U.S. SECURITIES AND EXCHANGE COMMISSION
                         Washington D.C. 20549

                             FORM 10-KSB
(X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES ACT OF 1934 (Fee Required)

                 For Fiscal Year Ended August 31, 1997

( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)

              For the Transition Period ______ to ______

                      Commission File No. 0-25660

                         HALSTEAD ENERGY CORP.
            (Name of small business issuer in its charter)

Nevada                                       87-0446395
(State or Other Jurisdiction of
(IRS Employer
Incorporation or Organization)
Identification No.)
33 Hubbells Drive
Mt. Kisco, New York                          10549
(Address of Principal Executive Offices)     (Zip Code)
(914) 666-3200                               (Issuer's Telephone Number,
                                             Including Area Code)

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

Securities registered pursuant to
Section 12(g) of the Exchange Act            Common Stock, $.001 Par Value

Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.  ( ) Yes  (X) No

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in the form, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
( ) Yes    (X) No



<PAGE>


The issuer's revenues for it most recent fiscal year were $18,667,132.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer as of December 29, 1997 was $3,067,001.

As of December 29,  1997,  the issuer had  4,523,601  shares of its Common Stock
outstanding.





<PAGE>


PART 1

ITEM 1.   BUSINESS

Background

      Halstead Energy Corp.  (the "Company") was originally  incorporated in the
State of Utah on January 15,  1986 under the name of  Technical  Analysis,  Inc.
Effective  October 8, 1990,  the Company  changed its corporate  domicile to the
State of Nevada.  On August 5, 1993 the Company acquired Halstead Quinn Propane,
Inc.  ("HQ  Propane") in exchange for 2,170,000  shares of the Company's  Common
Stock.  Simultaneous  with such  acquisition,  the  Company  changed its name to
Halstead Energy Corp.

      The  Company's  operating  entities  are engaged in the  wholesale  and/or
retail  distribution  of, and the  provision  of services  relating to fuel oil,
liquid propane gas,  gasoline and diesel fuel primarily in Westchester,  Putnam,
Dutchess,  Rockland and surrounding  counties in New York State. The Company has
four principal operating divisions: HQ Propane, a wholly-owned subsidiary of the
Company;  and  Halstead  Quinn  Terminal  ("HQ  Terminal"),   HQ  Gasoline  ("HQ
Gasoline")and Dino Oil ("Dino"), which are separate divisions of HQ Propane. The
business  of White  Plains  Fuel,  Inc.,  a  Hawthorne,  New  York-based  retail
distributor  of fuel oil and diesel  fuel which was  acquired  by the Company in
June 1995, is being operated by a third party under the terms of a four (4) year
lease.

Recent Developments

          The Company's retail fuel oil  distribution  business was conducted by
HQ Propane's  subsidiary,  Rockland Fuel Oil, Inc., until May 16, 1997, when the
Company  entered into an agreement with an independent  third party  distributor
for the sale of its retail  fuel oil  customer  list and related  business.  The
Terms of the sale were $200,000 at closing,  $200,000 on the first  anniversary,
and $127,000 on the second anniversary,  with interest on outstanding amounts at
a rate of 5% per annum. Rockland continues to own a facility in Haverstraw,  New
York which houses a 2,432 square foot building and a terminal  situation on land
fronting the Hudson River. The terminal is capable of storing  2,500,000 gallons
of oil.

         On June 10, 1997, A. Tarricone,  Inc. ("ATI"), the former parent of the
Company's  operating  subsidiaries  and divisions (ATI is wholly-owned by Claire
E.Tarricone, Anthony J.Tarricone and Joseph A.Tarricone, the Company's directors
and principal executive officers), filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in
possession  of  its  property  and  in  the  management  of  its  affairs  as  a
debtor-in-possession  under the applicable provisions of the Code. In connection
with  the  bankruptcy  proceeding,   the  Company  has  asserted  (and  ATI  has
acknowledged)  pre-petition  claims  arising under a receivable  from ATI in the
amount of $3,877,563 and pre-petition liens on certain leasehold interests.  The
proceeding is before the United States  Bankruptcy  Court,  Southern District of
New York, and is referenced as "A. Tarricone,  Inc.,  97B21488." The Company has
determined  that its  asserted  pre-petition  liens may not have  been  properly
"perfected,"  in which case the Company  would be deemed an  unsecured  creditor
(rather  than a  secured  creditor)  in the  proceeding.  If it were  ultimately
determined by the court that the Company's  status in the  proceeding is that of
an  unsecured  creditor,  the  Company's  legal  basis  for  recovery  would  be
materially,  adversely affected. The Company is pursuing all appropriate avenues
to protect its interests in this regard. However, there can be no assurance that
the  indebtedness  and the liens asserted by the Company in this proceeding will
be  recognized  or given  full  effect,  that the same  will not be  challenged,
modified or reduced, that all or any portion of such indebtedness will be repaid
to the Company or that the Company will  otherwise be  successful  in protecting
its  interests.  In this regard,  management  has elected to write-off,  and has
taken as a charge against  earnings as a bad debt expense,  the entire amount of
the receivable due from ATI at June 10, 1997, i.e.,$3,877,563. Additionally, all
executory contracts between ATI and the Company are susceptible to rejection, at
the election of ATI, under the applicable  provisions of the Code.  Furthermore,
any transfers  from ATI to the Company on account of antecedent  debt (of ATI to
the  Company)during  the  one-year  period  prior to the date of filing of ATI's
voluntary  petition may be subject to avoidance under the applicable  provisions
of the  Code.  The  occurrence  of any such  circumstances  may have a  material
adverse effect on the Company.

