretary of
State of the State of Tennessee; a certified copy of the Articles of Merger
from the State of Tennessee was filed with the



                                       7




Department of Commerce of the State of Utah on May 5, 1995. Unless otherwise
noted, all subsequent computations in this Registration Statement
retroactively reflect this one for two reverse split and all other reverse
splits outlined above under this caption. There were 1,037,650 outstanding
voting securities of the Company on the date of the adoption of the amendments
by the stockholders of the Company, and 801,383 shares were voted in favor of
the amendments with none opposing and none abstaining. Copies of the Articles
of Merger and Plan of Merger to effect the change of domicile, change the name
of the Company to "Tengasco, Inc." and to effect the one for two reverse
split; the Purchase Agreement with IRC; and the Tennessee Articles of
Incorporation of the wholly-owned subsidiary formed for the purpose of
changing the Company's domicile are attached hereto and incorporated herein by
reference. See the Exhibit Index.

                  At the annual meeting of stockholders held January 30, 1996,
the following persons were elected as directors of the Company, to serve until
the next annual meeting of the stockholders of the Company or until their
successors are elected and qualified, or their prior resignations or
terminations: Walter C. Arzonetti; Benton L. Becker; Charles N. Manhoff,
William A. Moffett, and Lyle G. Stockstill. At the annual meeting, 4,047,550
shares of the 5,239,300 outstanding voting securities were voted in favor of
the election, with none opposing and none abstaining.

                  At the annual meeting of the directors held January 30,
1996, immediately following the annual meeting of the stockholders, the
following persons were elected as executive officers of the Company, to serve
until the next annual meeting of the Board of Directors of the Company or
until their successors are elected and qualified, or their prior resignations
or terminations: Ted P. Scallan, President and CEO; Kelley S. Grabill,
Secretary; and Jeffrey D. DeMunnik, Treasurer. At its annual meeting, the
Board of Directors also adopted resolutions pursuant to which options to
purchase "unregistered" and "restricted" shares of common stock of the Company
were granted to Messrs. Jeffrey D. DeMunnik, Kelley S. Grabill, Ted P. Scallan
and Lyle G. Stockstill, directors or executive officers of the Company, and to
certain other persons, who were consultants or employees. See the "Restricted
Stock Options Table" under the caption "Executive Compensation," Part I, Item
6, below.

                  Mr. Stocksill resigned on November 26, 1996. Mr. Manhoff
resigned on February 7,1997. Mr. Valliant resigned on January 27,
1997. Mr. Becker resigned on January 30, 1997. Mr. Arzonetti resigned
on February 7, 1997. Mr. Fetter and Mr. Wright resigned on March 13,
1997. On March 13, 1997, Joseph Armstrong, James B. Kreamer, Shigemi Morita 
and Allen Sweeney were elected by the Board of Directors to serve as directors 
to replace resigned directors until the next annual meeting of shareholders.

                  Theodore P. Scallan resigned as President and CEO on

November 26, 1996 and was replaced by James E. Kaiser who served until


                                       8




January 24, 1997 and was then replaced as President by Daniel G.
Follmer and as CEO by Malcolm E. Ratliff. Mr. Follmer also served as

Chief Financial Officer since March 13, 1997.

                  Mr. Follmer died on September 13, 1997 and has not yet been
replaced either as President or CFO. Mr. Ratliff is presently acting

as interim President.

                  Jeffrey DeMunnik resigned as Secretary on December 4, 1996
and as Treasurer on January 17, 1997. He was replaced as Secretary by
Elizabeth Wendelken and as Treasurer by Sheila F. Sloan.

                  Robert C. Carter was elected a Vice-President on December 4,
1996 and served until March 13, 1997 when he was elected Executive
Vice-President.

General.

                  In connection with the Purchase Agreement, the Company
acquired from IRC the following properties:

                           (i)  a 100% working interest in 41 oil and gas leases
on a total of 8,058 acres, more or less, and a 25% working interest on one
lease of 462 acres, more or less, located in Clay County, Kentucky
(collectively, the "Beech Creek Leases"). Each of these leases provides for a
landowner royalty of 12.5% of the oil produced and saved from the leased
premises or, at the lessee's option, to pay the market price for such 12.5%
royalty. The leases also provide for a landowner royalty equal to 12.5% of the
market price at the well of the gas sold or used off the premises, except for
injection for secondary recovery of oil. The lessors are also entitled to free
gas for all stoves and inside lights in the principal dwelling house on the
leased properties by making connection to the well or wells at their own
expense and risk. The Beech Creek Leases are also subject to overriding
royalties ranging from 1.25% to 5%. A true and correct copy of the Beech Creek
Lease Schedule is attached hereto and incorporated herein by reference. See
the Exhibit Index.

                           (ii)  a 100% working interest in 5 oil and gas leases
on a total of 741 acres, more or less, located in Clay County, Kentucky
(collectively, the "Wildcat Leases"). Each of these leases is subject to a
12.5% landowner royalty, on the same terms as the Beech Creek Leases, and a
3.125% overriding royalty. A true and correct copy of the Wildcat Lease
Schedule is attached hereto and incorporated herein by reference. See the
Exhibit Index.


                           (iii)  a 100% working interest in six oil and gas
leases on a total of 744 acres, more or less, located in Clay County, Kentucky
(collectively, the "Burning Springs Leases"). Each of these leases is subject
to a 12.5% landowner royalty, on the same terms as the Beech Creek Leases and
the Wildcat Leases, and overriding royalties ranging from 3.125% to 7.5%. A
true and correct copy of the


                                       9




Burning Springs Lease Schedule is attached hereto and incorporated
herein by reference.  See the Exhibit Index.

                           (iv)  a 100% working interest in nine oil and gas

leases on a total of 2,121 acres, more or less, located in Fentress County,
Tennessee (collectively, the "Fentress County Leases"). Each of these leases
is subject to a 12.5% landowner royalty, on the same terms as the above
referenced leases, and a 19% overriding royalty; and a 25% overriding royalty
on one existing well. Section 60-1-301 of the Tennessee Code provides for a
severance tax of 3% on all gas and oil removed from the ground in Tennessee. A
true and correct copy of the Fentress County Lease Schedule is attached hereto
and incorporated herein by reference. See the Exhibit Index.

                  The initial term of each of the above referenced leases
ranges from one year to four years, with each lease to remain in effect
thereafter for as long as (i) oil, gas, casing-head gas or casing-head
gasoline is being produced on the leased premises, (ii) the Company has
drilled a producing well and shut-in royalty is paid for the right to inject,
store and remove gas, or (iii) the Company commences drilling another well or
paying rentals within one year of drilling a dry hole on the leased premises.

                  For those leases that are subject to a rental requirement,
the obligation to pay rent arises only when no well is in production on the
leased premises. Rent may be paid annually or quarterly, and once it has been
paid, the Company has the right to defer the commencement of a well for the
period for which the rent was paid. Rent amounts vary from $1 to $5 per acre
per year, with certain leases providing for a flat rental payment of $1500.

                  The Beech Creek Leases contain four wells. These four wells
have been tested and management believes they are capable of producing gas in
paying quantities. Flow lines have been laid to connect these wells to the gas
transmission system of Wiser Oil Co., however, the wells are not presently in
production.

                  The Wildcat Leases have no wells at this time. The Company
intends to evaluate the potential of this lease block in 1997 and to schedule
promising locations for future drilling. Wiser Oil Company and Somerset Gas,
two of the oil purchasers in the area, have lines running on or adjacent to
the lease block.


                  The Burning Springs Leases contain a total of 11 gas wells,
all of which are shut-in. Several of the wells were in production in 1996 and
were hooked up to a nearby Southern Gas Company transport line. At present,
the wells are not producing since the compressors and related equipment have
been moved to the Swan Creek leases where, it is anticipated, the wells will
be more profitable. The Company intends to evaluate the wells that are listed
as shut-in for possible workover or deepening potential; after the evaluation,
they will be either reworked or plugged.


                                      10




                  The Fentress County Leases currently have one well, which is
shut-in. The well will require additional work to initiate production.

                  Following the completion of the Purchase Agreement, the
Company acquired a 100% working interest in 210 oil and gas leases on a total
of 30,367 acres more or less, located in Hancock, Claiborne County, Tennessee
(collectively, the "Swan Creek Leases"). Each of these leases provides for a
landowner royalty of 12.5%, leaving the Company a net royalty interest of
87.5% in each lease.

                  The term of these leases is similar to the terms set forth
above with respect to the leases acquired from IRC.

                  There are five existing wells on the Swan Creek Leases. All
of these wells have been completed and will be available for production as
soon as the pipeline is completed. The first two wells have recently tested at
4.8 million cubic feet and 1.2 million cubic feet, respectively, of gas per
day.

                  A true and correct copy of the Swan Creek Lease Schedule is
attached hereto and incorporated herein by reference. See the Exhibit Index.

                  The Company also acquired a 100% working interest in four
oil and gas leases on a total of 1,003.19 acres, more or less, located in
Lauderdale County, Alabama (collectively, the "Alabama Leases"). Each of these
leases provides for a landowner royalty of 12.5%, leaving the Company a net
royalty interest of 87.5% in each lease.

                  The Alabama Leases have no existing wells. These leases will
be designated for wildcat purposes and there is no immediate plan to acquire
additional leases in the area or to begin an exploration program.

                  The term of these leases is similar to the terms described
above with respect to the leases acquired from IRC.

                  For those leases that are subject to a rental requirement,
the date of the Company's next rent payment is shown on the applicable lease
schedule attached hereto as an Exhibit. The obligation to pay rent arises only

when no well is in production on the leased premises^. Rent may be paid
annually or quarterly, and once it has been paid, the Company has the right to
defer the commencement of a well for the period for which the rent was paid.
Rent amounts are $1 per acre per year.

                  A true and correct copy of the Alabama Lease Schedule is
attached hereto and incorporated herein by reference. See the Exhibit Index.

                  Substantial additional evaluation and remedial work will be


                                      11




necessary in order to determine whether most of the Company's wells will be
able to produce oil and gas in paying quantities and to make them produce in
such quantities. The Company's ability to perform these operations will depend
to a great degree on its ability to raise sufficient funding to develop its
leases, as to which no assurance can be given. Nor can any assurance be given
that if the Company is able to obtain such funding, it will be able to produce
oil and gas in profitable quantities.

Special Risk Factors.

                  The present and intended business operations of the Company
must be considered to be highly speculative and involve substantial risks, and
an investment in securities of the Company should only be considered by those
persons who can bear the economic risk of loss of their entire investment.
Among the risk factors to be considered are the following:

                   Limited History. Although the Company was organized in
1916, it must be regarded as being in a formative stage due to its lack of
significant business operations during recent years and the fact that it did
not acquire any oil or gas leases until 1995. Prior to its acquisition of
these leases, the Company had never been involved in the oil and gas business.
Its future success depends upon its ability to profitably operate its existing
wells and to expand its operations through the acquisition of additional oil
and gas producing properties and/or the acquisition of additional oil and gas
leases. No assurance can be given that the Company will be successful in
making such acquisitions. If the Company is successful in acquiring additional
leases, it faces the risk that the geology reports on which it relies are
inaccurate, that the oil and/or gas reserves are less than anticipated, that
it will not have sufficient funds to drill on the property, that it will not
be able to market the oil and/or gas due to a lack of a market or the lack of
pipelines, and that fluctuations in the prices of oil and/or gas will make
development of those leases uneconomical. The Company is also subject to all
of the risks inherent in attempting to expand a relatively new business
venture. These risks include, but are not limited to, possible inability to
profitably operate its existing properties or properties to be acquired in the
future, the existence of undisclosed actual or contingent liabilities, the
inability to find the working capital requirements of such properties and the
inability to acquire additional properties that will have a positive effect on

the Company's operations. There can be no assurance that the Company will
achieve a level of profitability that will provide a return on invested
capital or that will result in an increase in the market value of the
Company's securities. See the caption "Market Price of and Dividends on the
Company's Common Stock and Other Stockholder Matters," Part II, Item 1, below.

                  Going Concern. The Company's auditors have included an
explanatory paragraph in their report which expressed substantial


                                      12




doubt about the Company's ability to continue as a going concern in view of
the recurring losses from operations and the Company's working capital
deficiency.

                  Limited Market for Common Stock. Although the Company's
common stock is listed on the OTC Bulletin Board of the National Association
of Securities Dealers, Inc. (the "NASD"), the market for such shares only
commenced in May, 1995, following the acquisition of the oil and gas leases
described above, and there can be no assurance that it will continue or be
maintained. As a result of the limited market, purchasers of shares offered
hereby may have difficulty in effecting sales of their stock and/or obtaining
a satisfactory price for those shares. Any market price for shares of common
stock of the Company is likely to be very volatile, and factors such as
success or lack thereof in drilling, the ability or inability to acquire
additional oil and gas producing properties, competition, governmental
regulation and fluctuations in operating results may all have a significant
effect. In addition, the stock markets generally have experienced, and
continue to experience, extreme price and volume fluctuations which have
affected the market price of many small capital companies and which have often
been unrelated to the operating performance of these companies. These broad
market fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's common stock. See the
caption "Market Price of and Dividends on the Company's Common Stock and Other
Stockholder Matters," Part II, Item 1, below.

                  General Economic Risks/Potential Volatility of Stock Price.
The Company's current and future business plans are dependent, in large part,
on the state of the general economy. Adverse changes in general and local
economic conditions may cause high volatility in the market price of the
Company's securities and may adversely affect an investment in these
securities. Oil and gas prices are extremely volatile and are subject to
substantial seasonal, political, world wide supply of oil and gas and other
fluctuations and risks, all of which are beyond the Company's control.

                  Future Acquisitions. The Company intends to develop and
expand its business, principally by developing its existing oil and gas leases
and acquiring additional oil and gas-producing properties and/or leases. See
the caption "Management's Discussion and Analysis or Plan of Operation," Part
I, Item 2, below. The Company has not selected any particular properties in

connection with its expansion plans and may not be able to locate desirable
property and/or it may not be able to provide the funds necessary to acquire
additional property.

                  Future Capital Requirements; Uncertainty of Future Funding.
The Company presently has limited operating capital.  It will require
substantial additional funding in order to realize its goals of
conducting oil and gas exploration operations and acquiring additional
oil and gas properties.  The Company is currently negotiating with


                                      13




investment banking and brokerage firms to raise these funds through equity or
debt financing, which may be very difficult for such a highly speculative
enterprise. There can be no assurance that such additional funding will be
made available to the Company, or if made available, that the terms thereof
will be satisfactory to the Company. Furthermore, any equity funding will
cause a substantial decrease in the proportional ownership interests of
existing stockholders. If such funding is not made available to the Company,
it is doubtful that the Company will be able to conduct its planned business
operations. See this caption "Management's Discussion and Analysis or Plan of
Operation," Part I, Item 2, below.

                  Replacement of Reserves. The Company's future success will
depend upon its ability to find, acquire and develop additional oil and gas
reserves that are economically recoverable. The proven reserves of the Company
will generally decline as they are produced, except to the extent that the
Company conducts revitalization activities, or acquires properties containing
proven reserves, or both. To increase reserves and production, the Company
must continue its development and drilling programs, identify and produce
previously overlooked or by-passed zones and shut-in wells, acquire additional
properties or undertake other replacement activities. The Company's current
strategy is to increase its reserve base, production and cash flow through the
development of its existing oil and gas fields and selective acquisitions of
other promising properties where the Company can utilize new and existing
technology. The Company can give no assurance that its planned revitalization,
development and acquisition activities will result in significant additional
reserves or that the Company will have success in discovering and producing
reserves at economical exploration and development costs. The Company may not
be able to locate geologically satisfactory property, particularly since it
will be competing for such property with other oil and gas companies, many of
which have much greater financial resources than the Company. Moreover, even
if desirable properties are available to the Company, it may not have
sufficient funds with which to acquire additional leases. Furthermore, while
the Company's revenues may increase if prevailing oil and gas prices increase
significantly, the Company's exploration costs for additional reserves may
also increase.

                  Uncertainty of Reserve Estimates. Oil and gas reserve
estimates and the present value estimates associated therewith are based upon

numerous engineering, geological and operational assumptions that generally
are derived from limited data. Common assumptions include such matters as the
extent and average thickness of a particular reservoir, the average porosity
and permeability of the reservoir, the anticipated future production from
existing and future wells, future development and production costs and the
ultimate hydrocarbon recovery percentage. As a result, oil and gas reserve
estimates and present value estimates are frequently revised in subsequent
periods to reflect production data obtained after the date of the original
estimates. If reserve estimates are inaccurate, production rates may decline
more rapidly than anticipated, and future


                                      14




production and revenues may be less than estimated. Moreover, significant
downward revisions of reserve estimates may adversely affect the Company's
ability to borrow funds in the future or have an adverse impact on other
financing arrangements.

                  In addition, any estimates of future net revenues and the
present value thereof are based upon period ending prices and on cost
assumptions made by the Company which only represent its best estimate. If
these estimates of quantities, prices and costs prove inaccurate and the
Company is unsuccessful in expanding its oil and gas reserves base, and/or
declines in and instability of oil and gas prices occur, write-downs in the
capitalized costs associated with the Company's oil and gas assets may be
required. The Company will also rely to a substantial degree on reserve
estimates in connection with the acquisition of producing properties. If the
Company overestimates the potential oil and gas reserves of a property to be
acquired, or if its subsequent operations on the property are not successful,
the acquisition of the property could result in substantial losses to the
Company. See the Reports of Coburn Petroleum Engineering, copies of which are
attached hereto and incorporated herein by reference, and all of which are
modified by the foregoing unknown factors. See the Exhibit Index. Also, see
the heading "General" of this caption, above, and the caption "Description of
Property," Part I, Item 3.

                  Operating Hazards. Oil and gas operations involve a high
degree of risk. Natural hazards, such as excessive underground pressures, may
cause costly and dangerous blowouts or make further operations on wells
financially or physically impractical. Similarly, the testing and recompletion
of oil and gas wells involves a high degree of risk arising from operational
failures, such as blowouts, fires, pollution, collapsed casing, loss of
equipment and numerous other mechanical and technical problems. Any of the
foregoing hazards may result in substantial losses or liabilities to third
parties, including claims for bodily injuries, reservoir damage, loss of
reserves, environmental damage and other damage to persons or property. The
Company does not have insurance against such hazards.

                  Future Sales of Common Stock. IRC currently beneficially
owns approximately 2,827,767 shares of the common stock of the Company or

approximately 44.27% of its outstanding voting securities. This amount is
based upon 6,389,000 shares being outstanding or beneficially owned, and
assumes the exercise of 497,097 shares vested under options granted by the
Company as of May 31, 1996. Effective June 30, 1997, all of the shares of the
common stock owned by IRC will have been beneficially owned for two years, and
subject to compliance with the applicable provisions of Rule 144 of the
Securities and Exchange Commission, IRC may then commence to sell these
"restricted securities" in an amount equal to up to 1% of the then outstanding
securities of the Company, or the average weekly trading volume in the
securities of the Company on any recognized automated system during the four
weeks preceding any Notice of Sale pursuant to Rule 144, in any three month
period, provided the Company is current in filing


                                      15




reports with the Securities and Exhange Commission. In such event, such sales
could have a substantial adverse effect on any public market that may then
exist in the Company's common stock. Sales of any of these shares by IRC could
severely affect the ability of the Company to secure the necessary debt or
equity funding for the Company's proposed business operations. For additional
information concerning the present market for shares of common stock of the
Company, see, the caption "Market Price of and Dividends on the Company's
Common Stock and Other Stockholder Matters", Part I, Item 4 below. For
information regarding common stock ownership of IRC and the Ratliff family,
see, "Security Ownership of Certain Beneficial Owners and Management." The
additional 164,266 shares of common stock of the Company acquired by IRC in
exchange for debt of the Company as outlined under the heading "Business
Development" below (76,557 shares were issued in March, 1996, and 87,709
shares were issued in April, 1996), will have satisfied the present two year
Rule 144 holding period in March and April, 1998, respectively, and will also
then be available for resale pursuant to Rule 144.

                  A total of 505,000 "unregistered" and "restricted" shares of
the Company's common stock were issued to Jeffrey D. Jenson, M. E. Ratliff and
Leonard W. Burningham, Esq., pursuant to the Compensation Agreements that were
executed on May 2, 1995. Pursuant to Rule 144 of the Securities and Exchange
Commission the shares owned by Messrs. Jenson and Burningham, who are
non-affiliates, may now be sold without restriction. The shares owned by M. E.
Ratliff, who is an affiliate, may be sold so long as the Company is current in
complying with the reporting requirements of Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 Act, as amended (the "1934 Act"). The
resale of these securities may also have a substantial adverse impact on any
then-existing public market for the Company's common stock. See the caption
"Recent Sales of Unregistered Securities," Part II, Item 4, below.