         The Company's  principal  terminal facility is currently being operated
by ATI pending the approval of the Company's  application  with the State of New
York for a terminal  operator's  and diesel motor fuel license.  There can be no
assurance  about the prospect of obtaining  the approval of such  licenses.  The
Company  has been  advised by  counsel  that  pending  the  conclusion  of ATI's
bankruptcy proceeding, ATI will continue to maintain such licenses and will will
be able to continue  operating  the  Company's  terminal  and diesel  motor fuel
businesses.  However,  there can be no assurance  that at the conclusion of such
proceeding,  if  the  result  were  a  liquidation  of  ATI  (and  therefore,  a
termination of such licenses), that the Company would by that time have received
its own  licenses or would have been able to  contract  with  another  entity to
operate such businesses. The occurrence of any of these circumstances could have
a material and adverse effect on these businesses and on the Company.

         On September 24, 1997,  the Company,  Claire E.  Tarricone,  Anthony J.
Tarricone and Joseph A. Tarricone and Infinity  Investors  Limited  ("Infinity")
entered into a certain Restructuring  Agreement (the "Restructuring  Agreement).
Under the terms of the  Restructuring  Agreement,  Infinity  agreed to  exchange
77,419  shares of Series B  Preferred  Stock in the  Company and all accrued and
unpaid  dividends on the outstanding  shares of Series B Preferred Stock for the
Company's Subordinated  Promissory Note in the principal amount of $600,000 (the
"Note"). The Note accrues interest at 12% per annum compounded quarterly through
September 24, 1999 and accrues simple  interest at 12% per annum after September
24,  1999.  The note  matures on  September  24,  2002,  although the Company is
required to make mandatory prepayment upon the occurrence of certain events. The
terms of the balance of the 560,126 shares of Series B Preferred  Stock owned by
Infinity were amended to provide, among other things, for (i) a fixed conversion
price of $2.00  per share of  Series B  Preferred  Stock,  (ii) the  removal  of
certain  limitations on the rights of holders of the Series B Preferred Stock to
convert those shares into the Company's  Common Stock,  and (iii) an increase in
the dividend rate of the Series B Preferred Stock to 12% from 8% per annum.  The
Company also agreed to register such shares of Common Stock.  In connection with
the execution and delivery of the Restructuring  Agreement,  Infinity granted to
Elizabeth Mandel  ("Mandel") an option to purchase all of the Shares.  Under the
terms of the  option,  Mandel has the option to acquire  all of the shares for a
price of $2.00 per share until the 18- month  anniversary  of the effective date
of the registration statement relating to the above-referenced registration (the
"Effective Date"), subject to earlier termination in the event that Mandel fails
to purchase at least an aggregate of 250,000  Shares on or prior to the 90th day
following the Effective  Date and an aggregate of 400,000  Shares on or prior to
the last day of each  succeeding  90 day  period  commencing  90 days  after the
Effective Date.

         The Company's Common Stock is listed on the Nasdaq SmallCap Market.  In
August 1997, the Nasdaq Stock Market,  Inc.  ("Nasdaq") adopted new requirements
that the Company must meet for continued listing of its Common Stock,  including
(i)  maintaining  a bid price of the  Company's  Common Stock of at least $1.00,
(ii) having at least  $2,000,000  in net tangible  assets,  (iii)  maintaining a
public float of at least 500,000 shares of Common Stock having a market value of
at  least  $1,000,000  and  (iv)  complying  with  certain  corporate  goverance
requirements,  such as electing at least two independent directors.  The Company
must meet the new  requirements  within six months of their adoption  (i.e.,  by
February 23,1998). The Company has been notified by Nasdaq that its Common Stock
is subject to  delisting  due to the  Company's  failure to timely file its Form
10-KSB for the fiscal  year ended  August 31,  1997 and its Form  10-QSB for the
fiscal period ended  November 30, 1997.  Such  delisting has been stayed pending
Nasdaq's  consideration of the Company's  request for continued  listing,  which
request is to be heard and  determined  by Nasdaq  after a hearing on the matter
which is scheduled to occur on February 5, 1998.  The Company has been  informed
by Nasdaq that the  Company  will no longer be subject to  delisting  due to the
above-referenced  filing delinquincies if the Company files the above-referenced
Form  10-KSB  and Form  10-QSB  prior to the date of the  hearing.  The  Company
expects  that  it  will  be  successful  in so  complying.  If  the  Company  is
unsuccessful  or if the  Company  does  not  meet  Nasdaq's  continuing  listing
criteria,  the  Common  Stock  will be  subject  to  delisting.  As a result  of
delisting,  an investor  may find it more  difficult to dispose of, or to obtain
accurate  quotations  as to the price of, the  Common  Stock.  Additional  sales
practice   requirements  would  be  imposed  on  broker-dealers  who  sell  such
securities to persons other than established customers and accredited investors.
Consequently,  the rule  affects the  ability of holders of the Common  Stock to
sell their Common Stock in the secondary market. Delisting from The Nasdaq Small
Cap Market may also result in a decline in share price, loss of news coverage of
the Company and difficulty in obtaining subsequent financing.

Retail Propane Distribution

      HQ Propane (formerly  Halstead Quinn Fuel Oil Co., Inc.), based in central
Westchester  County in Mt. Kisco,  New York,  was  established in 1946 and since
1958 has been a retail  distributor of liquid propane gas and propane  equipment
and also provides services related thereto.  ATI acquired HQ Propane in 1975 and
subsequently  spun it off to its shareholders in December 1992. In July 1996, HQ
Propane  acquired the customer  list and certain  other assets of E.F.  Osborn &
Sons, a Pawling, New York-based retail propane distributor.

      HQ Propane has just under 7,000 accounts. Of these accounts, approximately
80% are Westchester  County residents and businesses,  and the remaining 20% are
located  throughout the surrounding  counties of Putnam and Dutchess in New York
State.

      Westchester  County  harbors many affluent  communities  whose  lifestyles
create an above  average  demand  for  energy-intensive  applications  and,  the
Company  believes,  are also more resistant to recessionary  pressures.  This is
partly exemplified by the slow but steady growth in sales revenues over the last
three years. The Company believes that, in Westchester  County, HQ Propane has a
market share of  approximately  18%. In terms of accounts,  the Company believes
that HQ Propane is the second largest propane distributor in Westchester County.

      Although  propane can be used for  virtually  all  household  and business
utility applications,  of HQ Propane's customers,  approximately 78% use propane
for hot water  heating  and  cooking;  approximately  16% use  propane  for pool
heating;  and  approximately  6% use  propane for home  heating.  HQ Propane has
focused its  marketing  efforts on hot water  heating  and cooking  applications
because these uses are relatively constant throughout the year, thereby reducing
seasonal  fluctuations,  and because  its gross  profit  margins  from hot water
heating use are significantly more than that of a residential propane heating or
commercial propane account.

      The Company believes that propane has distinct advantages over alternative
energy sources,  including efficiency,  cost and availability.  These attributes
result in the retail customer realizing reduced utility bills. With an increased
marketing  effort,  the Company  believes that HQ Propane has the opportunity to
gain a larger  share of the  Westchester  County  energy  market  by  converting
electricity  and fuel  oil  users  to  propane  and by  having  owners  of newly
constructed buildings select propane as their energy source.

      HQ Propane's  base of  operations  is centrally  located at the  Company's
headquarters in Mount Kisco,  New York. HQ Propane also maintains an inland fuel
oil  storage  terminal  and a 30,000  gallon  propane  storage  tank for its own
operations.  The fuel oil  facility is presently  leased to a major  independent
fuel oil distributor.

Wholesale Distribution and Storage

      HQ Terminal, owns a deep water terminal in Yonkers, New York, near the New
York City border.  The five million gallon  terminaling  facility allows for the
wholesale  distribution of fuel oil,  gasoline and diesel fuel and also provides
storage facilities for other petroleum companies through warehousing  agreements
known as thruputs.  The Company's own product  requirements  are often  supplied
through this facility.

      The terminal  facility has 11 above ground tanks that provide an aggregate
storage  capacity of 5,000,000  gallons for gasoline,  diesel fuel and fuel oil.
These tanks feed three gasoline racks, five oil racks and two diesel fuel racks.
The terminal has been upgraded to comply with all governmental regulations.

      The  terminal  facility  has  2.439  acres  of  above-ground  land  and an
additional  3.511  acres of land  underwater.  The large  amount  of  underwater
acreage has enabled the Company to extend the dock lines out to deep water.  The
Company  believes that the terminal is the only terminal on the east side of the
Hudson River between Long Island Sound to the east,  the Bronx,  New York to the
south and Newburgh, New York to the north that has 17 feet of draft at low tide.
This  provides a  competitive  advantage,  particularly  with  regard to thruput
customers,  because  the high  draft  allows  large  seafaring  vessels  to dock
independent of tide schedules.

      The Company believes that another competitive  advantage is the terminal's
location. It is located in the most densely populated area in Westchester County
and it is the only  terminal  on the Hudson  River south of  Newburgh,  New York
which  distributes  gasoline.  All other  gasoline  distribution  terminals  are
located in the eastern part of Westchester County.

Gasoline

      HQ Gasoline  operates 25 retail gasoline stations  throughout  eastern New
York State  under the trade names  "ATI" and  "Gulf." HQ  Gasoline's  ability to
market under  different  brand names provides the Company with an opportunity to
reach consumers at the low, middle and high end of the market,  thereby allowing
greater  flexibility  in its marketing  strategies.  Because  gasoline  usage is
relatively  constant  throughout  the year,  the operation of gasoline  stations
allows the Company to offset, in part, the seasonal fluctuations that affect the
company fuel oil  distribution  divisions.  Most of the stations are situated in
high traffic areas at major intersections. Presently, 5 of the 25 facilities are
combination  convenience  store/gasoline pumping facilities.  The balance of the
outlets are combination automotive repair shop/gasoline pumping facilities. Nine
of the 25 gasoline stations are leased from ATI. See "Certain  Relationships and
Related Transactions".

      In September 1996, the Company  acquired certain assets of Dino Oil, Inc.,
a Bronx, New York-based  commercial  gasoline  distributor.  The addition of the
Company's  Dino Oil division has  broadened the  Company's  marketing  region by
providing the Company with customer accounts (including various service stations
and fleet garages) located in the Bronx,  Queens,  Brooklyn,  and Manhattan,  as
well as Nassau, Suffolk and Westchester counties.