                  The availability of Rule 144 for resales of "restricted
securities" by affiliates is primarily conditioned upon the Company being a
"reporting company" under the 1934 Act, and being current" in all reports
required to be filed. The Company is presently a reporting company and is
current in all required reports.


                  Control by Current Security Holders. By virtue of IRC's
present ownership of approximately 44.27% of the Company's outstanding voting
securities, the management of IRC has the ability to effect significantly the
election of the Company's directors, who in turn elect all executive officers.
The management of IRC may be deemed to have substantial control over the
management and affairs of the Company. Malcolm Ratliff, the Company's Chief
Executive Officer, is the son of the owner of a majority of the outstanding
shares of IRC. He is also an officer of IRC. See, "Security Ownership of
Certain Beneficial Owners and Management." Upon conclusion of this offering


                                      16




IRC's control will not be diminished.

                  Warrants.  Warrants which were issued in connection with
loans made to the Company could under certain circumstances enable the
holders of such warrants to acquire a controlling interest in the
Company. The Company has commenced a lawsuit seeking to invaildate
those warrants. (See "Legal Proceedings")

                  Competition. The Company's oil and gas exploration
activities are centered in a highly competitive field. In seeking any other
suitable oil and gas properties for acquisition, or drilling rig operators and
related personnel and equipment, the Company will be competing with a number
of other companies, including large oil and gas companies and other
independent operators with greater financial resources. Management does not
believe that the Company's initial competitive position in the oil and gas
industry will be significant. See the heading "Competition" under this
caption.

                  Dependence on Technical Personnel. Certain members of
present management have substantial expertise in the areas of endeavor
presently conducted and to be engaged in by the Company. To the extent that
their services become unavailable, the Company will be required to retain
other qualified personnel. There can be no assurance that it will be able to
recruit and hire qualified persons upon acceptable terms. See the caption
"Directors, Executive Officers, Promoters and Control Persons," Part I Item 5,
below.

                  Similarly, the oil and gas exploration industry requires the
use of personnel with substantial technical expertise. In the event that the
services of its current technical personnel become unavailable, the Company
will need to hire qualified personnel to take their place; no assurance can be
given that it will be able to recruit and hire such persons on mutually
acceptable terms.

                  Governmental Regulations. The Company is subject to numerous
state and federal regulations, environmental and otherwise, that may have a
substantial negative effect on its ability to operate at a profit. For a

discussion of the risks involved as a result of such regulations, see the
headings "Effect of Existing or Probable Governmental Regulations on Business"
and "Costs and Effects of Compliance with Environmental Laws," of this
caption.

                  Market for the Shares. The Company's Common Stock is
presently traded on the OTC Bulletin Board. There can be no assurance that
there will be a market for the Shares or that the price of such stock will be
maintained hereafter. Due to numerous factors the price of the Company's
Common Stock may fluctuate significantly. If the price of the Company's Common
Stock trades for less than $5.00 per share on the OTC Bulletin Board or the
National Quotation Bureau's "pink sheets", the stock will become subject to
the Commission's penny stock disclosure requirements. This may have a
substantial adverse


                                      17




affect on the liquidity of the Company's common stock and, in addition, these
regulations could limit the ability of brokers/dealers to sell the Company's
securities and thus the ability of purchasers of the Company's securities,
including the Shares offered hereby, to sell such securities in the secondary
market.

                  Dividends Unlikely. The holders of Common Stock of the
Company are entitled to receive dividends when, as and if declared by the
Company's Board of Directors. The Board does not intend to declare any
dividends in the foreseeable future and earnings, if any, will be used to
finance the requirements of the Company.

Principal Products or Services and Markets

                  The Company will conduct exploration and production
activities to produce crude oil and natural gas. The principal markets for
these commodities are local refining companies, major natural gas transmission
pipeline companies, local utilities and private industry end users, which
purchase the crude oil, and natural gas pipeline companies, which purchase the
gas. There are currently two gas transmission lines that run through the Beech
Creek Leases; these lines can be accessed to sell gas produced from the
leases. There are two more transmission lines within approximately two miles
of these leases.

                  In Hancock County, gas production from the Swan Creek Leases
will be delivered into the major transmission line of East Tennessee Natural
Gas. At the present time, there is no completed pipeline from these leases to
the East Tennessee Natural Gas pipeline. The Company is in the process of
constructing such a pipeline which is approximately 90% completed and is
expected to be completed by the end of 1997. The pipeline will be
approximately 23 miles long and is made of 8 inch steel pipe. The cost to date
has been approximately $1,833,000. Completion is expected to cost
approximately an additional $500,000. The Company has acquired all necessary

regulatory approvals and 100% of necessary property rights to complete this
pipeline. The Company's pipeline will not only service the Company's wells,
but, will provide transportation of gas for small independent producers in the
local area as well. It is anticipated that direct sales could also be made to
some local towns and industries. No assurance can be given that the Company
will be able to produce a sufficient quantity of crude oil or natural gas to
make these operations profitable.

Reserve Analyses

                  Coburn Petroleum Engineering of Tulsa, Oklahoma, has
performed reserve analyses of all the Company's productive leases. R.
W. Coburn, a registered petroleum engineer, and the owner of Coburn
Petroleum Engineering, has no interest in the Company or IRC, and
performed these services at his standard rate ($90 per hour was billed
and paid for these reports). The net reserve values used hereafter


                                      18




were obtained from a report dated June 18, 1997 prepared by Coburn Petroleum
Engineering. A copy of that report is annexed hereto and incorporated herein
by reference. See the Exhibit Index. In substance, the report, used estimates
of oil and gas reserves based upon standard petroleum engineering methods
which include decline curve analysis, volumetric calculations, pressure
history, analogy, various correlations and technical judgment. Information for
this purpose was obtained from owners of interests in the areas involved,
state regulatory agencies, commercial services, outside operators and files of
Coburn Petroleum Engineering.

                  Discounting the net reserve values by 10%, before taxes,
results in a present value of $33,874,577 for the Swan Creek Field, $5,929,992
for the Beech Creek Leases, $996,280 for the Fentress County Leases and
$547,248 for the Burning Springs Leases. Reserve analyses are at best
speculative, especially when based upon limited production; no assurance can
be given that the reserves attributed to these leases exist or will be
economically recoverable. See the heading "Special Risk Factors" specifically
the risk factor entitled "Uncertainty of Reserve Estimates," of this caption.

                  It is standard in the industry for reserve analyses such as
these to be used as a basis for financing of drilling costs.

Distribution Methods of Products or Services

                  Crude oil is normally distributed in this area by tank truck
and natural gas is distributed and transported via pipeline. Gas purchasers in
the area include Delta Natural Gas Company, Inc., Wiser Oil Company, Southern
Gas Company of Delaware, Inc., Somerset Gas and East Tennessee Natural Gas.
Delta and Wiser operate a gas gathering system that runs through the center of
the Company's Beech Creek leases. The existing Beech Creek wells have been
tied into the Wiser Oil Company system in anticipation of future production.

The Burning Springs wells are connected to Southern Gas Company's gathering
system.

                  Should the Company decide to use transmission lines owned by
other businesses, it will have to negotiate the prices to be paid with the
owner of that transmission line, provided capacity is available. There can be
no assurance that prices can be negotiated which will enable the Company to
sell its products profitably.

                  Oil from the Fentress County Leases will be stored in a tank
battery consisting of two 210 barrel tanks while awaiting shipment by tank
truck.

                  Gas production from the Swan Creek Leases will go into the
East Tennessee Natural Gas transmission system through use of the pipeline
presently under construction by the Company, as described above.


                                      19




                  The Company has no farmout agreements with any entity.

Status of Any Publicly Announced New Product or Service

                  The Company does not have any publicly announced new product
or service.

Competitive Business Conditions, Competitive Position in the Industry
and Methods of Competition

                  The Company's contemplated oil and gas exploration
activities in the States of Kentucky and Tennessee will be undertaken in a
highly competitive and speculative business atmosphere. In seeking any other
suitable oil and gas properties for acquisition, the Company will be competing
with a number of other companies located in the State of Kentucky and
elsewhere, including large oil and gas companies and other independent
operators with greater financial resources. Management does not believe that
the Company's initial competitive position in the oil and gas industry will be
significant.

                  At the local level, the Company has only two competitors in
the area of its acreage blocks in the State of Kentucky, who are: Equitable
Resources and Ashland Oil. Its principal competitors in the State of Tennessee
are Ashland Oil and Miller Services; and in the State of Alabama are
Engineering Development Corp. and Torch Operating Co. In the area of the
Company's pipeline, the Company is in a favorable position since it will own
the only pipeline within a 20 mile radius. Within that area, the Company owns
leases on approximately 30,367 acres. In addition, remaining landowners will
find it difficult to deal with any other oil and gas companies since such
companies will not have access to a pipeline.


                  Management does not foresee any difficulties in procuring
drilling rigs or the manpower to run them in the area of its operations. The
experience of management has been that in most instances, drilling rigs have
only a one or two day waiting period; however, several factors, including
increased competition in the area, may limit the availability of drilling
rigs, rig operators and related personnel and/or equipment; such an event may
have a significant adverse impact on the profitability of the Company's
operations.

                  The Company anticipates no difficulty in procuring well
drilling permits which are obtained from the Tennessee Oil and Gas Board. They
are usually issued within one week of application. The Company generally does
not apply for a permit until it is actually ready to commence drilling
operations. The Company presently has five well drilling permits for use
anywhere in Tennessee.

                  The prices of the Company's products are controlled by the
world oil market and the United States natural gas market; thus, competitive
pricing behaviors are considered unlikely; however,


                                      20




competition in the oil and gas exploration industry exists in the form of
competition to acquire the most promising acreage blocks and obtaining the
most favorable prices for transporting the product. Management believes that
the Company is well-positioned in these areas because of the transmission
lines that run through and adjacent to the properties it leases and because it
holds relatively large acreage blocks in what management believes are
promising areas.

Sources and Availability of Raw Materials and Names of Principal
Suppliers

                  Excluding the development of oil and gas reserves and the
production of oil and gas, the Company's operations are not dependent
on the acquisition of any raw materials.  See the headings "Competitive 
Business Conditions, Competitive Position in the Industry and Methods of 
Competition," of this caption.

Dependence on One or a Few Major Customers

                  The Company will be dependent on local purchasers of
hydrocarbons in the areas where its properties are located for sales of its
products. The five purchasers in the areas of the Company's operations are
Wiser, Southern, Delta, Somerset and East Tennessee Natural Gas. The only
customers with which the Company has a written contract are Hawkins County
Utilities and Powell Valley Electric Cooperative. Copies of those contracts
are annexed hereto and incorporated herein by reference. See the Exhibit
Index. Those entities have agreed to purchase gas from the Company's Hancock
County fields upon completion of the pipeline. It is anticipated that sales to

Hawkins County Utilities will amount to approximately 4,000 MCF per day. Sales
to Powell Valley Electric Cooperative are to be determined at a future date.

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty
Agreements or Labor Contracts, including Duration

                  Royalty agreements relating to oil and gas production are
standard in the industry. The amount of the Company's royalty payments varies
from lease to lease. See the heading "General" under this caption. The amounts
of the royalties on each of the Company's leases are listed on the attached
lease schedules. See the Exhibit Index.

Need for Governmental Approval of Principal Products or Services

                  None of the principal products or services offered by the
Company require governmental approval; however, permits are required for
drilling oil or gas wells. See the heading "Effect of Existing or Probable
Governmental Regulations on Business" of this caption.

Effect of Existing or Probable Governmental Regulations on Business


                                      21




                  Exploration and production activities relating to oil and
gas leases are subject to numerous environmental laws, rules and regulations.
The Federal Clean Water Act requires the Company to construct a fresh water
containment barrier between the surface of each drilling site and the
underlying water table. This involves the insertion of a seven-inch diameter
steel casing into each well, with cement on the outside of the casing. The
cost of compliance with this environmental regulation is approximately $10,000
per well.

                  The State of Kentucky also requires oil and gas drillers to
obtain a permit for their activities and to post with the Division of Oil and
Gas of the Kentucky Department of Minerals and Mines (the "Kentucky Division")
a bond to ensure that each well is properly plugged when it is abandoned.
These bonds are based on $1 per foot, Each of the Kentucky wells has a $5,000
bond which was originally posted by IRC and remains in place. The Kentucky
Division will retain the bond until the subject wells are plugged.

                  The State of Tennessee also requires the posting of a bond
to ensure that the Company's wells are properly plugged when abandoned. A
separate $2,000 bond is required for each well drilled. The Company currently
has a $10,000 bond on deposit with the State of Tennessee. See the heading
"Disclosure of Oil and Gas Operations" of the caption "Description of
Property," Part I, Item 3, below.

                  The State of Alabama also requires the posting of a bond to
ensure that the Company's wells are properly plugged when abandoned. A
single-well bond, which varies between $5,000 and $50,000, depending upon well

depth, or a blanket bond of $100,000, may be obtained for wells drilled
on-shore. At the present time, the Company does not have plans to drill any
wells in the State of Alabama.

                  The Company's operations are also subject to laws and
regulations requiring removal and cleanup of environmental damages under
certain circumstances. Laws and regulations protecting the environment have
generally become more stringent in recent years, and may in certain
circumstances impose "strict liability," rendering a corporation liable for
environmental damages without regard to negligence or fault on the part of
such corporation. Such laws and regulations may expose the Company to
liability for the conduct of operations or conditions caused by others, or for
acts of the Company which were in compliance with all applicable laws at the
time such acts were performed. The modification of existing laws or
regulations or the adoption of new laws or regulations relating to
environmental matters could have a material adverse effect on the Company's
operations. In addition, the Company's existing and proposed operations could
result in liability for fires, blowouts, oil spills, discharge of hazardous
materials into surface and subsurface aquifers and other environmental damage,
any one of which could result in personal injury, loss of life, property
damage or destruction or suspension of operations.


                                      22




                  The Company believes it is presently in compliance with all
applicable federal, state or local environmental laws, rules or regulations;
however, continued compliance (or failure to comply) and future legislation
may have an adverse impact on the Company's present and contemplated business
operations.

                  At Board of Directors' meetings held June 6 and 7, 1995, the
Board of Directors adopted resolutions to form an Environmental Response
Policy and Emergency Action Response Policy Program. A plan has been adopted
which provides for the erection of signs at each well and at strategic
loactions along the pipeline containing telephone numbers of the Company's
office and the home telephone numbers of key personnel. A list will be
maintained at the Company's office and at the home of key personnel listing
phone numbers for fire, police, emergency services and Company employees who
will be needed to deal with emergencies.

                  The foregoing is only a brief summary of some of the
existing environmental laws, rules and regulations to which the Company's
business operations are subject, and there are many others, the effects of
which could have an adverse impact on the Company. Future legislation in this
area will no doubt be enacted and revisions will be made in current laws. No
assurance can be given as to what effect these present and future laws, rules
and regulations will have on the Company's current and future operations.

Research and Development


                  The Company has not expended any material amount in research
and development activities during the last two fiscal years. Research done in
conjunction with its exploration activities will consist primarily of running
radiometric surveys on the lease blocks and conducting geological research on
the surface. This work will fall under the job description of the geologist to
be hired for these activities and will not have a material cost of anything
more than his or her standard salary. See the heading "Number of Total
Employees and Number of Full-Time Employees," of this caption.

Cost and Effects of Compliance With Environmental Laws

                  See the heading "Effect of Existing or Probable Governmental
Regulations on Business," of this caption.

Number of Total Employees and Number of Full-Time Employees

                  The Company presently has twenty full-time employees and one
part-time employee. When it commences its full-scale oil and gas operations,
the Company plans to add additional full-time employees, exclusive of
executive officers.

                  The Company has hired a full-time geologist at a salary of


                                      23




$40,000 per year.  His duties for the Company include: surface and
sub-surface geology, log correlation, surface and sub-surface mapping,
field--research (i.e., radiometric, gravity, magnetic and geochemical
research) and well-site geology.

Item 2.  Management's Discussion and Analysis of Plan of Operation.

                  The Company intends to continue its 48 well drilling program
on the Swan Creek leases. The existence of substantial deposits of
hydrocarbons (oil and/or gas) in the Swan Creek structure (i.e. the rock
formation beneath the surface) is confirmed by the following facts:

                  The Swan Creek structure is located in an area known as the
Eastern Overthrust Belt which is an area with numerous faults. A fault is an
area where geologic plates overlap. The porous rock within such areas
generally contain significant amounts of oil and/or gas. The Eastern
Overthrust Belt is geologically similar to the Western Overthrust Belt located
in the Rocky Mountains, where there are other oil and gas producing
properties.

                  The Company has successfully completed four wells in this
area, all of which have been flow tested by metering gas from the wells
through one-half inch orifice. These tests all verify the presence of a
substantial reservoir of natural gas and/or oil. One of these wells, the Reed
#1 tested at 4,800,000 cubic feet of gas per day with a pressure of 800 psi.

Another well, the Sutton #1 tested at 1,200,000 cubic feet per day with a
pressure of 150 psi.

                  The Company's present plans call for the drilling of
approximately fifty additional wells on the Swan Creek leases over a two to
three year period at a cost of approximately $225,000 per well. Completion of
the pipeline presently being constructed by the Company and which is necessary
in order for the Company to be able to sell its gas is anticipated by the end
of 1997 at an additional cost of approximately $500,000.

                  The Company is currently drilling two of the additional
wells with funds advanced on a participation basis by a director and a
third-party. The arrangement provides for the participants to receive 25% of
income. Drilling is anticipated to be continued with additional funds provided
on a similar participating basis until income from well production is
sufficient to fund further drilling.

                  The Company during 1997 has procured funds from the private
sale of 626,235 restricted securities in the amount of approximately
$5,352,688 and from loans in the aggregate amount of $580,000 from IRC,
Tracmark, Inc. and Malcolm E. Ratliff which were thereafter converted to
common stock of the Company. In addition, in May 1997 the Company entered into
a term loan with an individual for aggregate proceeds of $1,000,000 which the
Company received at various times in the second and third quarters of 1997.
The Company provided the lender


                                      24




with 100,000 shares of common stock as a loan origination fee. The loan, which
is due December 31, 1997, bears interest at 11% per annum and is secured by
equipment owned by a major shareholder of the Company. IRC is serving as
guarantor on the loan facility. In conjunction with the loan agreement, the
lender has an option to purchase 300,000 shares of the Company's common stock
from IRC.

                  Thereafter, the Company plans to construct two extensions to
its pipelines so as to enable it to exploit other leases which are part of the
Swan Creek leases. These extensions which will be approximately 40 miles in
length will cost approximately $4,000,000. The Company's ability to expand its
operations in this manner is dependent upon the success of the Company's
drilling program. Moreover, no assurance can be given that the Company will be
able to obtain the required rights of way to construct any such pipeline, and
the pipeline currently under construction will only serve production from a
portion of the Swan Creek Field.

                  The Company does not presently have the funds needed to
enable it to complete the extensions to its pipeline, although it does have
funds necessary to complete the pipeline.

                  The Company presently has funds sufficient to drill at least

20 additional wells and anticipates no difficulty in funding additional wells
if the wells it drills prove to be productive.

                  The Company also anticipates income from the sale of gas
pursuant to a marketing agreement with Enserch, a major marketer of natural
gas, pursuant to which the Company will receive 50% of the profits derived
from the sale of natural gas in Tennessee and other Southeastern States.
Enserch is a wholly owned subsidiary of Texas Utilities, Inc., a public
company listed on the New York Stock Exchange engaged in the production and
sale of hydrocarbons. It has a net worth of more than $2,000,000,000. To date,
it has not exploited the market in Tennessee and Southeastern United States.

                  The Enserch agreement has a term of five years and will
terminate May 31, 2002 and thereafter, will continue from year to year unless
terminated.

                  Exploitation of the other leases held by the Company is
being placed on hold at the present time.

                  The sales price for gas is determined on the basis of an
index used by all suppliers and users of gas. The price fluctuates between
$2.50 per MCF and $4.50 per MCF, usually higher during the cold weather
months. The cost of production from the well averages approximately $.50 per
MCF. Transportation costs are approximately $.25 per MCF which includes
amortization of the pipeline. In addition, the Company anticipates receiving
revenue from third parties who desire to use the pipeline.


                                      25




                  To date, the Company has not drilled any dry wells.

                  There can be no assurance, of course, that all of the
funding necessary for the completion of the wells will become available. It is
anticipated that the Company will implement development programs on the Beech
Creek and Fentress County Leases sometime in the future The Swan Creek Leases
are being given first priority because of their higher economic
attractiveness.

                  Management anticipates both short term and long term
increases in oil and gas prices which should have a positive effect on the
Company's income and profits. The belief is based, among other things, upon
the following factors:

                           1. Instability in the Middle East:
                           2. Conversion of electric generating plants from coal
to gas;
                           3. Discontinuance of construction of nuclear power
plants;
                           4. Increased use of natural gas to decrease the
greenhouse effect.


                  The Company has no plans, at present, to increase the number
of its employees significantly.

Other Significant Plans

                  The Company also intends to actively pursue the gas
marketing business on the Eastern seaboard. The Eastern seaboard, and
Tennessee in particular, has numerous industrial end users of natural gas that
are currently exposed to a limited number of gas suppliers. The Company has
entered into an agreement with Enserch Energy Services, Inc., ("Enserch")
pursuant to which the Company and Enserch will market each other's products. A
copy of that agreement is annexed hereto and incorporated herein by reference.
See the Exhibit Index. Enserch at present has no sales force in the
Southeastern United States and intends to rely on the Company which will be
the only Tennessee company selling gas in Tennessee. The agreement with
Enserch provides for the Company to share equally in profits from sales of
gas.

                  In addition to an active drilling program the Company
intends to continue strategically acquiring leases in promising areas in the
States of Kentucky and Tennessee. No assurance can be given that the Company
will be able to identify or acquire any such leases or that if it does acquire
any such leases, they will be profitable.

                  This plan of operation is based upon many variables and
estimates, all of which may change or prove to be other than or different from
information relied upon.

Results of Operations


                                      26




                  Effective May 2, 1995, and pursuant to a Purchase Agreement,
the Company acquired certain oil and gas-leases, equipment, marketable
securities and vehicles, from IRC. Following the completion of this
transaction, the Company changed its domicile to the State of Tennessee on May
5, 1995. Prior to the completion of this Purchase Agreement, the Company had
been inactive from 1993, and had little or no assets or operations. The assets
reflected as being owned on December 31, 1995, were all primarily acquired
from IRC.

                  During the year ended December 31, 1996, the Company had
revenues of $26,253 as compared with revenues of $28,526 for the year ended
December 31, 1995. The Company has shut in the wells which produced that gas,
transferring some of the equipment to the Swan Creek lease in anticipation of
the completion of the pipeline.

                  Depletion, depreciation and amortization expense increased
from $89,528 for 1995 to $133,187 for 1996 as a result of the fact that the

Company did not acquire its assets from IRC until May, 1995 so that there were
only seven months of depreciation during 1995.

                  Unrealized holding losses on marketable equity securities
($593,792) in 1995) were a one-time event and were not incurred in 1996.

                  General and administrative expense also increased
substantially during the same periods as the result of the addition of four
full time employees and salaried executive officers, and increased rental for
new executive offices which were leased in January, 1996.

                  Interest expense increased from $32,594 to $145,302 in 1996
due to the amortization of long-term debt discounts associated with certain
stock warrants granted in connection with such debt.

                  The increase in net loss from operations during the year
ended December 31, 1996 as compared with the year ended December 31, 1995 was
due to the increased general and administrative expense, offset somewhat by
the non-recurrence of losses on marketable securities.

                  The Company had no revenues during the nine month period
ending September 30, 1997 since it shut in the wells which it had been
operating in 1996 in order to concentrate on the pipeline and the Swan Creek
leases.

Liquidity

                  Loans in the aggregate total of $882,112 were advanced by
IRC, a related party and an "affiliate" of the Company during the year ended
December 31, 1995, and 164,266 "unregistered" and "restricted" shares of the
Company's common stock were issued as of December 31, 1995, in full payment of
this indebtedness.


                                      27




                  Revenues from operations during the year ended December 31,
1996 and the nine months ended September 30, 1997 were insufficient to fund
the Company's operations. The Company has relied upon loans of $1,000,000 from
Neal Harding in 1996, loans of approximately $941,000^by IRC and $110,350 by
Malcolm E. Ratliff during 1996. The loans from IRC and Mr. Ratliff plus
accrued interest were satisfied by the issuance of 101,146 shares of the
Company's common stock to IRC and 13,320 shares to Malcolm E. Ratliff. The
loan from Mr. Harding was used primarily for pipeline construction and is
payable on December 31, 1997. Mr Harding has agreed to extend payment of
$500,000 of his loan to the Company until June 30, 1998. The balance of the
loan which is due December 31, 1997 will be paid out of funds presently in the
Company's possession. Repayment of the loan from Mr. Harding was guaranteed by
IRC, which also granted an option to Mr. Harding to purchase 300,000 shares of
stock of the Company at a price of $10 per share.


                  In 1997, IRC advanced $323,005 to the Company, Malcolm E.
Ratliff advanced $12,000 and Tracmark, Inc., a subsidiary of IRC, advanced
$133,420. These loans, plus accrued interest, were satisfied by the issuance
of 59,328 shares of the Company's common stock to IRC, 2,204 shares to Malcolm
E. Ratliff and 24,552 shares to Tracmark, Inc. In addition, during 1997 the
Company received $5,532,688 by private sales of its common stock and
participation arrangements in well drilling with Shigemi Morito, a Director,
and a third party.

                  During 1996, the Company sold 166,667 shares of stock it had
acquired from IRC pursuant to the Purchase Agreement for $250,000; received
$91,119 from the exercise of options; $280,690 from a private placement of its
stock.

                  These revenues and loans accounted for substantially all of
the Company's liquidity during this year.


Item 3. Description of Property

Property Location, Facilities, Size and Nature of Ownership

                  The Company holds oil and gas leases on the following
properties located near Manchester, Kentucky: (i) 8,058 acres in the Beech
Creek Leases; (ii) 744 acres in the Wildcat Leases; and (iii) 741 acres in the
Burning Springs Leases. The Company also holds leases on 2,121 acres in
Fentress County, Tennessee, near Jamestown. There are currently two producing
wells on the Tennessee acreage, only one of which is owned by the Company.
Additionally, the Company holds leases on 30,363 acres in Hancock County,
Tennessee, and 1,003.19 acres in Lauderdale County, Alabama. The initial terms
of these leases varies from one to four years. Many of them can be extended at
the option of the Company by payment of annual rent. Some of them will


                                      28




terminate unless the Company has commenced drilling. However, the Company does
not anticipate any difficulty in continuing those leases, particularly in
Hancock County, since the Company's pipeline will be the only means available
to landowners in that area to sell any gas produced from wells on their
property. See the heading "General" under the caption "Description of
Business," Part I, Item 1, above.

                  The Beech Creek Leases provide for a landowner royalty of
12.5% of the oil produced and saved from the leased premises or, at the
lessee's option, to pay the market price for such 12.5% royalty. The leases
also provide for a landowner royalty equal to 12.5% of the market price at the
well of the gas sold or used off the premises, except for injection for
secondary recovery of oil. The lessors are also entitled to free gas for all
stoves and inside lights in the principal dwelling house on the leased
properties by making connection to the well or wells at their own expense and

risk. The Beech Creek Leases are also subject to overriding royalties ranging
from 1.25% to 5%.

                  The Wildcat Leases provide for a 12.5% landowner royalty, on
the same terms as the Beech Creek Leases, and a 3.125% overriding royalty.

                  The Burning Springs Leases are subject to a 12.5% landowner
royalty, on the same terms as the Beech Creek Leases and the Wildcat Leases,
and overriding royalties ranging from 3.125% to 7.5%.

                  The Fentress County Leases are subject to a 12.5% landowner
royalty, on the same terms as the above referenced leases, and a 19%
overriding royalty; and a 25% overriding royalty on one existing well. Section
60-1-301 of the Tennessee Code provides for a severance tax of 3% on all gas
and oil removed from the ground in Tennessee.

                  The Company leases its principal executive offices,
consisting of approximately 4,731 square feet located at 603 Main Avenue,
Suite 500, Knoxville, Tennessee, at a monthly rent of $3,942.50.

                  In addition, the Company has drilling equipment and vehicles
which it acquired from IRC. All of this equipment is in satisfactory operating
condition. The securities which the Company acquired from IRC were sold during
1996 for $250,000.

Disclosure of Oil and Gas Operations

                  On May 2, 1995, upon the execution of the Purchase Agreement
with IRC, the Company acquired the rights to certain oil and gas leases in the
State of Kentucky (the "Beech Creek Leases," "Wildcat Leases" and "Burning
Springs Leases") and the State of Tennessee (then "Fentress County Leases").
Subsequently, the Company also acquired additional acreage in Tennessee (the
"Swan Creek Leases") and in Alabama (the "Alabama Leases"). Copies of the
lease schedules listing


                                      29




these leases are attached hereto and are incorporated herein by reference. See
the headings "Business Development" and "General" under the caption
"Description of Business," Part I, Item 1, above, and the Exhibit Index.

                  The Company was not engaged in the business of oil and gas
exploration and development prior to the date of the IRC Purchase Agreement.
IRC, the entity from which the Company acquired certain of these properties,
drilled four wells on the Beech Creek Leases in the past three years. All of
these wells are capable of producing gas in paying quantities, according to
tests run on the wells. IRC also drilled a well on one of the Fentress County
Leases; this well is currently shut in and awaiting a workover.

                  Eleven wells on the Burning Springs leases are currently

shut-in. There are two completed wells on the Swan Creek leases, the Reed #1
and the Sutton #1, which discovered and proved the structure in the early
1980s. These wells have recently tested at 4,800,000 and 1,200,000 cubic feet
of gas per day. The Company has drilled three additional wells in 1996.
Development of the Swan Creek Field will require the completion of the
pipeline to deliver gas to a transmission company with the tie-in point being
located approximately 23 miles away from the field. The pipeline is
approximately 90% completed and is expected to be complete by the end of the
year.

                  Tests to date on the completed wells on the Swan Creek
leases indicate substantial potential for future deliverability. Based upon
engineering reports, management believes that the wells drilled to date have a
life expectancy of approximately 37 years on a declining basis.

                  The Company does not pay any taxes on its leased property
and does not carry any insurance on the vacant land.

                  The Alabama Leases have no existing wells. These leases are
"wildcat" explorations and there is no immediate plan to acquire additional
leases in the area or to begin an exploration program.

                  No estimate of total, proved net oil or gas reserves has
been filed with or included in reports to any federal authority since the
beginning of the Company's last fiscal year.

                  The Company is currently not a party to any contract or
agreement obligating it to provide a fixed and determinable quantity of oil or
gas in the future, but anticipates entering into such contracts for delivery
of gas commencing as early as December, 1997.

Item 4.  Security Ownership of Certain Beneficial Owners and
         Management.

Security Ownership of Certain Beneficial Owners


                                      30




                  The following tables set forth the share holdings of the
Company's directors and executive officers and those persons who own more than
5% of the Company's common stock as of June 30, 1997 with these computations
being based upon 6,398,000 shares of common stock being outstanding and
assumes the exercise of 281,376 shares vested under options granted by the
Company as of June 30, 1997. (See the heading "Other Compensation" and the
"Restricted Stock Options Table," under the caption "Executive Compensation,"
Part I, Item 6, below).


                                      31





                           Five Percent Stockholders

                                       Number of Shares    Percent
Name and Address            Title    Beneficially Owned    of Class

Industrial Resources    Stockholder     2,836,999            44.4%
Corporation (1)
Ste. 500-600 Main Ave.
Knoxville, TN 37902

Malcolm E. Ratliff (2)   Chief Executive    254,689           3.98%
12608 Avallon Place      Officer
Knoxville, TN 37922

                       Directors and Executive Officers

Name and Address            Title   Shares Beneficially   Percent of
                                        Owned              Class

Joseph Earl Armstrong      Director        0                 0
2624 Selma Avenue
Knoxville, TN 37914

Robert M. Carter         Exec. Vice      23,000             0 .4%
317 Heathermoor Drive    President
Knoxville, TN 37922

James A. Gerding         Director           0                 0
405 Le Conte View Drive
Gattenburg, TN 37738

- ----------
         (1) James Ratliff is the sole owner of the outstanding securities of
IRC, and, accordingly, he may be deemed to be an affiliate of the Company. He
is also the father of Malcolm E. Ratliff, who received 215,000 shares of
common stock of the Company pursuant to one of the compensation Agreements.
See the heading "Business development" of the caption "Description of
Business", Part I, Item 1. 

         (2) Malcolm E. Ratliff is a Vice-President of Industrial Resources 
Corporation.


                                      32




James B. Kreamer       Director        0                       0
3621 Cabin Creek Rd.
London, KY 40741


William A. Moffett     Director        37,397                 0.6%
1073 Encantado Drive
Santa Fe, NM 87501

Shigemi Morita         Director       114,300                 1.9%
80 Park Avenue
New York, N.Y. 10016

Malcolm E. Ratliff (2) CEO and        254,689               3.98%
12008 Avallon Place    President
Knoxville, TN

Sheila F. Sloan        Treasurer        2,000                  0
121 Oostanali Way
Loudon, TN 37774

Allen H. Sweeney       Chairman of    100,500                 1.6%
1400 Oak Tree Drive    the Board
Edmund, OK 73003

Elizabeth Wendelken    Secretary       0                       0
8023 Stanley Road
Powell, TN 37849

All Officers and                      529,682                 8.48%
Directors as a Group




Changes in Control

                  Except as indicated below, to the knowledge of the Company's
management, there are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company.

- -----------
         (3) The principal shareholder of IRC is the father of Malcolm E.
Ratliff. 128,052 shares of stock of IRC are owned by Tracmark, Inc., a
corporation, the principal shareholders of which are Malcolm E. Ratliff and
his father.


                                      33




Item 5.  Directors, Executive Officers, Promoters and Control
         Persons.

Identification of Directors and Executive Officers


                  The following table sets forth the names of all current
directors and executive officers of the Company. These persons will serve
until the next annual meeting of stockholders (to be held at such time as the
Board of Directors shall determine) or until their successors are elected or
appointed and qualified, or their prior resignations or terminations.

                                         Date  of
                         Positions     Election or
Name                        Held       Designation

William A. Moffett        Director         5/95
1073 Encantado Drive
Santa Fe, NM 87501

James B. Kreamer          Director         3/13/97
3621 Cabin Creek Road
London, KY 40741

Malcolm E. Ratliff        Chief Executive  3/13/97
12008 Avalon Place        Officer
Knoxville, TN 37922

Shigemi Morita            Director         3/13/97
80 Park Avenue
New York, N.Y. 10016

Allen Sweeney             Chairman of      3/13/97
1400 Oak Tree Drive       Board
Edmund, OK 73003

Joseph E. Armstrong       Director         3/13/97
2624 Selma Avenue
Knoxville, TN 37914

Robert M. Carter          Executive        3/13/97
317 Heathermoor Drive     Vice-President
Knoxville, TN 37922

Sheila Sloan              Treasurer        3/13/97
121 Oostanali Way
Loudon, TN 37774


                                      34




Elizabeth Wendelken       Secretary         3/13/97
8023 Stanley Road
Powell, TN 37849

James A. Gerding          Director          9/4/97
405 Le Conte View Drive

Gattenburg, TN 37738

Business Experience

                  Joseph Earl Armstrong is 40 years old and a resident of
Knoxville, Tennessee. He is a graduate of the University of Tennessee and
Morristown College where he received a Bachelor of Science Degree in Business
Administration. From 1988 to the present, he has been an elected State
Representative for Legislative District 15 in Tennessee. From 1994 to the
present he has been in charge of government relations for the Atlanta Life
Insurance Co. From 1981 to 1994 he was a District Manager for the Atlanta Life
Insurance Co.

                  James A. Gerding is 69 years old. He has a Bachelor of
Science Degree and a Masters of Business Administration Degree from Indiana
University. Since approximately 1980 he has been the Chief Executive Officer
of Pancake Pantry, Inc. which owns one restaurant and franchises another. In
addition, he is a co-owner of the Village, a 27 store shopping complex in
Gattenburg, Tennessee.

                  James B. Kreamer is 58 years old. He earned a Degree in
Business from the University of Kansas in 1963. He has been the owner of
several business enterprises. In 1982, he purchased a seat on the Kansas City
Board of Trade where he served on several committees working on the
development of futures trading. Since 1979, he has been engaged in the oil and
gas business as an investor. He currently serves as a member of the Board of
Directors of Panaco, Inc., a NASDAQ energy company.

                  William A. Moffett is 63 years old. He received a BS Degree
in Geological Engineering from Oklahoma University in 1956. From 1977 to 1982,
he was Operations Manager for Esso Exploration and Production in the United
Kingdom. From 1982 to 1984, he was General Production Manager for Intercol (an
affiliate of Exxon in Colombia). From 1984 to 1991 he was CEO for Stan Vac
Indonesia, a joint Exxon/Mobil affiliate. From 1991 until his employment by
the Company, Mr. Moffett was retired.

                  Shigemi Morita is 62 years old. He received an A.B. Degree
from Elon College in North Carolina. From 1969 to 1996 he was the President and
CEO of Morita & Co., an insurance agency specializing in insurance for Japanese
companies doing business in the United States. In 1996, Morita & Co., Inc. was
acquired by Tokio Marine Management, Inc., Mitsubishi International Corporation
in New York and


                                      35




Mitsubishi International, Ltd. in Tokyo. He remains as President and
as a consultant.

                  Malcom E. Ratliff is 51 years old. He attended the
University of Mississippi from 1965 to 1967. He has been involved in the oil

and gas business since 1974, initially as a roustabout and then developing oil
and gas leases. In 1992 he was involved with personal investments. In 1993 and
1994 he experienced serious health problems which prevented him from working.
In April 1995, he became associated with the Company and, after its merger
with Onasco, he served as a consultant to the Company's Board of Directors.
Since March 13, 1997 he has been Chief Executive Officer of the Company. He is
presently acting as interim President of the Company as a result of the death,
on September 13, 1997, of Daniel Follmer, the Company's President.

                  Allen H. Sweeney is 47 years old. He received an MBA in
finance from Oklahoma City University in 1972 and a Bachelor Degree in
Accounting from Oklahoma State University in 1969. From 1978 to 1980, he
served as Treasurer and CEO of Phoenix Resources Company. From 1980 to 1981,
he served as Vice-President-Finance for Plains Resources, Inc. From 1982 to
1984, he was Vice-President-Finance for Wildcat Mud, Inc. From 1984 to 1992 he
operated an independent consulting service under the name of AHS and
Associates, Inc. Since 1992, he has served as Director and President of
Columbia Production Company and Mid-America Waste Management, Inc. Mr. Sweeney
is a Director of Frontier Natural Gas Corporation of Houston, Texas, a public
corporation.

Committees

                  At the present time, the Company has no operating
committees.

Family Relationships

                  There are no family relationships between any of the present
directors or executive officers of the Company.

Involvement in Certain Legal Proceeding

                  During the past five years, no present or former director,
executive officer, affiliate or person nominated to become a director or an
executive officer of the Company:

          (1) Filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed
by a court for the business or property of such person, or any partnership in
which he or she was a general partner at or within two years before the time
of such filing, or any


                                      36




corporation or business association of which he or she was an
executive officer at or within two years before the time of such
filing;

                  (2) Was convicted in a criminal proceeding or named subject

of a pending criminal proceeding (excluding traffic violations and other minor
offenses);

                  (3) Was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him or her from or
otherwise limiting his or her involvement in any type of business, securities
or banking activities;

                  (4) Was found by a court of competent jurisdiction in a
civil action, by the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated any federal or state securities
law, and the judgment in such civil action or finding by the Securities and
Exchange Commission has not been subsequently reversed, suspended, or vacated.


                                      37



                                    ITEM 6
                            EXECUTIVE COMPENSATION

Compensation

                  The following table sets forth the aggregate compensation
paid by the Company for services rendered during the periods indicated to its
directors and executive officers:



                                                     SUMMARY COMPENSATION TABLE (4)

                                           ANNUAL COMPENSATION                                LONG TERM COMPENSATION

                                                                                     Restricted               Securities
Name & Position                     Year      Salary            Bonus                Stock Awards             Underlying Options (5)
- ---------------                     ----      ------            -----                ------------             ----------------------

                                                                                                  
Walter C. Arzonetti                 1994         0                0                      0                       0
Director                            1995         0                0                      0                       0
                                    1996         0                0                      0                       0

Edgar G. Baugh                      1994         0                0                      0                       0
Director                            1995         0                0                      0                       0
                                    1996         0                0                      0                       0

Benton L. Becker                    1994         0                0                      0                       0
Chairman of                         1995         0                0                      0                       100,000
Board                               1996         0                0                      0                       0

Robert M. Carter (6)                1994         0                0                      0                       0


- --------
         (4) No other compensation was received by any officer or director. 