      In December 1996, the Company terminated its lease of 4 of its 21 stations
to an independent third party distributor, and simultaneously therewith, entered
into a master lease with another independent third party distributor. The master
lease has an initial term of ten (10) years,  and the lessee  thereunder  has an
option to renew  such  lease for an  additional  ten (10) year  term.  The lease
requires  that annual  rental  payments be made in advance,  on the first day of
each year of the lease  term.  The lease is a triple net lease  agreement  which
requires the lessee to maintain, operate, and supply all gasoline to the station
outlets.  The lessee must also make the necessary  capital  improvements to meet
applicable environmental laws by 1998.

      The  Company  intends  to focus its  efforts on  changing  the image of HQ
Gasoline  facilities.  The  industry  has  moved  away from the "mom & pop" type
operation  and into  high  volume,  automated  self-service  operations,  with a
particular  focus on  convenience.  Repair  shop,  in  particular,  are becoming
increasingly  less  desirable.  Accordingly,  in  order  to  optimize  potential
earnings at a site, the Company  intends to follow  industry trends by upgrading
approximately 12 of these facilities with state-of-the-art pumping apparatus and
canopies and, where  appropriate,  converting them to multiple  revenue sites by
combing facilities with convenience stores, snack shops and/or car washes.

      In most cases,  canopies will be installed to improve lighting and provide
shelter  in  inclement  weather.  Industry  experts  estimate  that  up to a 20%
increase in volume is derived from this improvement alone.  Management  believes
that, in the Company's  geographic region,  canopies have contributed  increased
revenues of between 15% and 25%. Electronic  self-service pumping apparatus will
also be installed for the convenience of the public,  and will afford tremendous
overhead savings to the station operator.  The addition of a convenience  store,
snack shop, or car wash, where applicable, will introduce new sources of revenue
and optimize overall station profitability.

      The  rebuilding  will  require  expenditures  that range  from  $20,000 to
$550,000 per facility,  depending upon the individual  station site. The program
is site specific,  taking into  consideration  competition,  lot size,  building
dimensions,  traffic count,  community  demographics,  and area development.  By
completing  its  rebuilding  program,  the  Company  believes  it  will  achieve
increased cash flow from  operations as a result of increased sales revenues and
rental income.  In this regard,  as part of the rebuilding  program,  management
intends to acquire  certain  station  leaseholds  from ATI at fair market  value
since  ATI's  underlying  leasehold  interest  extend by an  average of 12 years
beyond the  Company's  sublease  with ATI. The  acquisition  of these  leasehold
interest  will  protect  the  Company's  investment  in, and long term  earnings
potential,  from this revenue  source.  See "Certain  Relationships  and Related
Transactions" and "Recent Developments."

Retail Fuel Oil

      The Company's  retail fuel oil  distribution  business was conducted by HQ
Propane's  subsidiary,  Rockland Fuel Oil,  Inc.,  until May 16, 1997,  when the
Company  entered into an agreement with an independent  third party  distributor
for the sale of its retail  fuel oil  customer  list and related  business.  The
terms of the sale were $200,000 at closing,  $200,000 on the first  anniversary,
and $127,000 on the second anniversary,  with interest on outstanding amounts at
a rate of 6% per annum. Rockland continues to own a facility in Haverstraw,  New
York which houses a 2,432 square foot  building and a terminal  situated on land
fronting the Hudson River. The terminal is capable of storing  2,500,000 gallons
of oil.

      The Company acquired all of the stock of White Plains Fuel, Inc., a retail
distributor  of fuel oil and diesel  fuel,  on June 8,  1995,  in  exchange  for
168,020 shares of newly created Series A 7.5% Cumulative  Convertible Redeemable
Preferred  Stock of the  Company.  The Company has leased the White  Plains Fuel
business to a third party under the terms of a four (4) year lease.

Fundamental Characteristics of the Company's Business.

Unaffected by General Economy

      The Company's  business is relatively  unaffected by business  cycles.  As
fuel oil,  propane and gasoline are such basic  necessities,  variations  in the
amount purchased as a result of general economic conditions are limited.

Customer Stability

      HQ Propane has a relatively  stable  customer  base due to the tendency of
homeowners  to remain  with  their  traditional  distributors.  In  addition,  a
majority  of  the  home  buyers  tend  to  remain  with  the  previous   owner's
distributor.  As a result,  HQ Propane's  customer  base each year includes most
customers  retained from the prior year or home buyers who have  purchased  from
such customers.  Like many other companies in the industry,  HQ Propane delivers
propane to each of their customers an average of approximately  six times during
the year, depending upon weather conditions and historical consumption patterns.
Most of HQ Propane's  customers  receive their propane  pursuant to an automatic
delivery  system,  without the customer  having to make an affirmative  purchase
decision  each time propane is needed.  In addition,  HQ Propane  provides  home
heating equipment repair service on a seven day a week, 52 week a year basis.

      Retail gasoline  customers are generally brand loyal or price shoppers who
generally factor appearance,  convenience,  and credit cards into their decision
making process before making an affirmative  decision.  HQ Gasoline's ability to
market under the trademarks "Gulf" and "ATI" largely meet the criteria exercised
by customers  in making  their  purchase  decisions.  However,  the Company must
complete  its station  rebuilding  program in order to ensure that the  standard
which are particularly important to the motoring public, such as appearance, are
maintained.

      No single customer accounts for 10% or more of the Company's  consolidated
revenues.