         (5) No stock options have been repriced during the last completed
fiscal year.

         (6) Has 75,000 options exercisable at $5.00 per share which expire on
February 24, 1999. 22,346 are vested.


                                      38




                                                                                                               
Vice-President                      1995             0                 0                         0                         75,000
                                    1996          $31,570              0                         0                         0

Jeffrey DeMunnik                    1994             0                 0                         0                         0
Secretary                           1995             0                 0                         0                         25,000
Treasurer                           1996          $34,077              0                         0                         0

Jack E. Earnest                     1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         100,000
                                    1996             0                 0                         0                         0

Daniel G. Follmer(7)                1994             0                 0                         0                         0
Chief Financial                     1995             0                 0                         0                         100,000
Officer                             1996          $2,885               0                         0                         0

James A. Gerding                    1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         0
                                    1996             0                 0                         0                         0


Kelly S. Grabill                    1994             0                 0                         0                         0
Secretary                           1995          $10,653              0                         0                         250,000
                                    1996          $ 7,104              0                         0                         0

Raymond E. Johnson                  1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         100,000
                                    1996             0                 0                         0                         0

James E. Kaiser                     1994             0                 0                         0                         0
President                           1995             0                 0                         0                         0
                                    1996           $20,000             0                         0                         0

Charles N. Manhoff                  1994             0                 0                         0                         0





- --------
         (7) Has 100,000 options exercisable at $5.00 per share, which expire
on February 24, 1999. 29,795 are vested.

                                      39





                                                                                                                
Director                            1995             0                 0                         0                         100,000
                                    1996             0                 0                         0                         0

Joe B.Mattei                        1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         100,000

                                    1996             0                 0                         0                         0


William A. Moffett                  1994             0                 0                         0                         0
CEO & Director                      1995             0                 0                         0                         100,000
                                    1996             0                 0                         0                         0

John P. O'Hagan                     1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         100,000
                                    1996             0                 0                         0                         0

Malcolm E. Ratliff                  1994             0                 0                         215,000                   0
CEO                                 1995             0                 0                         0                         0
                                    1996             0                 0                         0                         0

Ted P. Scallan                      1994             0                 0                         0                         0
President                           1995             0                 0                         0                         100,000
                                    1996          $53,120              0                         0                         100,000

Sheila Sloan                        1994             0                 0                         0                         0
Treasurer                           1995             0                 0                         0                         0
                                    1996          $17,850              0                         0                         10,000

Lyle Stocksill                      1994             0                 0                         0                         0
Director                            1995             0                 0                         0                         0
                                    1996             0                 0                         0                         100,000

George E. Walter Jr.                1994             0                 0                         0                         0
President and                       1995         $ 2,584               0                         0                         400,000
Director                            1996            $923               0                         0                         0






                                      40




                                                                                                            
James C. Walter                     1994             0                 0                         0                         0
Vice-President                      1995          $23,076              0                         0                         100,000
Secretary/                          1996           $3,077              0                         0                         0
Treasurer


Elizabeth Wendelken                 1994             0                 0                         0                         0
Secretary                           1995             0                 0                         0                         0
                                    1996          $14,500              0                         0                         10,000






                                      41




                  The following table sets forth the options exercised during
the past 18 months by each of the directors and executive officers, the
exercise price, the number of unexercised options and the value of the
unexercised options as of September 30, 1997:

           Name            Options   Exercise   Unexercised   Value of
                          Exercised  Price       Options    Unexercised
                                                              Options
- ------------------------------------------------------------------------------

Walter C. Arzonetti        88,493     .275       11,507       $138,084

Robert M. Carter           25,000     .275         0              0

Jeffrey D. DeMunnik        20,644     .275        4,366         52,392

Kelly S. Grabill           12,500     .275          0             0

Raymond Johnson, Dec'd     10,000     .275          0             0

Charles N. Manhoff         88,356     .275       11,644        139,728

Joseph B. Mattei           37,000     .275       63,000        756,000

William A. Moffett        100,000     .275       62,613        751,356

Allen Sweeney              66,849     .275          0             0

James C. Walter            35,616     .275       64,384        772,608


Bonuses and Deferred Compensation

                  None; not applicable.

Compensation Pursuant to Plans

                  The Company does not presently have any stock option, stock
incentive, bonus or similar plan for its directors, executive officers or
employees; however, options have been granted to directors and executive
officers and certain consultants of the Company to purchase shares of
"unregistered" and "restricted" common stock of the Company at various prices.
See the heading "Other Compensation" and the "Restricted Stock Options Table"
of this caption, below.

Pension Table

                  The Company does not presently have a pension or similar
plan for its directors, executive officers or employees. Management intends to

adopt a 401(k) plan and full liability insurance for directors and executive
officers and a health insurance plan for employees in the near future.


                                      42




Other Compensation

                  On April 11, 1995, the Board of Directors resolved that each
member of the Board of Directors would receive compensation in the form of an
option to purchase 100,000 "unregistered" and "restricted" post-split shares
of the Company's common stock at a price of $0.25 per share. Pursuant to a
resolution of the Board of Directors on May 2, 1995, the exercise price of
such options was increased to $0.275 per share, which amount was then equal to
110% of the average bid prices for the Company's common stock on the OTC
Bulletin Board on the date of the grant.

                  Commencing on May 4, 1995, certain other officers and
consultants were induced to serve as executive officers or consultants of the
Company in consideration of the grant of a similar option, and these options
were ratified by the Board of Directors at meetings held June 6 and 7, 1995,
in Nashville, Tennessee. At the annual meeting of the Board of Directors which
was held on January 30, 1996, immediately following the annual meeting of
stockholders, the Board of Directors also granted certain other directors,
executive officers, consultants and employees options to acquire shares of the
Company's "unregistered" and "restricted" shares of common stock of the
Company.

                  The following table sets forth the names of the optionees,
the number of shares granted, the dates granted, the exercise price the
expiration dates, the number of shares vested and the market value of the
shares as of September 30,1996.


                                      43







                            OPTION/SAR GRANTS IN LAST FISCAL YEAR AND TO SEPTEMBER 30, 1997

=============================================================================================================================
Name of Option                   Securities             % of                Exer-            Expira-              Grant
Holder                           Underlying             Total               cise             tion                 Date
                                 Total                  Options             Price            Date                 Value
                                 Options                Granted
                                 Granted
- -----------------------------------------------------------------------------------------------------------------------------

                                                                                                        
Robert M. Carter                  75,000                25.4                5.0              2/25/99               103,125
Executive Vice-
President
- -----------------------------------------------------------------------------------------------------------------------------
Daniel G. Follmer                100,000                33.8                5.0              2/24/99               137,500
President-Deceased
- -----------------------------------------------------------------------------------------------------------------------------
Ted P. Scallan                   100,000                33.8                6.375            2/26/97                81,000
Former President
- -----------------------------------------------------------------------------------------------------------------------------
Sheila Sloan                      10,000                3.3                 5.0              6/12/98                80,000
Treasurer
- -----------------------------------------------------------------------------------------------------------------------------
Elizabeth Wendelken               10,000                3.3                 5.0              6/12/98                80,000
Secretary
=============================================================================================================================



                                      44




Compensation of Directors

                  The Board of Directors has resolved to compensate members of
the Board of Directors for attendance at meetings at the rate of $250 per day,
together with direct out-of-pocket expenses incurred in attendance at the
meetings, including travel.

           Members of the Board of Directors may also be requested to perform
consulting or other professional services for the Company from time to time.
The Board of Directors will set a rate of compensation for such services which
may be no less favorable to the Company than if the services had been
performed by an independent third party contractor. The Board of Directors has
reserved to itself the right to review all directors' claims for compensation
on an ad hoc basis.

Employment Contracts

                  There are presently no employment contracts relating to any
member of management. However, depending upon the Company's operations and
requirements, the Company may offer long term contracts to directors,
executive officers or key employees in the future.

Termination of Employment and Change of Control Arrangement

                  None.

Item 7. Certain Relationships and Related Transactions.

Transactions with Management and Others


                  Except as set forth hereafter, there have been no material
transactions, series of similar transactions or currently proposed
transactions, to which the Company or any of its subsidiaries was or is to be
a party, in which the amount involved exceeds $60,000 and in which any
director or executive officer or any security holder who is known to the
Company to own of record or beneficially more than 5% of the Company's common
stock, or any member of the immediate family of any of the foregoing persons,
had a material interest.

                  At the Company's inception, the Board of Directors
authorized the issuance of 600,000 shares of its then $0.10 par value common
voting stock to directors, executive officers and persons who may be deemed to
have been promoters or founders of the Company in consideration of the
conveyance to the Company of approximately 10 lode mining claims located in
the Battle Mountain Mining District, State of Nevada. The Company conducted
limited mining operations following its organization.

                  In connection with a change in control of the Company, in
January, 1983, the Board of Directors of the Company authorized the issuance
of 1,500,000 "unregistered" and "restricted" shares of its


                                      45




common stock to certain directors and executive officers in consideration of
cash and services rendered of an aggregate value of $7,500.

                  At a special meeting of the Board of Directors held April
11, 1995, the Board of Directors adopted resolutions providing for the
granting of options to purchase "unregistered" and "restricted" shares of
common stock of the Company to certain directors, executive officers and
consultants whose service was to commence on the closing of a Purchase
Agreement then being negotiated with Industrial Resources Corporation, a
Kentucky corporation ("IRC"). See, "Executive Compensation" - "Other
Compensation" below.

                  At a special meeting of stockholders held on April 28, 1995,
the Company's stockholders voted to approve the execution of the Purchase
Agreement pursuant to which the Company would acquire certain oil and gas
leases, equipment, securities and vehicles owned by IRC, in consideration of
the issuance of 4,000,000 post-split (as described below) "unregistered" and
"restricted" shares of the Company's common stock.

                  Thereafter, the Purchase Agreement was amended to provide
for the sale of certain additional assets for a price of $450,000 paid by the
execution by the Company of a promissory note in that amount.

                  The assets acquired by the Company pursuant to the Purchase
Agreement, as amended, consisted of machinery and equipment, vehicles,
computer equipment, furniture and fixtures, well equipment, land leases,

intangible drilling costs and stock of United Petroleum Corp., a public
company. The book value of these assets was $1,752,000 at the time of the
acquisition. The 4,000,000 shares of the Company's stock given as
consideration for those assets had a market value, at that time, of $1,000,000
based upon a bid price of $.25 as reported by the National Quotation Bureau.
The total cost of these assets to the Company, including the $450,000 note,
was $1,450,000. IRC may be deemed to have been an affiliate. The Company
believes that the terms of the Purchase Agreement were at least favorable as
those it could have received from an unaffiliated party.

                  On May 2, 1995, in connection with the execution of the
Purchase Agreement, Jeffrey D. Jenson, Kathleen L. Morrison and Travis
T. Jenson resigned as directors and executive officers of the Company
and the following individuals were appointed to serve as directors in
their stead: George E. Walter, Jr.; Raymond E. Johnson; Jack E.
Earnest; Edgar G. Baugh; Walter C. Arzonetti; Charles N. Manhoff; Joe
B. Mattei; William A. Moffett; John O'Hagan; and Benton L. Becker.
George E. Walter, Jr. was also appointed President/CEO of the Company,
and James C. Walter was appointed Vice President and
Secretary/Treasurer. None of the retiring directors had received
compensation in excess of $100,000 prior to May 2, 1995.

                  As compensation for services rendered and to be rendered to


                                      46




the Company, including services relating to the Purchase Agreement,
on May 2, 1995, the Company also executed three written compensation
agreements (the "Compensation Agreements") providing for the issuance
of a total of 505,000 "unregistered" and "restricted" shares of common
stock to the following individuals: M. E. Ratliff, Jeffrey D. Jenson; 
and Leonard W. Burningham, Esq.

                  The Compensation Agreements of Messrs. Ratliff and Jenson
provided for the issuance of 215,000 and 240,000 "unregistered" and
"restricted" post-split shares (the one for two reverse split was not effected
until May 4, 1995), respectively, to these individuals as compensation for
services valued by the Company at $21,500 each. Initially, Mr. Ratliff was to
receive the same number of shares as Mr. Jenson; however, he agreed to reduce
the number of shares he was to receive by 25,000 shares, with the additional
shares being allocated as part of the shares of common stock to be issued to
Mr. Burningham under one of the Compensation Agreements, as outlined below.
The shares issued to Mr. Jenson who is a non-affiliate, may be sold without
restriction at any time after May 4, 1997. The shares issued to Mr. Ratliff,
who may be deemed an affiliate, may not be sold until such time as the Company
becomes a reporting company in accordance with the Rules of the Commission.

                  The Compensation Agreement of Mr. Burningham provided for
the issuance of 50,000 "unregistered" and "restricted" post-split shares of
common stock as compensation for legal services rendered and to be rendered to

the Company, exclusive of costs. These services were valued by the Company at
$5,000. The shares owned by Mr. Burningham, who is not an affiliate, became
free trading on May 4, 1997 pursuant to Rule 144 of the Rules of the
Securities and Exchange Commission.

                  Effective December 31, 1995, IRC agreed to accept 164,266
"unregistered" and "restricted" shares of the Company's common stock, with a
market value of $5.37 per share on such date, as full payment for debt of
approximately $882,112.25 of the Company to IRC. This debt included the note
for $450,000 plus advances of $403,613 made by IRC in 1995, for use as working
capital; for payment of salaries; for the acquisition of leases (approximately
100 leases at a cost of $4 per acre); for expert evaluations; and for legal
services. These shares represented approximately 3% of the outstanding shares
of the Company. The price was determined based upon the average trading price
for shares of common stock of the Company on the OTC Bulletin Board as of
December 31, 1995. See, "Security Ownership of Certain Beneficial Owners and
Management", for information regarding the voting securities of the Company
owned by IRC.

Certain Business Relationships

                  Except as set forth hereafter, there are no business


                                      47




relationships, existing or planned, between the Company or any of its
subsidiaries and any director or executive officer or any security holder who
is known to the Company to own of record or beneficially more than 5% of the
Company's common stock, or any member of the immediate family of any of the
foregoing persons.

                  During 1995, the Company converted $882,000 of debt payable
to IRC to 164,000 shares of common stock. The debt included a promissory note
for $450,000 which was given to IRC, along with 4,000,000 shares of common
stock as the purchase price for approximately $1,752,000 of assets consisting
of property, plant and equipment, oil and gas leases and marketable
securities.

                  During 1996, the Company converted $992,000 of debt payable
to IRC to 101,146 shares of common stock and $114,712 of debt payable to
Malcolm E. Ratliff to 13,320 shares of common stock. Both obligations arose
from loans to the Company by IRC and Malcolm E.
Ratliff.

                  During 1997, the Company converted $333,719 of debt payable
to IRC to 59,328 shares of common stock, $12,398 of debt payable to Malcolm E.
Ratliff to 2,204 shares of common stock and $138,105 of debt payable to
Tracmark, Inc. to 24,552 shares of common stock. Those obligations arose from
loans to the Company by IRC. Malcolm E. Ratliff and Tracmark, Inc.


Indebtedness of Management

                  No officer, director or security holder known to the Company
to own of record or beneficially more than 5% of the Company's common stock or
any member of the immediate family of any of the foregoing persons is indebted
to the Company.

Parents of the Issuer

                  Unless IRC may be deemed to be a parent of the Company by
virtue of its stock ownership, the Company has no parents.

Transactions with Promoters

                  With the exception of the Compensation Agreements of Malcolm
E. Ratliff and Jeffrey D. Jenson, and the issuance of "unregistered" and
"restricted" shares of the Company's common stock to IRC, Malcolm E. Ratliff
and Tracmark, Inc. in cancellation of debt, all as outlined under the heading
"Description of Business" - "Business Development", Part I, Item 1 above, and
those options outlined under the caption "Executive Compensation", Part I,
Item 6 above, there have been no material transactions, series of similar
transactions, currently proposed transactions, or series of similar
transactions, to which the Company or any of its subsidiaries was or is to be
a party, in which


                                      48




the amount involved exceeds $60,000 and in which any promoter or founder or
any member of the immediate family of any of the foregoing persons, had a
material interest. See the caption "Description of Business", Part I, Item 1
above, and the Exhibit Index.

Item 8.  Description of Securities.

Authorized Capital Stock

                  The authorized capital stock of the Company consists of
50,000,000 shares of common stock with a one mill ($0.001) par value per
share.

Common Stock

                  The holders of the common stock are entitled to one vote per
share on each matter submitted to a vote at any meeting of stockholders.
Shares of common stock do not carry cumulative voting rights, and therefore, a
majority of the shares of outstanding common stock will be able to elect the
entire Board of Directors and, if they do so, minority stockholders would not
be able to elect any persons to the Board of Directors. The Company's by-laws
provide that a majority of the issued and outstanding shares of the Company
shall constitute a quorum for stockholders meetings except with respect to

certain matters for which a greater percentage quorum is required by statute
or the by-laws.

                  Stockholders of the Company have no preemptive rights to
acquire additional shares of common stock or other securities. The common
stock is not subject to redemption and carries no subscription or conversion
rights. In the event of liquidation of the Company, the shares of common stock
are entitled to share equally in corporate assets after satisfaction of all
liabilities. Holders of common stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. The Company seeks growth and expansion
of its business through the reinvestment of profits, if any, and except as
indicated under the heading "Dividends" of the caption "Market Price of and
Dividends On the Company's Common Equity and Other Stockholder Matters," Part
II, Item 1, below, the Company does not anticipate that it will pay dividends
in the foreseeable future.

                  The Board of Directors has the authority to issue the
authorized but unissued shares of common stock without action by the
stockholders. The issuance of such shares would reduce the percentage
ownership held by existing shareholders and may dilute the book value of their
shares.

                  There are no provisions in the By-laws or Articles of
Incorporation of the Company which would delay, defer or prevent a change in
control of the Company.


                                      49




                                    PART II

Item 1. Market Price of and Dividends on the Company's Common Stock
and Other Stockholder Matters.

Market Information

                  The Company's common stock is listed on the OTC Bulletin
Board of the NASD; however, the market for shares of the Company's common
stock was extremely limited until the closing of the Purchase Agreement with
IRC in May of 1995. No assurance can be given that the present market for the
Company's common stock will continue or will be maintained, and the sale of
the Company's "unregistered" and "restricted" common stock pursuant to Rule
144 by IRC or others as outlined under the heading "Special Risk Factors" of
the caption "Description of Business," Part I, Item 1, above, of this
Registration Statement may have a substantial adverse impact on any such
public market. See the specific risk factor entitled "Future Sales of Common
Stock," therein.

                  The Company's common stock has been listed on the OTC
Bulletin Board since the quarter ended March 31, 1994. The high and low bid

prices for shares of common stock of the Company since that period ( including
inter-dealer transactions) are as follows:

                    - THIS SPACE INTENTIONALLY LEFT BLANK -


                                      50




                                               Bid

Quarter ending:                         High               Low

March 31, 1994(8)                       0.25              2

June 30, 1994                           0.25              0.125

September 30, 1994                      0.25              0.125

December 31, 1994                       0.25              0.25

March 31, 1995                          0.25              0.25

June 30, 1995                           3.75              0.25

September 30, 1995                      9.00              3.125

December 31, 1995                       8.00              5.375

March 31, 1996                         11.00              7.625

June 30,1996                           14.50              5.50

September 30, 1996                     18.00              8.25

December 31, 1996                      18.50              9.50

March 31, 1997                         17.25             10.00

June 30, 1997                          14.50             10.50

September 30, 1997                     13.50              8.25


                  These bid prices were obtained from the National Quotation
Bureau, Inc. ("NQB") and do not necessarily reflect actual
transactions, retail markups, mark downs or commissions. The
transactions include inter-dealer transactions.

Holders

                  The number of record holders of the Company's common stock

as of September 30, 1997, was approximately 382.

Dividends

- --------
         (8) The high bid price for the quarter ended March 31, 1994 is a
trading price only.


                                      51




                  There are no present material restrictions that limit the
ability of the Company to pay dividends on common stock or that are likely to
do so in the future. The Company has not paid any dividends with respect to
its common stock, and does not intend to pay dividends in the foreseeable
future.

Item 2.  Legal Proceedings

                  Except as described hereafter, the Company is not a party to
any pending material legal proceeding. To the knowledge of management, no
federal, state or local governmental agency is presently contemplating any
proceeding against the Company. To the knowledge of management, no director,
executive officer or affiliate of the Company or owner of record or
beneficially of more than 5% of the Company's common stock is a party adverse
to the Company or has a material interest adverse to the Company in any
proceeding.

                  The Company is a defendant in an action commenced on March
18, 1997 in the Supreme Court of the State of New, New York County by a
lender, Ulrich Hocker, seeking the recovery of $250,000 based upon a
promissory note. The plaintiff sought accelerated summary judgment by filing a
motion without a complaint. The motion was denied and the plaintiff was given
an opportunity to file a complaint which he did on November 10, 1997. The
Company plans to defend the action and has been advised by counsel that it has
valid defenses to the claim.

                  The Company filed an action in Chancery Court for Knox
County, Tennessee on March 21, 1997 against that lender and two other lenders,
Thieme Fonds and Wallington Investments, Ltd., as well as Theodore Scallan,
the Company's former President, to invalidate warrants which were issued in
connection with and as consideration for those loans. The warrants authorize
the lenders to purchase common Stock of the Company at $5 per share or at
lower prices depending upon the difference between $17 per share and the
market price of the Company's stock at the time the warrants are exercised.
Should the market value of the Company's stock drop low enough, the exercise
price of the warrants would be so low that the holders of the warrants could
theoretically acquire a controlling interest in the Company. It is the
position of management that these warrants were never validly issued and are
null and void because they were not properly authorized by the Company's Board
of Directors. In addition, it is the position of the Company that fees paid to

Heiko Thieme who represented all of the lenders and the warrants issued as
consideration for the loan constituted usurious interest.

                  In connection with the aforementioned loan transactions, the
Company granted a mortgage to the lenders on all of its property. The
existence of that mortgage has hindered the Company's efforts to obtain
funding for the purpose of completing the pipeline and continuing drilling
activities. The Company sought permission from the Court in Tennessee to
substitute a bond in place of the mortgage. The Court refused the request
because all of the defendants had not yet


                                      52




been served. All defendants have now been served and the Company intends to
renew its request to file a bond. The Company has received a proposal from
counsel for the defendants offering to release the mortgage if a bond in the
amount of approximately $1,350,000 is filed. The Company is now attempting to
arrange for the issuance of the bond.

                  At the time the Company sought to obtain a release of the
mortgage by filing a bond, it was important to obtain that release because the
availability of additional necessary funds was conditioned upon a lender's
ability to obtain a first mortgage on the leased property. Since that time,
the Company has been able to obtain additional financing in the amount of
$4,101,600 by means of private placements of its common stock, $582,222 as
loans from IRC, Malcolm E. Ratliff and Tracmark and $310,000 pursuant to an
arrangement with Shigemi Morita, a director of the Company and a William E.
Evans, as Trustee, to fund the drilling of additional wells on a loan
participation basis.

                  An action was commenced on March 5, 1996 in the Circuit
Court of Hancock County, Tennessee by the Company and Paul H. Reed, a
landowner from whom the Company had leased certain land, against Eastern
American Energy seeking a determination that a lease entered into more than
ten years earlier between the landowner and Eastern American Energy had
terminated. The Circuit Court held that, under Tennessee law, the lease had
terminated because Eastern American Energy was not producing oil or gas.
Eastern American Energy appealed to the Court of Appeals which affirmed the
decision below in favor of the Company.

                  The United States Environmental Protection Agency issued an
order, to the Company on July 16, 1997 directing it to take certain remedial
action to restore certain damage to the Clinch River resulting from the
Company's construction of the pipeline. The Company has complied with all the
requirements set forth in the order and has been determined to be in full
compliance by the U.S. Environmental Protection Agency. The order required
that all work be stopped pending compliance. That stop order was lifted on
September 20, 1997 and the Company has continued its work on the pipeline
which has only 3 miles to go and should be completed by the end of 1997. The
Company raised $1,702,708 during August through October 1997 for completion of

this work and to finance drilling activities by means of private placements of
its stock.

Item 3.  Changes in and Disagreements with Accountants on
       Accounting and Financial Disclosure.

Change from David T. Thomson, CPA to Charles M. Stivers, CPA


                                      53




                  David T. Thomson, Certified Public Accountant, of Salt Lake
City, Utah, audited the financial statements of Onasco Companies, Inc. (the
Company's predecessor), for the year ended December 31, 1994. This financial
statement accompanies this Registration Statement.

                  Charles M. Stivers, Certified Public Accountant, of
Manchester, Kentucky, was engaged as the Company's accountant on May 4, 1995,
and reviewed interim unaudited financial statements of the Company prepared by
management. This financial statement accompanies this Registration Statement.

                  There were no disagreements between the Company and Mr.
Thomson, whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved, would have caused him to make reference to
the subject matter of the disagreement in connection with his report.

                  The decision to change principal accountants was not
submitted for approval to the Board of Directors; the change was made by the
Company's President to Mr. Stivers because Mr. Stivers was the accountant who
audited the cost basis of the principal assets of the Company acquired from
IRC pursuant to the Purchase Agreement in May of 1995, and the Company had
little or no operations prior to the completion of the Purchase Agreement.

                  Also, during the Company's two most recent fiscal years, and
since then, Mr. Thomson has not advised the Company that any of the following
exist or are applicable:

                        (1)     That the internal controls necessary for the
                                Company to develop reliable financial
                                statements do not exist, that information has
                                come to his attention that has led him to no
                                longer be able to rely on management's
                                representations, or that has made him
                                unwilling to be associated with the financial
                                statements prepared by management,

                        (2)     That the Company needs to expand significantly
                                the scope of its audit, or that information
                                has come to his attention that if further
                                investigated may materially impact the

                                fairness or reliability of a previously issued
                                audit report or the underlying financial
                                statements or any other financial
                                presentation, or cause him to be unwilling to
                                rely on management's representations or be
                                associated with the Company's financial
                                statements for the foregoing reasons or any
                                other reason; or

                        (3)     That he has advised the Company that
                                information has come to his attention that he
                                has concluded


                                      54




                                materially impacts the fairness or reliability
                                of either a previously issued audit report or
                                the underlying financial statements for the
                                foregoing reasons or any other reason.

                  Further, during the Company's two most recent fiscal years
and since then, the Company has not consulted Mr. Thomson regarding the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements or any other financial presentation
whatsoever.

                  The Company has provided Mr. Thomson with a copy of the
disclosure provided under this caption of the Registration Statement, and has
advised him to provide the Company with a letter addressed to the Securities
and Exchange Commission as to whether he agrees or disagrees with the
disclosures made herein. A copy of his response is attached hereto and
incorporated herein by reference. See the Exhibit Index.

Change from Charles M. Stivers, CPA, to Price-Bednar, LLP, CPA

                  Price-Bednar, LLP, Certified Public Accountants, were
engaged as the Company's accountants as of February 22, 1996, to audit the
financial statements of the Company for the calendar year ending December 31,
1995.

                  There were no disagreements between the Company and Mr.
Stivers, whether resolved or not resolved, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved, would have caused him to make reference to
the subject matter of the disagreement in connection with his unaudited
reports.

                  The unaudited reports of Mr. Stivers include a paragraph
which discusses doubts about the Company's ability to continue as a going

concern in view of its operating losses and working capital deficiency.

                  The decision to change principal accountants was submitted
for approval to the Board of Directors; the change was made to Price-Bednar
because the Company was seeking to find a larger accounting firm with more
in-depth experience in Commission filings.

                  Also, during the Company's most recent fiscal year, and
since then, Mr. Stivers has not advised the Company that any of the following
exist or are applicable:

                        (1)     That the internal controls necessary for the
                                Company to develop reliable financial
                                statements do not exist, that information has
                                come to his attention that has led him to no
                                longer be able to rely on management's


                                      55




                                representations, or that has made him
                                unwilling to be associated with the financial
                                statements prepared by management;

                        (2)     That the Company needs to expand significantly
                                the scope of its audit, or that information
                                has come to his attention that if further
                                investigated may materially impact the
                                fairness or reliability of a previously issued
                                audit report or the underlying financial
                                statements or any other financial
                                presentation, or cause him to be unwilling to
                                rely on management's representations or be
                                associated with the Company's financial
                                statements for the foregoing reasons or any
                                other reason; or

                        (3)     That he has advised the Company that
                                information has come to his attention that he
                                has concluded materially impacts the fairness
                                or reliability of either a previously issued
                                audit report or the underlying financial
                                statements for the foregoing reasons or any
                                other reason.

                  Further, during the Company's most recent fiscal year and
since then, the Company has not consulted Mr. Stivers regarding the
application of accounting principles to a specified transaction, either
completed or proposed or the type of audit opinion that might be rendered on
the Company's financial statements or any other financial presentation
whatsoever.


                  The Company has provided Mr. Stivers with a copy of the
disclosure provided under this caption of the Registration Statement, and has
advised him to provide the Company with a letter addressed to the Securities
and Exchange Commission as to whether he agrees or disagrees with the
disclosures made herein. A copy of his response is attached hereto and
incorporated herein by reference. See the Exhibit Index.

Change from Price-Bednar, LLP, CPA to Charles M. Stivers, CPA

                  The Company had engaged the services of another accountant
to complete certain preparatory on-site audit activities for preliminary
review by Price-Bednar. These services were not timely provided by the other
accountant. Also, many of the records of IRC were unavailable, and,
Price-Bednar required a number of these records to be reconstructed prior to
its completion of the audit. During the week of May 20, 1996, the Company was
advised that the principal accountant of Price-Bednar, who was responsible for
the Company's audit, would be out of town for the following week, and it
became clear that Price-Bednar would not be able to complete the audit for at
least three weeks, because certain information requested by them had not yet
been provided by the Company. Price-Bednar was terminated


                                      56




by the President, effective June 7, 1996, and Charles M. Stivers, CPA, who had
been engaged to conduct the preparatory on-site audit activities for
Price-Bednar when the other accountant failed to perform as promised,
indicated that he could timely deliver the required audit report and was
promptly engaged to do so by the Board of Directors.

                  Also, during, the Company's two most recent fiscal years,
and since then, Price-Bednar has not advised the Company that any of the
following exist or are applicable:

                        (1)     That the internal controls necessary for the
                                Company to develop reliable financial
                                statements do not exist, that information has
                                come to their attention that has led them to
                                no longer be able to rely on management's
                                representations, or that has made them
                                unwilling to be associated with the financial
                                statements prepared by management;

                        (2)     That the Company needs to expand significantly
                                the scope of its audit, or that information
                                has come to their attention that if further
                                investigated may materially impact the
                                fairness or reliability of a previously issued
                                audit report or the underlying financial
                                statements or any other financial

                                presentation, or cause them to be unwilling to
                                rely on management's representations or be
                                associated with the Company's financial
                                statements for the foregoing reasons or any
                                other reason; or

                        (3)     That they have advised the Company that
                                information has come to their attention that
                                they have concluded materially impacts the
                                fairness or reliability of either a previously
                                issued report or the underlying financial
                                statements for the foregoing reasons or any
                                other reason.

                  Further, during the Company's two most recent fiscal years
and since then, the Company has not consulted Price-Bednar regarding the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements or any other financial presentation
whatsoever.

                  The Company has provided Price-Bednar with a copy of the
disclosure provided under this caption of the Registration Statement, and has
advised them to provide the Company with a letter addressed to the Commission
as to whether they agree or disagree with the disclosures made herein. A copy
of their response is attached hereto and incorporated herein by reference. See
the Exhibit Index


                                      57




Change from Charles M. Stivers, CPA, to BDO Seidman

                  On December 15, 1996, the Company terminated Charles M.
Stivers, CPA and retained BDO Seidman, LLP to conduct the audit of the
Company's financial statements for the year ended December 31, 1996 because it
became apparent that Charles M. Stivers, as an individual practitioner, would
not be able to perform the required audit on a timely basis.

                  The report of Charles M. Stivers for fiscal year ended
December 31, 1995 includes a paragraph which discusses doubts about the
Company's ability to continue as a going concern in view of its operating
losses and working capital deficiency.

                  During, the Company's two most recent fiscal years, and
since then, Charles M. Stivers has not advised the Company that any of the
following exist or are applicable:

                        (1)     That the internal controls necessary for the
                                Company to develop reliable financial
                                statements do not exist, that information has

                                come to his attention that has led him to no
                                longer be able to rely on management's
                                representations, or that has made him
                                unwilling to be associated with the financial
                                statements prepared by management;

                        (2)     That the Company needs to expand significantly
                                the scope of its audit, or that information
                                has come to his attention that if further
                                investigated may materially impact the
                                fairness or reliability of a previously issued
                                audit report or the underlying financial
                                statements or any other financial
                                presentation, or cause him to be unwilling to
                                rely on management's representations or be
                                associated with the Company's financial
                                statements for the foregoing reasons or any
                                other reason; or

                        (3)     That he has advised the Company that
                                information has come to his attention that he
                                has concluded materially impacts the fairness
                                or reliability of either a previously issued
                                report or the underlying financial statements
                                for the foregoing reasons or any other reason.

                  Further, during the Company's two most recent fiscal years
and since then, the Company has not consulted Charles M. Stivers regarding the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements or any other financial presentation
whatsoever.


                                      58




                  The Company has provided Charles M. Stivers with a copy of
the disclosure provided under this caption of the Registration Statement, and
has advised him to provide the Company with a letter addressed to the
Commission as to whether they agree or disagree with the disclosures made
herein. A copy of their response is attached hereto and incorporated herein by
reference. See the Exhibit Index

Item 4.  Recent Sales of Unregistered Securities.

                  The following table provides information with respect to the
sale of all "unregistered" and "restricted" securities sold by the Company
during the past three years, which were not registered under the 1933 Act:

                                             Number
                                 Date          Of       Aggregate

Name of Owner                  Acquired      Shares   Consideration

Robert C. Bohannon, Ph.D.      11/8/94      8,750         1

Henry H. Tate, Jr.             11/8/94      3,750         1

Industrial Resources           5/4/95   4,000,000         2
Corporation

M. E. Ratliff                  5/15/95    215,000         3

Jeffrey D. Jenson              5/15/95    240,000         3

Leonard W. Burningham, Esq.    5/15/95     50,000         3

Duane S. Jenson                9/29/95      4,000         4

Craig Carpenter                9/29/95      4,000         4

Industrial Resources           3/29/96     76,557         5
Corporation                    4/10/96     87,709         5

Allen Sweeney                 12/31/96     33,151         6

Russell Ratliff                3/29/96     37,534         6

James C. Walter                3/22/96     35,616         6

Mike Johnson                   3/26/96     10,000         6


                                      59




Estate of Raymond E. Johnson   4/3/96      10,000         6

Charles N. Manhoff             4/10/96     88,356         6

Joseph B. Mattei               4/19/96     37,000         6

William A. Moffett             4/23/96     37,397         6
                               6/25/97     72,603         6

Jeffrey DeMunnik               5/29/96     16,664         6
                               3/15/97      4,000         6

Robert M. Carter               6/15/96     15,671         6
                               8/26/96      2,000         6
                               6/30/97      7,329         6

Kelly S. Grabill               7/29/96     12,500         6


Jeff Brockman                  7/29/96     10,000         6
                               8/29/96     62,329         6

Robert Janda                   9/5/96      22,730     $187,520

Donald Janda                   9/5/96       2,131     $ 17,580

William Evans                  9/5/96      12,121     $100,000

Walter C.  Arzonetti           4/22/97     88,493          6

Neil Harding                   5/21/97    100,000          7

Michael McCown                 6/30/97     50,000          6

Stanley E. and Sharon E.      10/15/97      6,000     $ 53,580
Adams

Gurvin and Margaret Bailey     9/29/97      4,500     $ 36,225

Jeannie Borger                10/17/97        224     $  2,000

Elizabeth E. Burleson          9/15/97        500      $ 3,895
Rev. Tr. Dtd. 5/6/93

Christopher Day                8/22/97        482      $ 2,996

Sharon Funk                   10/17/97      5,599      $ 49,999

Frederick Funk                10/17/97      2,158      $ 20,000

Dennis Gates                                7,000      $ 58,800


                                      60




James A. Gerding                     8/30/97        20,000           $140,000

Wayne H. Gillis                      8/26/97        14,286           $100,000

Edward W.T. White                    8/22/97        80,515           $500,000

William C. Habersett                 9/22/97         2,197           $ 15,005
TTEE, U.T.D. 9/1/94

William C. Habersett                 9/22/97         1,500           $ 11,550
TTEE, U.T.D. 9/1/94

Earl Hampton                         9/26/97           500           $  3,850

Bill L. Harbert                     10/13/97        34,286           $300,002


Robert M. Honeycutt                 10/20/97           100           $    893

Michael J. Jones                    10/16/97         2,200           $ 20,020

Paul Claude Jungman                 10/15/97           560           $  5,000

Wilbert L. Kail                      9/6/97          1,000           $  6,650

John P. Kaner                        9/24/97           400           $  2,976

James M. Koukourmelis               10/22/97           500           $  4,815

Stephen Lautzenhiser                 8/19/97           800           $  4,832

William F. Miller, Jr.              10/13/97         3,000           $ 26,250

Shirley Milligan                    10/3/97            300           $  2,415
TTEE, Tr UA 7/30/90

Donald L. Scott                     10/16/97         2,200           $ 20,020

Randall L. Scott                    10/16/97         2,200           $ 20,020

Robert J. Stanley                   10/14/97        11,313           $100,006

Joseph Stever, Jr.                   8/19/97         1,703           $  9,996

Shawn Lee Thurman                    8/26/97           219           $  1,495

T. Owen Vickers                     10/14/97         7,584           $ 64,994

Viam Charitable and                 10/13/97        11,905           $100,000
Educational Foundation, Inc.

Robert A. Lange                     10/10/97         1,500           $ 13,245


                                      61




Thomas Strickland, Jr                   8/27/97             200     $    1,174

Frank S. Buck and                       10/22/97          5,000     $   47,250
Martha Buck

Daryl Greene                            10/13/97          5,000     $   42,000

Regions Bank, TTEE for                  10/13/97          5,656     $   49,999
Bobby P. Lemay Directed IRA

The Fortune Hunters                     10/9/97             201     $    1,759

Investment Club

Step, Inc.                              10/22/97          2,000     $   18,200

S. Kent Stewart TTEE                    10/23/97          2,500     $   22,550
UA Tr. Dtd. 12/28/88

Egger and Company                       10/28/97        202,380     $1,700,000

Spoonbill, Inc.                         10/23/97         54,946     $  499,993

Patricia Knott                          10/24/97            500     $    4,550

Ronald M. Jones                         10/28/97          1,500     $   12,600

John Ershek                             11/3/97           5,000     $   41,100

Richard H. Reventlaw                    11/6/97          10,989     $   99,999

Charles A. Thomson                      10/29/97          2,000     $   15,400

Micah Cole Nevin                        11/6/97             100     $      945

Richard T. Arkwright                    11/4/97          10,989     $   99,999

William Curtis Leonard                  11/7/97             216     $    2,004

Peter C.C. Huang                        11/6/97          16,008     $  149,994

Stephen Huang                           11/6/97           5,336     $   49,998

Deidra A. Huang                         11/6/97           5,336     $   49,998

William Edgar Welden, Sr.               11/11/97          2,528     $   25,000

William Edgar Welden, Jr.               11/11/97            506     $    5,000

Hamac & Co.                             11/5/97          10,582     $   99,999

Spoonbill, Inc.                         10/23/97         38,460     $  349,983


                                      62




William C. Habersett,                     11/14/97         1,000      $ 10,240
TTEE Tr. 9/1/94

W. N. Watson                              11/6/97            534      $  5,003

Terry Gillis                              11/6/97          2,667      $ 24,989


Joseph Presnell                           11/14/97         2,000      $ 20,480

Harold P. L'Hussier                       11/17/97         1,406      $ 15,002

Edith T. Habersett, TTEE                  11/18/97         1,500      $ 16,020

Robert A. Chandler                        11/13/97           500      $  4,945

Spoonbill, Inc.                           10/23/97        16,486      $149,983

Terry Gillis                              11/14/97         1,465      $ 15,001



               1    Issued in consideration of services rendered to the
                    Company. The services were ministerial and the
                    compensation was nominal since the shares were restricted
                    and the average market price before a discount were only
                    $0.18 per share.

               2    Issued to IRC in consideration of the conveyance by IRC to
                    the Company of certain oil and gas leases, equipment,
                    securities and vehicles pursuant to the Purchase
                    Agreement. See, "Description of Business" "Business
                    Development" above.

               3    Issued in consideration of services rendered to the
                    Company. See, "Description of Business" - "Business
                    Development" above. The services related to the
                    negotiation and consummation of the Purchase Agreement.
                    The value attributed to the shares would have been
                    approximately $0.12 per share based upon an average market
                    price of $0.18 per share discounted because of the
                    restricted nature of the shares and the lack of liquidity.