Weather Stability

      The weather  patterns  during the winter can have a material effect on the
Company's fuel oil related businesses.  Although average  temperatures over time
have  varied to a very  limited  extent and the  Company  does not  expect  that
average temperatures will vary significantly in the future,  winter temperatures
can vary  significantly  from one year to the next.  A warmer than usual  winter
should  reduce the number of  gallons  of fuel oil sold  which  would  result in
reduced revenues from the Company's fuel oil related operations.  Severe ice and
snow storms can also greatly effect consumers driving patterns, thereby reducing
the Company's gasoline  revenues.  Ice and snow can also greatly reduce delivery
productivity,  thereby  reducing the number of gallons  which can  physically be
delivered in a certain period of time. Such conditions  would most likely demand
significant overtime hours resulting in increased payroll expense.

 Effects of Oil Price Volatility

      The price of crude oil  remains  volatile.  While this has not  materially
affected the Company's performance in the past (e.g. as a retailer,  the Company
has been  able to add an  increasing  gross  margin  onto its  wholesale  costs,
whatever their level, to offset the impact of inflation,  account  attrition and
weather),  there can be no assurance that such  performance  will continue.  For
instance, in recent months the Company has experienced  difficulties maintaining
its gross  margin on its sales of  gasoline  product  (when its cost of same has
substantially increased) due primarily to strong competition for market share.

Petroleum Supply

      Two  major  suppliers   provide  the  Company  with  its  propane  product
requirements.   One  supplier   provided   approximately   65%,  and  the  other
approximately  35%, of the Company's total propane  requirements  for the fiscal
year ended August 31, 1997.

      The Company met  substantially  all of its gasoline  product  requirements
through Gulf Oil, BP and ATI for the fiscal year ended August 31, 1997. Gulf Oil
supplied   approximately  30%,  and  ATI  provided  approximately  65%  of  such
requirements  during such period.  All of the Company's fuel oil and diesel fuel
product  requirements  during such period were met by ATI.  Upon the issuance of
its diesel motor fuel licenses from New York State, HQ Propane will assume ATI's
role in procuring the Company's  petroleum  product  requirements.  See "Certain
Relationships  and Related Party  Transactions" and "Business - Certain Licenses
Relating to the Company's Business."

      Management  believes that if the Company's  supply of any of the foregoing
products was interrupted,  the Company would be able to secure adequate supplies
from other sources  without a material  disruption in its  operations.  However,
there can be no assurance that adequate supplies of such petroleum products will
be readily available in the future.

Expansion

      The industries in which the Company's  petroleum products division compete
are highly fragmented and characterized by numerous local and national fuel oil,
gasoline,  diesel fuel and propane  distributors.  The Company intends to expand
its operating divisions through  acquisitions and aggressive sales and marketing
efforts to generate new divisions through  acquisitions and aggressive sales and
marketing  efforts to generate new accounts and increase  consumer  awareness of
the Company's products and quality.

      The Company's  acquisition strategy is to grow through the acquisition and
integration of additional  distributors in existing and new markets. The Company
believes  that  many of the  proprietors  of  businesses  competitive  with  the
Company's  operating  divisions  are of  retirement  age and may be receptive to
selling their operations. Another potential source of acquisitions are companies
that are  owned  by  individual  entrepreneurs  who find  expansion  within  the
petroleum products industry difficult,  either operationally or financially,  or
who have other investment opportunities.

      More   specifically,   HQ  Propane   intends  to  acquire   two  types  of
distributors.  The first type are relatively small distributors which management
believes could easily be integrated  into the Company's  operations.  Management
believes that such distributors  could result in significant  economies of scale
through the centralization of purchasing, marketing, credit, data processing and
other  administrative  functions  of the acquired  distributor.  The second type
consists of larger,  stand-alone  businesses which could not be integrated,  but
would,  in  all  probability,  be in  new  markets.  The  Company  expects  that
acquisitions of these  businesses  would provide not only attractive  investment
returns, but also provide hubs for future expansion.

      The Company also intends to expand HQ Gasoline by pursuing the acquisition
of single units and chains of retail service stations.  Such acquisitions  would
provide deeper market  penetration in the Company's existing marketing area, and
provide  expansion into new marketing  areas.  Besides the benefits derived from
the economics of scale, the Company would expect to achieve greater buying power
for  its  petroleum   products   purchases,   and  possibly  assume   additional
distributorships with various major oil companies.

Competition

      The Company's business is highly  competitive.  In addition to competition
from alternative energy sources,  HQ Propane competes with propane  distributors
offering a broad range of services and prices,  from full  service  distributors
similar to the HQ Propane,  to those offering  delivery only.  Competition  with
other companies in the propane  industry is based primarily on customer  service
and price.  Long-standing  customer  relationships  are  typical in the  propane
industry. Many companies in the industry,  including HQ Propane, deliver propane
to their  customers  based upon weather  conditions and  historical  consumption
patterns  without the customer having to make an affirmative  purchase  decision
each time propane is needed. In addition, most companies,  including HQ Propane,
provide equipment repair service on a 24-hour a day basis,  which tends to build
customer loyalty. As a result, HQ Propane may experience difficulty in acquiring
new retail customers due to existing  relationships  between potential customers
and other  propane  distributors.  As of the date of this  report,  fuel oil and
propane are less  expensive  sources of energy than  electricity.  Natural  gas,
which is currently  less  expensive  than propane,  is not readily  available in
Upper  Westchester  and  Putnam  Counties  where  all of the  Company's  propane
operations   are   conducted.   Accordingly,   the  Company   believes  that  an
insignificant  number of its  customers  will switch from fuel oil or propane to
alternative energy sources at this time.