               4    Issued in consideration of the conveyance of an Eimco
                    Caterpillar.

               5    Issued in consideration of the cancellation of debt owed
                    by the Company to IRC. See, "Description of Business" -
                    "Business Development" above.

               6    Issued pursuant to Stock Option Agreements adopted by the
                    Board of Directors granting these persons an


                                      63




                    option to purchase "unregistered" and "restricted" shares
                    of the Company's common stock at a price of $0.275 per
                    share. See, "Executive Compensation" - "Restricted Stock

                    Options Table" above.

               7    Issued as consideration for the granting of a loan in the
                    amount of $1,000,000.

                  Management believes that all of the foregoing persons were
either "accredited investors" as that term is defined under applicable federal
and state securities laws, rules and regulations, or were persons who by
virtue of background, education and experience who could accurately evaluate
the risks and merits attendant to an investment in the securities of the
Company. Further, all such persons were provided with access to all material
information regarding the Company, prior to the offer or sale of these
securities, and each had an opportunity to ask of and receive answers from
directors, executive officers, attorneys and accountants for the Company. The
offers and sales of the foregoing securities are believed to have been exempt
from the registration requirements of Section 5 of the 1933 Act, as amended,
pursuant to Section 4(2) thereof, and from similar state securities laws,
rules and regulations covering the offer and sale of securities by available
state exemptions from such registration.

Item 5.  Indemnification of Directors and Officers.

                  Section 48-18-502 of the Tennessee Business Corporation Act
(the "Act") authorizes a Tennessee corporation to indemnify any director
against liability incurred in a legal proceeding if (i) he or she conducted
himself or herself in good faith; and (ii) he or she reasonably believed that
his or her conduct was in the best interest of the company or, if the conduct
was not undertaken in his or her official capacity, that it was not opposed to
the company's best interests. In the case of a criminal proceeding, the
director must have had no reasonable cause to believe that his or her conduct
was unlawful. A corporation may not indemnify a director under Section
48-18-502 in connection with a proceeding "by or in the right of the
corporation in which the director was adjudged liable to the corporation" or
in connection with any other proceeding charging improper personal benefit to
him or her, in which he or she was adjudged liable on the basis that he or she
improperly received a personal benefit.

                  Unless limited by its charter, Section 48-18-503 of the Act
requires a corporation to indemnify a director who was wholly successful, on
the merits or otherwise, in the defense of any proceeding to which he or she
was a party because of his or her role as director against reasonable expenses
incurred in connection with


                                      64




the proceeding. The Company's charter does not provide any limitations
on this right of indemnification.

                  Pursuant to Section 48-18-504 of the Act, the Company may
advance a director's expenses incurred in defending any proceeding upon

receipt of an undertaking and a statement of the director's good faith belief
that he or she has met the standard of conduct described in Section 48-18-502.

                  Section 48-18-505 permits a court, upon application of a
director, to order indemnification if it determines that the director is
entitled to mandatory indemnification under Section 48-18-503 or that be or
she is fairly and reasonably entitled to indemnification, whether or not he or
she met the standards set forth in Section 48-18-502.

                  Section 48-18-506 limits indemnification under Section
48-18-502 to situations in which either (i) the majority of a disinterested
quorum of directors; (ii) independent special legal counsel; or (iii) the
stockholders determine that indemnification is proper under the circumstances.

                  Unless the corporate charter provides otherwise, Section
48-18-507 extends the rights to indemnification and advancement of expenses to
officers, employees and agents. The Company's corporate charter does not
provide for any limitations on these rights of indemnification.

                  Regardless of whether a director, officer, employee or agent
has the right to indemnity under Section 48-18-502 or Section 48-18-503,
Section 48-18-508 allows the corporation to purchase and maintain insurance on
his or her behalf against liability resulting from his or her corporate role.

                  Section 48-18-509 provides that the rights to
indemnification and advancement of expenses shall not be deemed exclusive of
any other rights under any bylaw, agreement, stockholder vote or vote of
disinterested directors; however, no indemnification may be made where a final
adjudication adverse to the director establishes his or her liability for
breach of duty or loyalty to the corporation or its stockholders or for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law.

                  The Company is seeking bids from insurance companies to
provide Directors' and Executive Officers' Insurance, and has adopted the
provisions of the Act.


                                      65



                                   PART F/S

                         Index to Financial Statements

Financial Statements

                  Audited Financial Statements for the years ended
                  December 31, 1995 and December 31, 1996 .........  F-1

                  Independent Auditors' Reports ...................  F-4

                  Balance Sheet, December 31, 1995 and
                  December 31, 1996 ...............................  F-6

                  Consolidated Statements of Loss for the years
                  ended December 31, 1995 and December 31, 1996 ...  F-8

                  Statement of Stockholder's Equity for the
                  years ended December 31, 1995 and December
                  31, 1996 ........................................  F-9

                  Statement of Cash Flow for the years ended
                  December 31, 1995 and December 31, 1996,
                  during the development stage ....................  F-10

                  Notes to the Financial Statements ...............  F-11

                  Unaudited Financial Statements for the nine months
                  ended September 30, 1997 ........................  F-31

                  Balance Sheet September 30, 1997.................  F-33

                  Statement of Loss for the nine months
                  ended September 30, 1997.........................  F-35

                  Statement of Stockholder's Equity for the
                  nine months ended September 30, 1997.............  F-36

                  Statement of Cash Flow for the nine months
                  ended September 30, 1997.........................  F-37

                  Notes to Financial Statement ....................  F-38


                                      66


                                   PART III

Item 1. Index to Exhibits.

                  The following exhibits are filed as a part of this Amended
Registration Statement:

   Number                         Description

    5.1                   Opinion of Robson & Miller, LLP

   23.1                   Consent of Charles M. Stivers, CPA

   23.3                   Consent of BDO Seidman, LLP

   23.4                   Consent of Robson & Miller, LLP

   23.5                   Consent of Coburn Petroleum Engineering Co.

                  *       Summaries of all exhibits contained within
                          this Registration Statement are modified
                          in their entirety by reference to these
                          Exhibits.


                                      67


     

                                  Tengasco, Inc.
               (formerly Onasco Companies, Inc.)









                                               Consolidated Financial Statements
                                          Years Ended December 31, 1996 and 1995



                                      F-1






                                  Tengasco, Inc.
               (formerly Onasco Companies, Inc.)








================================================================================
                                               Consolidated Financial Statements
                                          Years Ended December 31, 1996 and 1995



                                      F-2




                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                                                        Contents
================================================================================


Report of Independent Certified Public Accountants                             2

Report of Independent Certified Public Accountants                             3


Consolidated Financial Statements

    Balance sheets                                                             4

    Statements of loss                                                         5

    Statements of stockholders' equity                                         6

    Statements of cash flows                                                   7

    Notes to financial statements                                           8-27



                                      F-3




                               CHARLES M. STIVERS
                           Certified Public Accountant
                     1106 Manchester Square Shopping Center
                           Manchester, Kentucky 40962
                                  (606)598-1464

           MEMBER                                              MEMBER           
     KENTUCKY SOCIETY OF                                AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS                        CERTIFIED PUBLIC ACCOUNTANTS

                                              
Report of Independent Certified Public Accountants


Board of Directors
Tengasco, Inc.
Knoxville, Tennessee

I have audited the balance sheet of Tengasco, Inc. as of December 31, 1995, and
the related statements of loss, stockholders' equity and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on our audit.

I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that our audit provides a reasonable basis for our opinion.

In my opinion financial statements referred to above present fairly, in all
material respects, the financial position of Tengasco, Inc. as of December 31,
1995, and the results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.





/s/ Charles M. Stivers

- ---------------------------
Charles M. Stivers
Certified Public Accountant


Manchester, Kentucky
June 5, 1997



                                       F-4



Report of Independent Certified Public Accountants



Board of Directors
  Tengasco, Inc.
Knoxville, Tennessee

We have audited the accompanying consolidated balance sheet of Tengasco, Inc.
and subsidiary as of December 31, 1996, and the related consolidated statements
of loss, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Tengasco, Inc. and
subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. In addition, as of December 31, 1996,
management estimates that additional costs of approximately $1,500,000 are
required to complete its pipeline facilities under construction. Management's
plans in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.


                                          /s/ BDO SEIDMAN, LLP

Atlanta, Georgia
June 5, 1997
(Except for Note 14(c)
  as to which date is
  December 1, 1997)


                                      F-5




================================================================================
December 31,                                                   1996         1995
================================================================================

Assets (Note 9)

Current
   Cash and cash equivalents                             $  146,554   $      712
   Marketable equity securities (Note 5)                       --        250,000
   Accounts receivable                                        4,658        9,018
   Prepaid expenses and other                                 7,463        4,786
- --------------------------------------------------------------------------------

Total current assets                                        158,675      264,516

Oil and gas properties, net (on the basis
   of full cost accounting) (Note 6)                      1,287,142      658,082

Pipeline facilities under construction, at cost (Note 7)    887,315           --

Property and equipment, net (Notes 8 and 10)                203,244      247,401



Other                                                       190,845       10,970
- --------------------------------------------------------------------------------





                                                         $2,727,221   $1,180,969
================================================================================


                                      F-6




                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                                     Consolidated Balance Sheets


================================================================================
December 31,                                                 1996          1995
===============================================================================
Liabilities and Stockholders' Equity

Current
   Notes payable (Note 9)                             $   780,000   $        --
   Loans payable to affiliates (Note 4)                    48,190            --
   Current maturities of long-term debt (Note 10)          14,017        34,038
   Accounts payable - trade                               347,093        46,922
   Accrued liabilities                                     35,086        21,623
- -------------------------------------------------------------------------------

Total current liabilities                               1,224,386       102,583

Long term debt, less current maturities (Note 10)          47,828        59,000
- -------------------------------------------------------------------------------

Total liabilities                                       1,272,214       161,583
- -------------------------------------------------------------------------------

Commitments and contingencies (Notes 7, 9 and 11)

Stockholders' equity (Notes 9 and 14(c))
   Common stock, $.001 par value; 50,000,000 shares
     authorized                                             5,708         5,229
   Additional paid-in capital                           4,783,369     2,425,185
   Unamortized stock option awards                       (292,186)     (130,208)
   Accumulated deficit                                 (3,041,884)   (1,280,820)
- -------------------------------------------------------------------------------

Total stockholders' equity                              1,455,007     1,019,386
- -------------------------------------------------------------------------------

                                                      $ 2,727,221   $ 1,180,969
===============================================================================

                    See accompanying notes to consolidated financial statements.


                                      F-7




                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                                 Consolidated Statements of Loss





====================================================================================
Years ended December 31,                                         1996           1995
====================================================================================
                                                                           
Revenues
   Oil and gas revenues                                   $    26,253    $    27,802
   Other revenues                                                  --            724
- ------------------------------------------------------------------------------------

Total revenues                                                 26,253         28,526
- ------------------------------------------------------------------------------------

Costs and expenses
   Production costs and taxes                                  17,138         20,072
   Depletion, depreciation and amortization                   133,187         89,528
   General and administrative costs                         1,491,690        539,061
   Unrealized holding loss on marketable equity
     securities (Note 5)                                           --        593,752
   Interest expense                                           145,302         32,594
- ------------------------------------------------------------------------------------

Total costs and expenses                                    1,787,317      1,275,007
- ------------------------------------------------------------------------------------

Net loss                                                  $(1,761,064)   $(1,246,481)
====================================================================================

Net loss per common share (Note 14(c))                    $     (0.28)   $     (0.28)
====================================================================================

Weighted average common shares outstanding (Note 14(c))     6,382,840      4,440,398
====================================================================================


                    See accompanying notes to consolidated financial statements.



                                      F-8





                                                                                                          Tengasco, Inc.
                                                                                       (formerly Onasco Companies, Inc.)

                                                                         Consolidated Statements of Stockholders' Equity
=========================================================================================================================
                                                                                         
                                                                                           Unamortized                 
                                                       Common Stock           Additional         stock                 
                                                -------------------------        paid-in        option      Accumulated
                                                   Shares        Amount          capital        awards          deficit
=========================================================================================================================
                                                                                                    
Balance, December 31, 1994                       1,037,600    $     1,038    $     5,300   $        --    $   (34,339)


   Net effect of 1 for 2 reverse split            (518,800)          (519)            --            --             --

   Common stock issued to acquire assets
     of Industrial Resources Corporation         4,000,000          4,000      1,215,460            --             --

   Common stock issued to individuals              505,000            505         47,500            --             --

   Common stock issued for equipment                 8,000              8          2,200            --             --

   Common stock issued for exercised options        33,200             33          9,100            --             --

   Common stock subscribed for the
     extinguishment of debt                        164,300            164        881,900            --             --

   Stock option awards                                  --             --        190,625      (190,625)            --

   Amortization of stock option awards                  --             --             --        60,417             --

   Common stock options granted to
     non-employees                                      --             --         45,000            --             --

   Transfer of debt to equity by shareholder            --             --         28,100            --             --

   Net loss for the year ended
     December 31, 1995                                  --             --             --            --     (1,246,481)
- --------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995                       5,229,300          5,229      2,425,185      (130,208)    (1,280,820)

   Common stock issued for exercised options       327,079            327         90,792            --             --

   Common stock issued for the
     extinguishment of debt                         65,569             66        638,823            --             --

   Common stock subscribed for the

     extinguishment of debt                         48,897             49        421,052            --             --

   Stock  option awards                                 --             --        225,000      (225,000)            --

   Amortization of stock option awards                  --             --             --        63,022             --

   Common stock options granted to
     non-employees                                      --             --        371,864            --             --

   Common stock issued for private
     placements                                     36,982             37        280,653            --             --

   Stock warrants issued in connection
     with notes payable                                 --             --        330,000            --             --


   Net loss for the year ended
     December 31, 1996                                  --             --             --            --     (1,761,064)
- --------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996                       5,707,827    $     5,708    $ 4,783,369   $  (292,186)   $(3,041,884)
==========================================================================================================================


                    See accompanying notes to consolidated financial statements.


                                      F-9





                                                                             Tengasco, Inc.
                                                          (formerly Onasco Companies, Inc.)

                                                      Consolidated Statements of Cash Flows



===========================================================================================
Years ended December 31,                                                1996           1995
===========================================================================================
                                                                          
Operating activities
   Net loss                                                      $(1,761,064)   $(1,246,481)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depletion, depreciation and amortization                      133,187         89,528
       Unrealized holding loss on marketable equity securities            --        593,752
       Loss on disposal of property and equipment                      3,671             --
       Compensation paid in stock options                            434,886        105,417
       Amortization of imputed value of stock warrants issued
         in connection with notes payable                            110,000             --
       Changes in assets and liabilities:
         Accounts receivable                                           4,360         (9,018)
         Prepaid expenses and other                                   (2,677)        (4,786)
         Accounts payable                                            300,171         19,422
         Accrued liabilities                                          13,463         21,623
         Stockholder advances payable                                     --           (500)
- -------------------------------------------------------------------------------------------

Cash used in operating activities                                   (764,003)      (431,043)
- -------------------------------------------------------------------------------------------

Investing activities
   Proceeds from sale of marketable equity securities                250,000             --
   Additions to property and equipment                               (60,754)       (86,786)
   Net additions to oil and gas properties                          (644,951)            --
   Additions to pipeline facilities under construction              (887,315)            --
- -------------------------------------------------------------------------------------------

Cash used in investing activities                                 (1,343,020)       (86,786)
- -------------------------------------------------------------------------------------------

Financing activities
   Payment of loan costs and other                                  (238,798)       (10,970)
   Proceeds from borrowings                                        2,156,581         93,038
   Repayments of borrowings                                          (36,727)            --
   Proceeds from issuance of common stock                            371,809        436,473
- -------------------------------------------------------------------------------------------

Cash provided by financing activities                              2,252,865        518,541

- -------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                            145,842            712

Cash and cash equivalents, beginning of year                             712             --
- -------------------------------------------------------------------------------------------

Cash and cash equivalents, end of year                           $   146,554    $       712
===========================================================================================


                    See accompanying notes to consolidated financial statements.



                                      F-10





                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

1.   Summary of Significant Accounting Policies
                                        
     Organization
                                                                              
     Tengasco, Inc. (the "Company"), a publicly held corporation, was organized
     under the laws of the State of Utah on April 18, 1916, as Gold Deposit
     Mining and Milling Company. The Company subsequently changed its name to
     Onasco Companies, Inc.

     On May 2, 1995, pursuant to a Purchase and Exchange Agreement, the Company
     acquired from Industrial Resources Corporation, a Kentucky corporation
     ("IRC"), certain oil and gas leases, equipment, marketable securities and
     vehicles in exchange for common stock (see Note 3).

     The Company changed its domicile from the State of Utah to the State of
     Tennessee on May 5, 1995 and its name was changed from "Onasco Companies,
     Inc." to "Tengasco, Inc."

     The Company's principal business consists of oil and gas well drilling,
     production and related property management in the Appalachian region of
     eastern Tennessee and eastern Kentucky. The Company's corporate offices are
     in Knoxville, Tennessee.

     During 1996, the Company formed Tengasco Pipeline Corporation, a
     wholly-owned subsidiary, to manage the construction and operation of a
     23-mile gas pipeline.

     Consolidation

     The consolidated financial statements include the accounts of the Company
     and Tengasco Pipeline Corporation. All significant intercompany balances
     and transactions have been eliminated.

     Cash Equivalents

     The Company considers all investments with a maturity of three months or
     less when purchased to be cash equivalents.

     Oil and Gas Properties

     The Company follows the full cost method of accounting for oil and gas
     property acquisition, exploration and development activities. Under this
     method, all productive and nonproductive costs incurred in connection with
     the acquisition of, exploration for and development of oil and gas reserves

     for each cost center 



                                      F-11



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     are capitalized. Capitalized costs include lease acquisitions, geological
     and geophysical work, delay rentals and the costs of drilling, completing
     and equipping oil and gas wells. Gains or losses are recognized only upon
     sales or dispositions of significant amounts of oil and gas reserves.
     Proceeds from all other sales or dispositions are treated as reductions to
     capitalized costs.

     The capitalized costs of oil and gas properties, plus estimated future
     development costs relating to proved reserves and estimated costs of
     plugging and abandonment, net of estimated salvage value, are amortized on
     the unit-of-production method based on total proved reserves. The costs of
     unproved properties are excluded from amortization until the properties are
     evaluated, subject to an annual assessment of whether impairment has
     occurred. The costs of significant development projects awaiting completion
     of pipeline facilities are excluded from amortization until such time as
     the pipeline facilities are completed. The Company's proved gas reserves
     were estimated by Coburn Petroleum Engineering, independent petroleum
     engineers, as of December 31, 1996.

     The capitalized oil and gas property and pipeline costs, less accumulated
     depreciation, depletion and amortization and related deferred income taxes,
     if any, are generally limited to an amount (the ceiling limitation) equal
     to the sum of: (a) the present value of estimated future net revenues
     computed by applying current prices in effect as of the balance sheet date
     (with consideration of price changes only to the extent provided by
     contractual arrangements) to estimated future production of proved oil and
     gas reserves, less estimated future expenditures (based on current costs)
     to be incurred in developing and producing the reserves using a discount
     factor of 10% and assuming continuation of existing economic conditions;
     and (b) the cost of investments in unevaluated properties excluded from the
     costs being amortized.

     Pipeline Facilities Under Construction

     Pipeline facilities under construction are carried at cost. The Company
     will provide for depreciation of the pipeline facilities using the
     straight-line method over the estimated useful life of the asset once the
     pipeline is completed and placed in service. The pipeline facilities are
     expected to be completed during 



                                      F-12


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     the third quarter of 1997. Accordingly, no depreciation expense has been
     recorded for 1996 and 1995 relating to the pipeline facilities.

     Property and Equipment

     Property and equipment are carried at cost. The Company provides for
     depreciation of property and equipment using the straight-line method over
     the estimated useful lives of the assets which range from five to seven
     years.

     Other Assets

     Other assets consist principally of deferred loan costs that the Company is
     amortizing over the term of the respective loans, which is six months.

     Income Taxes

     The Company accounts for income taxes in accordance with Statement of
     Financial Accounting Standards No. 109, "Accounting for Income Taxes" which
     requires the use of the "liability method." Accordingly, deferred tax
     liabilities and assets are determined based on the temporary differences
     between the financial statement and tax bases of assets and liabilities,
     using enacted tax rates in effect for the year in which the differences are
     expected to reverse.

     Concentration of Credit Risk

     The Company's primary business activities include oil and gas sales to
     several customers in the states of Tennessee and Kentucky. The related
     trade receivables subject the Company to a concentration of credit risk
     within the oil and gas industry.

     Loss Per Common Share

     Loss per share amounts are computed by dividing net loss by the weighted
     average number of common stock and common stock equivalents, if dilutive,
     outstanding during each of the periods presented. In addition, when an
     initial public offering is contemplated, common stock and common stock
     equivalents issued by the Company at a price less than the estimated
     initial public offering price during the twelve months immediately
     preceding the anticipated initial filing of the offering are treated 


                                      F-13



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     as outstanding for all periods presented, using the treasury stock method
     (See Note 14(c)).

     Accounting Estimates

     The accompanying financial statements are prepared in conformity with
     generally accepted accounting principles which 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. The actual results could differ from
     those estimates.

     Fair Values of Financial Instruments

     Fair values of cash and cash equivalents and short-term debt approximate
     cost due to the short period of time to maturity. Fair values of long-term
     debt are based on quoted market prices or pricing models using current
     market rates.

     Significant Risks and Uncertainties

     The Company's operations are subject to all of the environmental and
     operational risks normally associated with the oil and gas industry. The
     Company maintains insurance that is customary in the industry; however,
     there are certain risks for which the Company does not maintain full
     insurance coverage. The occurrence of a significant event that is not fully
     covered by insurance could have a significant adverse effect on the
     Company's financial position.

     New Accounting Pronouncements

     On March 3, 1997, the Financial Accounting Standards Board issued Statement
     of Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128).
     This pronouncement provides a different method of calculating earnings per
     share than is currently used in accordance with Accounting Principles Board
     Opinion No. 15, Earnings Per Share. SFAS 128 provides for the calculation
     of "Basic" and "Diluted" earnings per share. Basic earnings per share
     includes no dilution and is calculated by dividing income available to
     common shareholders by the weighted average number of common shares
     outstanding for the 


                                      F-14



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     period. Diluted earnings per share reflects the potential dilution of
     securities that could share in the earnings of an entity, similar to fully
     diluted earnings per share. The Company will adopt SFAS 128 in 1997 and its
     implementation is not expected to have a material effect on the
     consolidated financial statements.


2.   Going Concern

     The Company has experienced losses totalling $1,761,064 and $1,246,481 for
     the years ended December 31, 1996 and 1995, respectively, and has a working
     capital deficit of $1,065,711 at December 31, 1996. These matters raise
     substantial doubt about the Company's ability to continue as a going
     concern. In addition, as of December 31, 1996, management estimates that
     additional costs of approximately $1,500,000 are required to complete its
     pipeline facilities under construction. Management's plans include raising
     additional capital in order to complete the pipeline facilities and drill
     additional oil and gas wells. In addition, the Company is seeking joint
     venture partners to assist in the sales and marketing of its energy
     services (see Note 14). The accompanying financial statements do not
     include any adjustments relating to the recoverability and classifications
     of recorded asset amounts or the amounts and classifications of liabilities
     that might be necessary should the Company be unable to continue as a going
     concern.


3.   Business Acquisition

     Effective May 2, 1995, IRC acquired voting control of the Company in
     exchange for approximately 60% of the assets of IRC. Accordingly, the
     assets acquired were recorded at IRC's historical cost. The transaction was
     accomplished through the Company's issuance of 4,000,000 shares of its'
     common stock and a $450,000, 8% promissory note payable to IRC. The
     promissory note was converted into 83,799 shares of Tengasco, Inc. common
     stock in December 1995 (see Note 15). The results of operations for the
     year ended December 31, 1995 would not be materially different had the
     results of operations of the IRC assets been included from January 1, 1995.
     Furthermore, the results of operations of Tengasco, Inc. for the period
     from January 1, 1995 to May 2, 1995 were immaterial. Accordingly, the
     business combination has not been presented as a reorganization.



                                      F-15



                                                                  Tengasco, Inc.

                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

4.   Related Party Transactions

     The Company has loans payable due to affiliates aggregating $48,190. A
     major stockholder of the Company is also a major stockholder of the
     affiliates. The loans bear interest at the rate of 8% per annum and are due
     on demand.

     During 1996, the Company converted approximately $1,060,000 of debt payable
     to IRC, a related party, to common stock and common stock subscribed (see
     Note 15). The Company also converted approximately $100,000 of debt payable
     to a major stockholder to common stock subscribed (see Note 15).


5.   Marketable Equity Securities

     Marketable securities were carried at the lower of cost or market. The
     marketable securities were acquired in the Purchase and Exchange Agreement
     with IRC on May 2, 1995 and consisted of 500,000 shares of United Petroleum
     Corporation stock. The United Petroleum Corporation stock had a
     one-for-three reverse stock split on June 13, 1995 which left the Company
     with 166,667 shares. The marketable securities were written down to market
     in 1995, resulting in a loss of approximately $594,000. The United
     Petroleum Corporation stock was sold in January 1996 for $250,000.



                                      F-16



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

6.   Oil and Gas Properties

     The following table sets forth information concerning the Company's oil and
     gas properties at December 31:

                                                          1996             1995
     ===========================================================================

     Evaluated                                      $1,288,243         $654,258
     Unevaluated                                        26,317           15,352
     ---------------------------------------------------------------------------
                                                     1,314,560          669,610


     Accumulation depreciation,
       depletion and amortization                      (27,418)         (11,528)
     ---------------------------------------------------------------------------

                                                    $1,287,142         $658,082
     ===========================================================================

     Evaluated costs excluded from amortization at December 31, 1996 consist of
     approximately $730,000 of costs relating the Company's Swan Creek
     development project which is awaiting the completion of a gas pipeline
     expected to be completed in the third quarter of 1997.

7.   Pipeline Facilities Under Construction

     During the fourth quarter of 1996, the Company began construction of a
     23-mile gas pipeline which will (1) connect the Swan Creek development
     project to a gas purchaser and (2) enable the Company to develop gas
     transmission business opportunities in the future.

     As of December 31, 1996, management estimates the costs to complete the
     pipeline are approximately $1,500,000.

     In January 1997, the Company entered into an agreement with the Tennessee
     Valley Authority ("TVA") whereby the TVA will allow the Company to bury the
     pipeline within the TVA's transmission line rights-of-way. In return for
     this right, the Company paid $35,000 plus agreed to annual payments of
     approximately $6,200 for 20 years. This agreement expires in 2017 at which
     time the parties may renew the agreement for another 20 year term in
     consideration of similar inflation-adjusted payment terms.




                                      F-17


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

8.   Property and Equipment

     Property and equipment consisted of the following:
     
                                                     1996                 1995
     ==========================================================================

     Machinery and equipment                     $245,756             $260,693
     Vehicles                                      83,299               85,455
     Other                                         42,113               20,991
     --------------------------------------------------------------------------


                                                  371,168              367,139

     Less accumulated depreciation               (167,924)            (119,738)
     --------------------------------------------------------------------------

     Property and equipment - net                $203,244             $247,401
     ==========================================================================

9.   Notes Payable

     Notes payable consisted of the following:

                                                           1996             1995
     ---------------------------------------------------------------------------

     Note payable to an investment company due
     May 1997 with interest payable monthly at
     10% per annum; less unamortized discount
     of $123,750 relating to stock warrants
     issued; collateralized by a subordinated
     security interest in all assets of the
     Company (A).                                      $376,250   $          --

     Note payable to an individual due April
     1997 with interest payable monthly at 10%
     per annum; less unamortized discount of
     $48,125 relating to stock warrants
     issued; collateralized by all assets of
     the Company (B).                                   201,875              --

     Note payable to a company due April 1997
     with interest payable monthly at 10% per
     annum;  less  unamortized   discount  of
     $48,125   relating  to  stock   warrants
     issued; collateralized by all assets of
     the Company (A).                                   201,875              --
     ---------------------------------------------------------------------------

                                                       $780,000   $          --
     ===========================================================================



                                      F-18


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     In conjunction with the issuance of the notes payable listed above, the
     Company granted the lenders detachable stock warrants which enable the

     holder to obtain up to 200,000 shares of the Company's common stock at a
     price of $5 per share.

     (A) These notes had not been repaid as of the above noted due dates. As
     noted in (C) below, the Company has filed a claim against the lenders.

     (B) In March 1997, the individual note holder (above) filed a lawsuit
     asserting the Company was in default of the $250,000 note. This action
     seeks the principal amount, interest, and costs of collection. No
     additional costs have been accrued in the accompanying consolidated
     financial statements in connection with this lawsuit, as a range of such
     costs cannot be estimated. Management believes, however, it has certain
     defenses to this motion as noted in (C) below.

     (C) Also in March 1997, the Company filed a claim against the above three
     lenders and a former officer of the Company asserting that the Company did
     not authorize the issuances of certain stock warrants related to the
     borrowings and seeking rescission of the warrant agreements. The Company is
     disputing the validity of the stock warrant agreements based upon certain
     provisions which were not authorized by the board of directors. If the
     Company is unsuccessful in its attempt to rescind these stock warrant
     agreements, these provisions could result in the lenders obtaining
     additional shares and potential controlling interest, as the stock warrant
     agreements provide for the granting of increasing amounts of shares, at
     pro-rata reduced prices, in the event the market price of the Company's
     stock falls below $16 per share.


                                      F-19


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

10.  Long Term Debt

     Long-term debt consisted of the following:

                                                           1996            1995
     --------------------------------------------------------------------------

     11% installment note, payable $667 monthly,
     including interest, due December 2001,
     collateralized by a vehicle                       $ 30,563        $     --

     10.7%  installment  note,  payable  $423
     monthly,  including  interest,  due  May
     2000, collateralized by a vehicle                   14,466          17,800

     12%  installment   note,   payable  $385
     monthly,  including interest,  due April

     2000, collateralized by a vehicle                   12,545          15,500

     10.5% installment note, payable $789
     monthly, including interest, due August
     2000, collateralized by a vehicle                       --          25,000

     Loan payable to an equipment supplier, due
     in monthly installments of $5,300                       --          15,900

     Other                                                4,271          18,838
     --------------------------------------------------------------------------

     Total long term debt                                61,845          93,038
     Less current maturities                            (14,017)        (34,038)
     --------------------------------------------------------------------------

     Long term debt, less current maturities           $ 47,828        $ 59,000
     ==========================================================================


                                      F-20



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     The approximate future maturities of debt were as follows:

              Year                                                     Amount
     ------------------------------------------------------------------------

              1997                                                    $14,017
              1998                                                     15,259
              1999                                                     14,849
              2000                                                     10,166
              2001                                                      7,554
     ------------------------------------------------------------------------

                                                                      $61,845
     ========================================================================


11.  Commitments

     As of December 31, 1996, the future minimum payments to be made under
     noncancellable operating leases were:

              Year                                                     Amount
     ------------------------------------------------------------------------


              1997                                                   $ 51,000
              1998                                                     51,000
              1999                                                     51,000
              2000                                                     47,000
     ------------------------------------------------------------------------

                                                                     $200,000
     ========================================================================

     Rent expense was approximately $54,000 and $5,000 for the years ended
     December 31, 1996 and 1995, respectively.



                                      F-21


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

12.    Stock Options                    

     Changes that occurred in options outstanding in 1996 and 1995 are
     summarized below:

                                    1996                         1995
                         --------------------------   --------------------------
                                           Average                      Average
                                          Exercise                     Exercise
                             Shares         Price          Shares        Price
     ===========================================================================
     Outstanding,
        beginning
         of year            1,791,849       $0.483              --     $     --
     Granted                  730,000        5.566       1,825,000        0.479
     Exercised               (327,079)       0.275         (33,151)       0.275
     Expired/canceled        (992,350)       0.275              --           --
                         ------------                 ------------

     Outstanding,
        end of year         1,202,420        3.295       1,791,849        0.483

     Exercisable,
        end of year           538,805        1.882         562,260        0.427
     ===========================================================================

     The following table summarizes information about stock options outstanding
     at December 31, 1996:

                    Options Outstanding                     Options Exercisable
     ------------------------------------------------     ----------------------

                              Average
      Exercise               Remaining     Average                      Average
       Price                Contractual    Exercise                     Exercise
       Range      Shares       Life         Price           Shares       Price
     ===========================================================================

        $0.275     472,420     0.58 yrs.    $0.275            365,687     $0.275
         4.000-    730,000     1.19 yrs.     5.565            173,118      5.275
         6.375
                 ---------                                  ---------

     Total       1,202,420     0.95 yrs.     3.269            538,805      1.882
     ===========================================================================



                                      F-22


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     The fair value of stock options used to compute compensation expense to
     non-employees is the estimated present value at grant date using the
     Black-Scholes option-pricing model with the following weighted average
     assumptions for 1996 and 1995: expected volatility of 54% for both years; a
     risk-free interest rate of 5.21% in 1996 and 6.40% in 1995; and an expected
     option life of 2.45 years in 1996 and 2.25 years in 1995. The amount of
     compensation expense included in general and administrative costs in the
     accompanying consolidated statements of loss was approximately $372,000 and
     $45,000 at December 31, 1996 and 1995, respectively.

     Statement of Financial Accounting Standards No. 123, (SFAS 123),
     "Accounting for Stock-Based Compensation" was implemented in January 1996.
     As permitted by SFAS 123, the Company has continued to account for stock
     compensation to employees by applying the provisions of Accounting
     Principles Board Opinion No. 25. If the accounting provisions of SFAS 123
     had been adopted, net loss and loss per share would have been as follows:

                                                       1996                1995
     ===========================================================================

     Net loss
         As reported                            $(1,761,064)        $(1,246,481)
         Pro forma                               (1,932,628)         (1,307,960)
     ===========================================================================

     Loss per share
         As reported                                 $(0.28)             $(0.28)
         Pro forma                                    (0.30)              (0.29)
     ===========================================================================


     For employees, the fair value of stock options used to compute pro forma
     net loss and loss per share disclosures is the estimated present value at
     grant date using the Black-Scholes option-pricing model with the following
     weighted average assumptions for 1996 and 1995: Expected volatility of 54%
     for both years; a risk free interest rate of 5.52% in 1996 and 6.32% in
     1995; and an expected option life of 2.72 years in 1996 and 2.25 years in
     1995.



                                      F-23


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

13.  Income Taxes

     The Company had no taxable income during the years ended December 31, 1996
     and 1995.

     A reconciliation of the statutory U.S. Federal income tax and the income
     tax provision included in the accompanying consolidated statements of loss
     is as follows:

     Year ended December 31,                           1996               1995
     ==========================================================================

     Statutory rate                                      34%                 34%
     Tax (benefit) at statutory rate              $(599,000)          $(424,000)
     State income tax (benefit)                     (99,000)            (75,000)
     Other                                            3,000              17,000
     Increase in deferred tax asset
       valuation allowance                          695,000             482,000
     --------------------------------------------------------------------------

     Total income tax provision                   $      --           $     --
     ==========================================================================

     The components of the net deferred tax assets and liabilities are as
     follows:

     Year ended December 31,                            1996              1995
     -------------------------------------------------------------------------

     Deferred tax asset:
       Basis difference in marketable
          equity securities                    $          --         $ 238,000
       Net operating loss carryforward               798,000           218,000
       Capital loss carryforward                     238,000                --

       Accrued expenses                              223,000            39,000
     -------------------------------------------------------------------------

                                                   1,259,000           495,000

     Valuation allowance                          (1,177,000)         (482,000)
     -------------------------------------------------------------------------

                                                      82,000            13,000
     -------------------------------------------------------------------------

     Deferred tax liability:
       Oil and gas properties                         81,000            13,000
       Property and equipment                          1,000                --
     -------------------------------------------------------------------------

                                                      82,000            13,000
     -------------------------------------------------------------------------

     Net deferred taxes                        $          --         $      --
     =========================================================================


                                      F-24


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     The Company recorded a valuation allowance at December 31, 1996 and 1995
     equal to the excess of deferred tax assets over deferred tax liabilities as
     management is unable to determine that these tax benefits are more likely
     than not to be realized.

     As of December 31, 1996, the Company had net operating loss carryforwards
     for federal income tax purposes of approximately $1,995,000 which will
     expire, if not utilized, as follows:

              Year                                                     Amount
     ------------------------------------------------------------------------

              2010                                                 $  546,000
              2011                                                  1,449,000
     ------------------------------------------------------------------------

              Total                                                $1,995,000
     ========================================================================

     Additionally, at December 31, 1996, the Company has a capital loss
     carryforward of approximately $594,000 which will expire, if not offset
     against a capital gain, in 2001.



14.  Subsequent Events

     (A) In May 1997, the Company entered into a term loan with an individual
     for aggregate proceeds of $1,000,000 which the Company will receive at
     various times in the second and third quarters of 1997. The Company
     provided the lender with 100,000 shares of common stock as a loan
     origination fee. The loan, which is due December 31, 1997, bears interest
     at 11% per annum and is secured by equipment owned by a major shareholder
     of the Company. IRC is serving as guarantor on the loan facility. In
     conjunction with the loan agreement, the lender has an option to purchase
     300,000 shares of the Company's common stock from IRC.

     (B) In May 1997, the Company entered into a joint venture agreement with
     Enserch Energy Services, Inc. ("EES") whereby the Company will share
     equally in the gross profit from any sales to customers the parties refer
     to each other for energy services. The agreement is in effect until 2002 at
     which time the Company and EES can continue the agreement for successive
     one-year terms.

     (C) During the period from August 1997 to November 1997, the Company raised
     net proceeds of approximately $5,200,000 from the issuance of 626,235
     shares of Tengasco, Inc. common stock. (See Note 1; "Loss Per Common
     Share").


                                      F-25


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

15.  Supplemental Disclosure of Cash Flows

     The Company paid approximately $26,000 and $33,000 for interest in 1996 and
     1995, respectively. The Company paid $0 for income taxes in 1996 and 1995.

     In 1996, the Company transferred property and equipment with a net book
     value of $46,539 to lenders in exchange for debt reductions aggregating
     $42,865 resulting in a loss of $3,674.

     In 1996, the Company issued 114,466 shares of common stock and common stock
     subscribed to extinguish approximately $1,060,000 of debt, which
     approximated fair value of the shares.

     In 1995, The Company issued 4,000,000 shares of common stock and a $450,000
     8% promissory note to IRC (see Note 3) to acquire approximately $1,752,000
     of assets including property, plant, and equipment, oil and gas properties
     and marketable equity securities. The Company recorded these assets at the
     lower of market or IRC's historical cost basis, except for the marketable

     equity securities which were brought over at their lower market value.

     In 1995, the Company issued approximately 164,300 shares of common stock to
     extinguish approximately $882,000 of debt, which approximated fair value of
     the shares. The extinguished debt included the $450,000 8% promissory note,
     discussed above.


16.  Supplemental Oil and Gas Information

     Information with respect to the Company's oil and gas producing activities
     is presented in the following tables. Estimates of reserve quantities, as
     well as future production and discounted cash flows before income taxes,
     were determined by Coburn Petroleum Engineering, independent petroleum
     engineer, as of December 31, 1996 and 1995.

     Oil and Gas Related Costs

     The following table sets forth information concerning costs related to the
     Company's oil and gas property acquisition, exploration and development
     activities in the United States during the years ended December 31, 1996
     and 1995:



                                      F-26


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

                                                          1996              1995
     ===========================================================================

     Property acquisition
       Proved                                        $  78,991          $607,809
       Unproved                                         25,274            15,352
     Less - proceeds from sales of
       properties                                     (100,000)               --
     Development costs                                 673,022            43,210
     ---------------------------------------------------------------------------

                                                     $ 677,287          $666,371
     ===========================================================================

     Results of Operations from Oil and Gas Producing Activities

     The following table sets forth the Company's results of operations from oil
     and gas producing activities for the years ended December 31, 1996 and
     1995:


                                                          1996             1995
     --------------------------------------------------------------------------

     Revenues                                        $  26,253         $ 27,802
     Production costs and taxes                        (17,138)         (20,072)
     Depreciation, depletion and
         amortization                                  (52,145)         (24,011)
     --------------------------------------------------------------------------

     Results of operations before income
     taxes                                             (43,030)         (16,281)
     Income taxes                                           --               --
     --------------------------------------------------------------------------

     Results of operations from oil
         and gas producing activities                $ (43,030)        $(16,281)
     ==========================================================================

     In the presentation above, no deduction has been made for indirect costs
     such as corporate overhead or interest expense. No income taxes are
     reflected above due to the Company's tax loss carryforwards. For the years
     ended December 31, 1996 and 1995, the depreciation, depletion and
     amortization rate per barrel of oil equivalent production was $20.16 and
     $90.84, respectively.