      HQ  Gasoline's  business  operations  are  sensitive  to price  and  brand
competition.  In order to compete with branded competitors who benefit from name
recognition  and  customer  loyalty,  the "ATI"  branded  service  stations  may
maintain a lower price than these competitors. The Gulf branded stations are not
as sensitive to price and therefore,  typically maintain a price consistent with
other brand name competitors.

Certain Licenses Relating to the Company's Business

      HQ Propane's  principal  terminal  facility is  currently  operated by ATI
pending the approval of HQ Propane's  application with the State of New York for
a terminal  operator's  license  and the  applications  of HQ Propane  and White
Plains Fuel, Inc. for their respective diesel motor fuel licenses. On October 6,
1995, New York State  requested HQ Propane and White Plains Fuel to post certain
bonds as a  prerequisite  to obtaining  the foregoing  licenses.  On October 25,
1995,  these bonds were obtained by the Company and the State approved the same.
Management  believed  at  the  time  that  the  Company  had  thereby  completed
substantially  all steps  necessary to receiving such licenses.  However,  these
licenses  have not as of yet been granted,  though the State has discussed  with
management the possibility of approving  applications  for certain (but not all)
of such licenses (i.e., HQ Propane's terminal  operator's license and its diesel
fuel licenses)  pending the completion of the licensing  process with respect to
the balance of the  licenses.  There can be no  assurance  about the prospect of
obtaining  the approval of such  licenses.  The $.0025 per gallon fee charged by
ATI for these services would be eliminated  simultaneously  with the issuance of
HQ Propane's terminal operator's license and its diesel motor fuel licenses. See
"Certain Relationships and Related Transactions."

         On June 10, 1997, A. Tarricone,  Inc. ("ATI"), the former parent of the
Company's operating subsidiaries and divisions (ATI is wholly-owned by Claire E.
Tarricone, Anthony J. Tarricone and Joseph A. Tarricone, the Company's directors
and principal executive officers), filed a voluntary petition for reorganization
pursuant  to Chapter  11 of the  Bankruptcy  Code (the  "Code").  The  Company's
principal  terminal  facility  is  currently  being  operated by ATI pending the
approval of the Company's  application with the State of New York for a terminal
operator's  and diesel motor fuel license.  There can be no assurance  about the
prospect  of  obtaining  the  approval  of such  licenses.  The Company has been
advised by counsel that pending the conclusion of ATI's  bankruptcy  proceeding,
ATI will  continue  to  maintain  such  licenses  and  will be able to  continue
operating  the  Company's  terminal and diesel motor fuel  businesses.  However,
there can be no assurance  that at the  conclusion  of such  proceeding,  if the
result  were  a  liquidation  of ATI  (and  therefore,  a  termination  of  such
licenses), that the Company would by that time have received its own licenses or
would have been able to contract with another entity to operate such businesses.
The occurrence of any of these  circumstances  could have a material and adverse
effect on these businesses and on the Company.


Environmental/Governmental Regulation

      The  Company's  operating  divisions  are subject to various  governmental
regulations.  New regulations  regarding  underground  storage tanks  ("UST's"),
including  those at service  stations,  have been  issued by the  United  States
Environmental  Protection Agency (the "EPA").  The regulations cover the design,
construction  and  installation  of new UST systems,  and require that  existing
systems meet certain EPA standards. The regulations require that owner/operators
of UST systems demonstrate financial responsibility for the cleanup of spills or
releases,  and/or to compensate  third parties for any  resulting  damages.  The
Company has  recently  upgraded its HQ Terminal  Facility and its other  storage
facilities to conform with applicable law and the Company has an ongoing program
for maintenance,  testing,  retrofitting,  or replacement of UST's. In addition,
the  Company  maintains  Pollution  Liability  Coverage on 11 of the 22 Gasoline
Stations presently leased by the Company.  (Three of the 25 stations operated by
the Company are Supply Contracts only, and therefore management does not believe
that the Company would be subject to any environmental  exposures.) In addition,
8 stations are leased to a third party distributor to which,  under the terms of
said lease,  is  responsible  for any  environmental  liability as of January 1,
1997. The Alexander  Street Terminal is also insured under a separate  Pollution
Legal Liability Policy.

      The Company  believes that its operating  divisions are in compliance with
all applicable  regulatory  requirements and have all governmental  licenses and
permits  (other  than those  described  above in  "BUSINESS  - Certain  Licenses
Relating to the  Company's  Business)  required for their  business  operations,
except  where the failure to be in  compliance  or maintain  such  licenses  and
permits  would not have a material  adverse  effect on the  Company's  business.
Management knows of no pending or threatened proceedings or investigations under
Federal or State  Environmental  Laws which would have a material adverse effect
on the Company's  business.  Management cannot predict the impact on the Company
and its operating divisions of new governmental regulations and requirements.

      The Company will have to invest an estimated  minimum of $325,000 over the
next eleven months in order to meet EPA and State  regulations  for  underground
storage tanks by December, 1998.