     Oil and Gas Reserves (unaudited)

     The following table sets forth the Company's net proved oil and gas
     reserves at December 31, 1996 and 1995 and the changes in net proved oil
     and gas reserves for the years then ended. Proved


                                      F-27



                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     reserves represent the estimated quantities of crude oil and natural gas
     which geological and engineering data demonstrate with reasonable certainty
     to be recoverable in the future years from known reservoirs under existing
     economic and operating conditions. The reserve information indicated below
     requires substantial judgment on the part of the reserve engineers,
     resulting in estimates which are not subject to precise determination.
     Accordingly, it is expected that the estimates of reserves will change as
     future production and development information becomes available and that
     revisions in these estimates could be significant.

                                                  Oil (bbls)          Gas (Mcf)
     ==========================================================================


     Proved reserves
       Balance, January 1, 1995                           --                 --
          Acquisition of proved reserves             101,565          5,337,978
          Production                                       -             (1,586)
     --------------------------------------------------------------------------

       Balance, December 31, 1995                    101,565          5,336,392
          Discoveries and extensions                      --         17,212,571
          Revisions of previous estimates                 --             33,902
          Production                                      --            (15,510)
     --------------------------------------------------------------------------

       Balance, December 31, 1996                    101,565         22,567,355
     ==========================================================================

     Proved developed non-producing
       reserves at, December 31, 1996                     --          7,167,350
     ==========================================================================

     Proved developed non-producing
       reserves at, December 31, 1995                     --          2,536,388
     ==========================================================================

     Of the Company's total proved reserves as of December 31, 1996,
     approximately 31% were classified as proved developed non-producing and
     approximately 69% were classified as proved undeveloped. All of the
     Company's reserves are located in the continental United States.



                                      F-28


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     Standardized Measure of Discounted Future Net Cash Flows (unaudited)

     The standardized measure of discounted future net cash flows from the
     Company's proved oil and gas reserves at December 31, 1996 and 1995 is
     presented in the following table:

                                                       1996              1995
     ========================================================================

     Future cash inflows                        $84,106,507       $11,892,672
     Future production costs
         and taxes                               (6,219,598)       (1,818,322)
     Future development costs                    (5,775,000)         (600,000)
     Future income tax expenses                 (18,909,520)       (2,156,985)

     ------------------------------------------------------------------------

     Net future cash flows                       53,202,389         7,317,365

     Discount at 10% for timing
         of cash flows                          (22,823,876)       (3,653,903)
     ------------------------------------------------------------------------

     Discounted future net cash
         flows from proved reserves             $30,378,513       $ 3,663,462
     ========================================================================

     The following table sets forth the changes in the standardized measure of
     discounted future net cash flows from proved reserves during 1996 and 1995:

                                                       1996              1995
     ------------------------------------------------------------------------

     Balance, beginning of year                $  3,663,462        $       --

     Sales, net of production costs
         and taxes                                   (9,115)           (7,730)
     Acquisition of proved reserves              33,874,577         4,665,382
     Changes in prices and
         production costs                         2,374,267                --
     Revisions of quantity estimates                 42,164                --
     Net change in income taxes                  (9,975,394)         (994,190)
     Interest factor - accretion of discount        465,765                --
     Changes in production rates
         and other                                  (57,213)               --
     ------------------------------------------------------------------------

     Balance, end of year                       $30,378,513        $3,663,462
     ========================================================================


                                      F-29


                                                                  Tengasco, Inc.
                                               (formerly Onasco Companies, Inc.)

                                      Notes to Consolidated Financial Statements
================================================================================

     The acquisition of proved reserves in 1996 relates to the Swan Creek
     development project.

     Estimated future net cash flows represent an estimate of future net
     revenues from the production of proved reserves using current sales prices,
     along with estimates of the operating costs, production taxes and future
     development and abandonment costs (less salvage value) necessary to produce
     such reserves. The average prices used at December 31, 1996 and 1995 were
     $19.10 and $17.00 per barrel of oil and $2.94 and $1.91 per mcf of gas,

     respectively. No deduction has been made for depreciation, depletion or any
     indirect costs such as general corporate overhead or interest expense.

     Operating costs and production taxes are estimated based on current costs
     with respect to producing gas properties. Future development costs are
     based on the best estimate of such costs assuming current economic and
     operating conditions.

     Income tax expense is computed based on applying the appropriate statutory
     tax rate to the excess of future cash inflows less future production and
     development costs over the current tax basis of the properties involved,
     less applicable carryforwards, for both regular and alternative minimum
     tax.

     The future net revenue information assumes no escalation of costs or
     prices, except for gas sales made under terms of contracts which include
     fixed and determinable escalation. Future costs and prices could
     significantly vary from current amounts and, accordingly, revisions in the
     future could be significant.



                                      F-30



                               TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)

                        CONSOLIDATED FINANCIAL STATEMENTS

                            For the Nine Months Ended
                               September 30, 1997







                                            Prepared By /s/ WILLIAM F. STENKEN
                                                        ----------------------
                                                        Controller


                                      F-31







                                 TENGASCO, INC.
                        (formerly Onasco Companies, Inc.)

                                    CONTENTS

Consolidated Financial Statements

     Balance sheets                                    2

     Statements of loss                                3

     Statements of stockholders' equity                4

     Statements of cash flows                          5

     Notes to financial statements                     6



                                      F-32







                                 TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)
                          CONSOLIDATED BALANCE SO BETS
                               September 30, 1997

                                     ASSETS

                                                    September 30,   December 31,
                                                        1997            1996
                                                     (Unaudited)      (Audited)
                                                     ----------       ---------
Current Assets:                                                     
   Cash and cash equivalents                         $  508,218         146,554
   Accounts Receivable                                    2,000           4,658
   Other current assets                                  16,901           7,463
                                                     ----------       ---------
                                                                    
Total current assets                                    527,119         158,675
                                                                    
Oil and gas properties, net (on the basis of                        
   full cost accounting)                              1,311,107       1,287,142
                                                                    
Pipeline facilities, under construction, at cost      1,643,984         887,315
                                                                    
Property and equipment, net                             323,909         203,244
                                                                    
Deferred Financing Costs, net (Note 2)                  425,210         170,833
                                                                    
Other                                                    11,101          20,012
                                                     ----------       ---------
                                                                    
                                                                    
                                                     $4,242,430       2,727,221
                                                     ==========       =========
                                                                    
                                                                   


    The accompanying notes are in integral part of these financial statements




                                      F-33






                                 TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)
                           CONSOLIDATED BALANCE SHEETS
                               September 30, 1997

                      LIABILITIES AND STOCKHOLDERS' EQUITY


                                                  September 30,     December 31,
                                                      1997              1996
                                                   (Unaudited)        (Audited)
                                                   -----------        ---------
Current liabilities                      
   Notes payable                                   $ 2,009,811          780,000
   Loans payable to affiliates                          56,129           48,190
   Current maturities of long-term debt                 37,914           14,017
   Accounts payable - trade                            389,468          347,093
   Accrued liabilities                                 110,932           35,086
                                                   -----------        ---------
Total current liabilities                            2,604,254        1,224,386

Long term debt, less current maturities                151,610           47,828
                                                   -----------        ---------
Total liabilities                                    2,755,864        1,272,214
                                                   -----------        ---------

Stockholders' equity
   Common stock, $.001 par value,
    50,000,000 shares authorized                         6,382            5,708
   Additional paid-in capital                        7,414,868        4,783,369
   Unamortized stock award                            (212,813)        (292,186)
   Deficit                                          (5,721,871)      (3,041,884)
                                                   -----------        ---------
Total stockholders' equity                           1,486,566        1,455,007
                                                   -----------        ---------

                                                   $ 4,242,430        2,727,221
                                                   ===========        =========


    The accompanying notes are an integral part of these financial statements


                                      F-34






                                 TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)

                               STATEMENTS OF LOSS
                                   (Unaudited)


                                                    For the Nine   For the Nine 
                                                    Months Ended   Months Ended
                                                    September 30,  September 30,
                                                        1997           1996
                                                    -------------  -------------
Revenues:                            
   Oil and gas revenues                               $         0        27,171
                                                        ---------     ---------
     Total Revenues                                             0        27,171
                                                        ---------     ---------
Costs and other deductions
   Field Expenses                                          67,276         6,573
   Depletion, depreciation and amortization                57,753        61,715
   Amortization of deferred financing costs (Note 2)      845,623             0
   Interest expense                                       361,584        14,018
   General and administrative costs                     1,347,751     1,127,127
                                                        ---------     ---------

   Total costs and other deductions                     2,679,987     1,209,433
                                                        ---------     ---------

Net loss                                                2,679,987)   (1,182,262)
- ----------------------------------------------------    ---------     ---------

   Loss per share of common stock:                          (0.39)        (0.19)

   Weighted Average Shares Outstanding                  6,944,392     6,311,295




    The accompanying notes are an integral part of these financial statements



                                      F-35






                                 TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (Unaudited)



                                                                   Common Stock            Additional    Unamortized
                                                                -----------------------      Paid-in        Stock
                                                                # Shares        Amount       Capital        Award         Deficit
                                                                ---------    ----------    ----------    ------------   ------------
                                                                                                                  
Balance, December 31, 1996                                      5,707,827    $    5,708    $4,783,369    $  (292,186)   $(3,041,884)

   Common Stock issued for exercised options                      357,976           357        98,087                              

   Common Stock issued for private placements                     130,543           131       787,709                              

   Common stock subscribed for the
    extinguishment of debt (Note 3)                                86,084            86       484,135                              

   Common Stock issued for loan origination
    fee (Note 2)                                                  100,000           100     1,024,900                              

   Stock option award                                                                          30,000        (30,000)              

   Amortization of stock award                                                                               109,373               

   Common stock options issued                                                                206,668                              

   Net loss for period ended September 30, 1997                                                                          (2,679,987)
====================================================================================================================================



Balance, September 30, 1997                                     6,382,430    $    6,382    $7,414,868     $(212,813)    $(5,721,871)
                                                                =========    ==========    ==========     =========     =========== 



    The accompanying notes are an integral part of these financial statements


                                      F-36





                                 TENGASCO, INC.
                        (Formerly Onasco Companies, Inc.)

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                   (Unaudited)


                                                             For the Nine          For the Nine   
                                                             Months Ended          Months Ended
                                                          September 30, 1997    September 30, 1996
                                                          ------------------    ------------------
                                                                                        
Operating activities                 
  Net loss                                                   $(2,679,987)          $(1,182,262)  
  Adjustments to reconcile net loss to cash                                       
   used in operating activities:                                                  
    Depletion, depreciation and amortization                      57,753                61,715
    Amortization of deferred financing costs                     845,623                     0
    Amortization of imputed value of stock warrants issued       220,000                     0
    Compensation paid in stock options                           241,041               313,124
    Changes in assets and liabilities:                                            
      Accounts receivable                                          2,653                   200
      Prepaid expenses and other                                  (2,070)               (3,808)
      Accounts payable                                            42,375               383,875
      Accrued liabilities                                         75,846                48,310
      Stockholder advances payable                                 7,939                     0
                                                             -----------           -----------
                                                                                  
Cash used in operating activities                             (1,188,827)             (378,846)
                                                             -----------           -----------
                                                                                  
Investing activities                                                              
  Proceeds from sale of marketable equity securities                   0               250,000
  Additions to property and equipment                           (176,869)              (34,550)
  Additions to oil and gas properties                           (273,965)             (628,265)
  Additions to pipeline facilities                              (756,669)             (461,000)
                                                             -----------           -----------
                                                                                  
Cash used in investing activities                             (1,207,503)             (873,815)
                                                             -----------           -----------
                                                                                  
Financing activities                                                              
  Proceeds from borrowings                                     1,144,061               276,445
  Repayments of borrowings                                        (6,571)               (5,775)
  Proceeds from issuance of common stock                       1,370,504               991,400
  Proceeds from sale of oil and gas properties                   250,000                     0
                                                             -----------           -----------
                                                                                  
Cash provided by financing activities                        $ 2,757,994           $ 1,262,070

                                                             -----------           -----------
                                                                                  
Net increase (decrease) in cash and cash                                          
  equivalents                                                    361,664                 9,409
                                                                                  
Cash and cash equivalents, beginning of period                   146,554                   712
                                                             -----------           -----------
                                                                                  
Cash and cash equivalents, end of period                     $   508,218           $    10,121
                                                             ===========           ===========

                                                                           


    The accompanying notes are an integral part of these financial statements


                                      F-37





                                 Tengasco, Inc.
                        (Formerly Onasco Companies, Inc.)
                   Notes to Consolidated Financial Statements

   
(1) The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form lOQ and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
Company's consolidated financial statements and footnotes thereto for the year
ended December 31, 1996, included in form 10-5B, which are incorporated by
reference herein.
    

(2) Deferred Financing Costs

In May 1997, the company entered into a term loan agreement with an individual
for aggregate proceeds of $1,000,000. The company provided the lender with
100,000 shares of common stock as an origination fee. The loan, which is due
December 31, 1997, bears interest at 11% per annum and is secured by equipment
owned by a majority shareholder of the company. Industrial Resources
Corporation, ("IRC") is serving as guarantor of the loan facility. In
conjunction with the loan agreement, the lender has an option to purchase
300,000 shares of the company's common stock from IRC. The aggregate value of
the above stock and stock options, which is approximately $1,100,000, is
included as deferred financing costs in the accompanying September 30, 1997
condensed financial statements. These costs, which are non-cash items, are being
amortized over the loan term.

(3) Consolidated Statements of Stockholders Equity

In the second quarter of 1997, the Company issued 86,084 shares of common stock
to extinguish $484,221 of debt, which approximated the fair value of the shares.


                                      F-38


                                  SIGNATURES

                  In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing of Form 10SB and authorized this
registration statement on its behalf by the undersigned, thereunto duly
authorized, in the City of Knoxville, State of Tennessee on the 24th day of
April, 1998.

                                                    Tengasco, Inc.

                                                    By: /s/ Malcolm E. Ratliff
                                                        ----------------------
                                                            Malcolm E. Ratliff

                  In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the following persons in
the capacities and on the dates stated.

Signature                        Title                       Date

/s/Malcolm E.  Ratliff           Chief Executive             April 24, 1998
- ----------------------           Officer 
Malcolm E. Ratliff

s/Allen H. Sweeney               Chairman of the Board       April 24, 1998
- -----------------------          of Directors 
Allen H. Sweeney

/s/Joseph Earl Armstrong         Director                    April 24, 1998
- -----------------------
Joseph Earl Armstrong

/s/James B. Kreamer              Director                    April 24, 1998
- -----------------------
James B. Kreamer

                                 Director                    April   , 1998
- -----------------------
William A. Moffett

/s/Shigemi Morita                Director                    April 24, 1998
- -----------------------
Shigemi Morita


                                      68




/s/Robert M. Carter               President                   April 24, 1998

- -----------------------
Robert M. Carter

/s/William F. Stenken             Chief Accounting            April 24, 1998
- --------------------              Officer

/s/Sheila F. Sloan                Treasurer                   April 24, 1998
- -----------------------
Sheila F. Sloan

/s/Elizabeth Wendelken            Secretary                   April 24, 1998
- -----------------------
Elizabeth Wendelken

                                      69

EX-5.1

                     [LETTERHEAD OF ROBSON & MILLER, LLP]

                                             April 24, 1998

Tengasco, Inc.
603 Main Avenue - Suite 500
Knoxville, Tennessee 37902

                              Re: Tengasco, Inc.

Gentlemen:

         We have acted as counsel to Tengasco, Inc., a Tennessee corporation
(the "Company"), in connection with a registration statement on Form 10-SB
(the "Registration Statement") and all amendments thereto, to be filed with
the Securities and Exchange Commission for the purpose of registering all of
the outstanding and issued common stock, $.001 par value per share (the
"Common Stock") of the Company under the Securities Act of 1933, as amended
(the "Act").

         As counsel for the Company, we have examined and are familiar with
the Certificate of Incorporation and By-Laws of the Company, and all
amendments thereto. We are also familiar with the form of the Company's stock
certificate, as well as all corporate proceedings taken by the Company in
connection with the authorization of the issuance of its Common Stock.
Throughout such examination we have assumed the genuineness of signatures and
accuracy and conformity to original documents of all copies of documents
supplied to us. As to questions of fact material to the opinion expressed
herein, we have, when relevant facts were not independently determinable,
relied upon information furnished to us by officers and directors of the
Company or their duly authorized agents or employees.

         Based upon the foregoing, it is our opinion that all of the Company's
outstanding and issued shares of Common Stock have been duly executed and
delivered and the consideration therefor duly paid, and such shares are
validly issued, fully paid and nonassessable.




ROBSON & MILLER, LLP

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                                            Very truly yours,

                                                       /s/ Robson & Miller, LLP
                                                       ------------------------
                                                           Robson & Miller, LLP

                                       2

EX-23.1

                      [LETTERHEAD OF CHARLES M. STIVERS]

                                April 20, 1998

Securities and Exchange Commission
459 Fifth Street
Washington, D.C. 20549

Gentlemen:

         We have read the statements made by Tengasco, Inc. in Amended Form
10-SB, which we understand will be filed with the Commission, with respect to
the change in accountants from Price-Bednar, LLP to our firm and thereafter,
from our firm to BDO Seidman LLP. We agree with the statements concerning our
firm in such Amended Form 10-SB.

Further, I consent to the reference to me under the captions "Experts" and
"Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" and to the use of my report for the year ended December 31, 1995
in the Amended Registration Statement (Form 10-SB) of Tengasco, Inc.

                                                  /s/ Charles M. Stivers, CPA
                                                  ---------------------------
                                                  Charles M. Stivers, CPA

EX-23.3

             Consent of Independent Certified Public Accountants

Tengasco, Inc.
Knoxville, Tennessee

         We hereby consent to the use in this Registration Statement of our
report dated June 5, 1997 (except for Note 14(c) as to which date is December
1, 1997), relating to the consolidated financial statements of Tengasco, Inc.
Our report contains an explanatory paragraph regarding the Company's ability
to continue as a going concern.

                                                  /s/ BDO Seidman, LLP
                                                  --------------------
                                                  BDO SEIDMAN, LLP
Atlanta, Georgia
April 27, 1998

EX-23.4

                     [LETTERHEAD OF ROBSON & MILLER, LLP]

                                             April 24, 1998

Tengasco, Inc.
603 Main Avenue - Suite 500
Knoxville, Tennessee 37902

                              Re: Tengasco, Inc.

Gentlemen:

         We have acted as counsel to Tengasco, Inc., a Tennessee corporation
(the "Company"), in connection with a registration statement on Form 10-SB
(the "Registration Statement") and all amendments thereto, to be filed with
the Securities and Exchange Commission for the purpose of registering all of
the outstanding and issued common stock, $.001 par value per share (the
"Common Stock") of the Company under the Securities Act of 1933, as amended
(the "Act").

         As counsel for the Company, we have examined and are familiar with
the Certificate of Incorporation and By-Laws of the Company, and all
amendments thereto. We are also familiar with the form of the Company's stock
certificate, as well as all corporate proceedings taken by the Company in
connection with the authorization of the issuance of its Common Stock.
Throughout such examination we have assumed the genuineness of signatures and
accuracy and conformity to original documents of all copies of documents
supplied to us. As to questions of fact material to the opinion expressed
herein, we have, when relevant facts were not independently determinable,
relied upon information furnished to us by officers and directors of the
Company or their duly authorized agents or employees.

         Based upon the foregoing, it is our opinion that all of the Company's
outstanding and issued shares of Common Stock have been duly executed and
delivered and the consideration therefor duly paid, and such shares are
validly issued, fully paid and nonassessable.



ROBSON & MILLER, LLP

         We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.

                                                           Very truly yours,

                                                       /s/ Robson & Miller, LLP
                                                       ------------------------
                                                           Robson & Miller, LLP
                                      2

EX-23.5

                 [LETTERHEAD OF COBURN PETROLUEM ENGINEERING]

April 20, 1998

Mr. Wesley Baker, General Counsel
Tengasco, Inc.
603 Main Street, Suite 500
Knoxville, TN 37902

Dear Mr. Baker:

This letter constitutes my permission to use the Annual Corporate Reserve
Analysis as of December 31, 1997 in all matters relating to the Securities
Exchange commission and any other regulatory bodies when and where necessary in
the conduct of Tengasco business affairs.

Respectfully submitted,

COBURN PETROLEUM ENGINEERING

/s/ R.W. Coburn
- -----------------------------
R.W. Coburn
Registered Petroleum Engineer
Oklahoma #3349

RWC/ps
CC  Mort Robson
666 3rd Avenue
New York, N.Y. 10017