Employees

      As of January 19, 1998, the Company had a total of 28 employees,  of which
18 are office,  clerical and customer service personnel,  4 were drivers, 3 were
mechanics,  and 3 were executive  officers of the Company.  All of the Company's
employees  are full time and one is  seasonally  employed.  Seven  employees are
represented by the International  Brotherhood of Teamsters and Chauffeurs Union,
Local 456 under a  contract  which  expires on  December  31,  2001.  Management
believes  that its  relations  with both its union and  nonunion  employees  are
satisfactory.

ITEM 2.    PROPERTIES

      The Company's principal place of business is located at 33 Hubbells Drive,
Mount  Kisco,  New York,  where HQ Propane  owns a block and brick  building  of
approximately 6,000 square feet on 1.03 acres.

      The Company also owns the following facilities:

      1. The HQ Terminal  facility located in Yonkers,  New York, which facility
      is situated  on 5.95 acres of land,  with  approximately  2.44 acres above
      water and 3.51 acres are  underwater.  Four block and brick  buildings  of
      3,000 square feet,  234 square feet,  225 square feet and 450 square feet,
      respectively  are  situated  on the  property.  The  terminal  also has 11
      storage tanks with capacities  ranging from 140,000 to 1,000,000  gallons,
      and an aggregate  capacity of 5,083,000  gallons;  a 300 foot dock;  three
      gasoline racks; five oil racks; and two diesel fuel racks.

      2. A terminal facility located in Haverstraw,  New York, which facility is
      situated on 1.30 acres of land. The property  houses one building of 2,432
      square  feet.  The  terminal  also has 14 storage  tanks  with  capacities
      ranging from 15,652 gallons to 508,000 gallons,  and an aggregate capacity
      of 2,509,545 gallons; and one loading rack.

      3. A gasoline  station  facility in Hartsdale,  New York which facility is
      situated on 16,700  square feet of land.  The property  houses a one story
      concrete  building of 1,827  square  feet with three bays and office.  The
      station is also improved with two islands, each with two pumps.

      As of August 31,  1997,  HQ leased the  following  stations  from ATI (See
     "Certain Relationships and Related Transactions"):


              Station Name and #                       Address

      (1)     Elmsford ATI #203                   153-162 E. Main Street
                                                  Elmsford, New York 10523

      (2)     Wingdale ATI #405                   Route 22 - Box 684
                                                  Wingdale, New York 12594

      (3)     Salt Point #414                     Route 44 & 82
                                                  Salt Point, New York 12578

      (4)     Congers ATI #112                    21 South Route 303
                                                  Congers, New York 10920

      (5)     Mt. Vernon Lincoln Ave. #205        25 W. Lincoln Avenue
                                                  Mt. Vernon, New York   10550

      (6)     Lakeside P.P. #219                  6 N. Lakeside Blvd.
                                                  Mahopac, New York 10541

      (7)     Raceway ATI #221                    535 Central Park Avenue
                                                  Yonkers, New York   10704

      (8)     West Hurley #315                    1105 Route 28
                                                  Kingston, New York 12401

      (9)     Pine Plains #411                    Route 199 - Box 421
                                                  Pine Plains, New York 12567

      Five of the above leases  expire on August 31, 1998,  two expire on August
31,  2018,  and the other two expire on November  28, 2006 with an option for an
additional ten year term expiring November 28, 2016. The aggregate annual rental
amount  under  these  leases is $195,976  for the fiscal year ending  August 31,
1996;  $187,272 for the fiscal year ending  August 31, 1997 and $213,633 for the
fiscal year ending August 31, 1998.  For the four leases  expiring on August 31,
2018 or November 28, 2006, as the case may be, the aggregate  rental amount will
range from  $89,150 in the fiscal year ending  August 31, 1999 to $88,000 in the
fiscal year ending August 31, 2018.

ITEM 3.     LEGAL PROCEEDINGS

      In January 1994,  HQ Propane was served with a complaint  dated January 5,
1994 relating to an action entitled RAP Holding Corp. v. Halstead Quinn Fuel Co.
Inc.,  and A.  Tarricone,  Inc.  in the  Supreme  Court of New  York,  County of
Westchester.  The plaintiff is the owner of property in Westchester  County, New
York  which was  leased by HQ  Propane  from June 1, 1979 to May 31,  1989.  The
complaint  alleges that,  during the term of the lease,  the Company  discharged
petroleum products onto the property and seeks $106,173 damages for the costs of
clean up and removal of the  contaminated  soil and an  additional  $300,000 for
diminution of value.  The Company has retained outside counsel and is vigorously
defending  itself in this  lawsuit.  As of January 19,  1998,  there has been no
further action in this case.

             On June 10, 1997, A. Tarricone,  Inc. ("ATI"), the former parent of
the Company's operating subsidiaries and divisions(ATI is wholly-owned by Claire
E.Tarricone, Anthony J.Tarricone and Joseph A.Tarricone, the Company's directors
and principal executive officers), filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in
possession  of  its  property  and  in  the  management  of  its  affairs  as  a
debtor-in-possession  under the applicable provisions of the Code. In connection
with  the  bankruptcy  proceeding,   the  Company  has  asserted  (and  ATI  has
acknowledged)  pre-petition  claims  arising under a receivable  from ATI in the
amount of $3,877,563 and pre-petition liens on certain leasehold interests.  The
proceeding is before the United States  Bankruptcy  Court,  Southern District of
New York, and is referenced as "A. Tarricone,  Inc.,  97B21488." The Company has
determined  that its  asserted  pre-petition  liens may not have  been  properly
"perfected,"  in which case the Company  would be deemed an  unsecured  creditor
(rather  than a  secured  creditor)  in the  proceeding.  If it were  ultimately
determined by the court that the Company's  status in the  proceeding is that of
an  unsecured  creditor,  the  Company's  legal  basis  for  recovery  would  be
materially,  adversely affected. The Company is pursuing all appropriate avenues
to protect its interests in this regard. However, there can be no assurance that
the  indebtedness  and the liens asserted by the Company in this proceeding will
be  recognized  or given  full  effect,  that the same  will not be  challenged,
modified or reduced, that all or any portion of such indebtedness will be repaid
to the Company or that the Company will  otherwise be  successful  in protecting
its  interests.  In this regard,  management  has elected to write-off,  and has
taken as a charge against  earnings as a bad debt expense,  the entire amount of
the receivable due from ATI at June 10, 1997, i.e.,$3,877,563. Additionally, all
executory contracts between ATI and the Company are susceptible to rejection, at
the election of ATI, under the applicable  provisions of the Code.  Furthermore,
any transfers  from ATI to the Company on account of antecedent  debt (of ATI to
the  Company)during  the  one-year  period  prior to the date of filing of ATI's
voluntary  petition may be subject to avoidance under the applicable  provisions
of the  Code.  The  occurrence  of any such  circumstances  may have a  material
adverse effect on the Company.

      The Company's  principal  terminal facility is currently being operated by
ATI pending the approval of the Company's application with the State of New York
for a  terminal  operator's  and  diesel  motor  fuel  license.  There can be no
assurance  about the prospect of obtaining  the approval of such  licenses.  The
Company  has been  advised by  counsel  that  pending  the  conclusion  of ATI's
bankruptcy proceeding, ATI will continue to maintain such licenses and will will
be able to continue  operating  the  Company's  terminal  and diesel  motor fuel
businesses.  However,  there can be no assurance  that at the conclusion of such
proceeding,  if  the  result  were  a  liquidation  of  ATI  (and  therefore,  a
termination of such licenses), that the Company would by that time have received
its own  licenses or would have been able to  contract  with  another  entity to
operate such businesses. The occurrence of any of these circumstances could have
a material and adverse effect on these businesses and on the Company.

      The  Company is not a party to any other  material  litigation  and is not
aware of any threatened  litigation that would have a material adverse effect on
its business.


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

            None.

<PAGE>


                                PART II

ITEM 5.     MARKET FOR COMMON STOCK AND RELATED
                    STOCKHOLDER MATTERS

      On March 13, 1995, the Company's  Common Stock became listed on the NASDAQ
Small  Cap Stock  Market  under  the  symbol  "HSNR".  Prior to that  date,  the
Company's  Common Stock was listed in the Nasdaq Bulletin Board under the symbol
"HSNR."

      The  following  table  sets  forth the range of high and low  closing  bid
prices for the  Company's  Common Stock from March 13, 1995  through  August 31,
1997,  as  reported by NASDAQ,  which bid prices  reflect  inter-dealer  prices,
without retail mark-ups,  markdowns or commissions and many not represent actual
transactions.


                                                Bid Prices

                                        High                     Low

      Fiscal 1995
      Third Quarter (from March 13)     5 7/8                    3 1/8
      Fourth Quarter..................  5 7/8                    3 1/8

      Fiscal 1996
      First Quarter...................  6 19/32                  5
      Second Quarter................... 6 31/64                  4 5/16
      Third Quarter.................... 7                        4 5/16
      Fourth Quarter..................  6                        1 5/32

      Fiscal 1997
      First Quarter                    1 5/16                      3/64
      Second Quarter                     9/16                      5/64
      Third Quarter                    1 5/64                      9/32
      Fourth Quarter                   1                           5/16

      As of December 29,1997,  there were 172 holders of record of the Company's
Common  Stock.  However,  those  shares  being held at various  clearing  houses
including the Depository Trust Company,  and Cede & Company have not been broken
down. Accordingly,  the Company believes there are numerous beneficial owners of
the Company's common stock whose shares are held in "street name", including the
Depository Trust Company and Cede & Company have not been broken down.

      The Company does not pay dividends on its Common Stock. It is management's
intention not to declare or pay dividends on the Company's Commons Stock, but to
retain  earnings,  if any, for the  operation  and  expansion  of the  Company's
business.  In any  event,  until  such  time  as all  accrued  dividends  on the
Company's  Series A Preferred Stock and Series B Preferred Stock have been paid,
the Company is restricted, pursuant to the instruments/documents authorizing the
issuance of such preferred stock, from paying any dividends on its Common Stock.
Any dividends that may be declared in the future will be determined by the Board
of Directors based on the Company's financial condition,  results of operations,
market conditions and other factors that the Board deems relevant.

ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
               OPERATION

Results of Operations

      Year Ended August 31, 1997 Compared to Year Ended August 31, 1996.

      Sales for the year ended  August 31,  1997,  increased  by  $3,354,872  to
$18,667,132  from  $15,312,260 for the yeard ended August 31, 1996. The increase
was due to additional  gasoline  sales  revenue  totaling  $5,361,011  resulting
primarily  from the Dino Oil  acquisition,  and increased  propane sales revenue
totaling  $205,936.  These  increases  in  revenue  were  partially  offset by a
decrease in home heating oil sales in the amount of $2,135,959  primarily due to
a 20% warmer  winter,  the sale of Rockland  Fuel Oil's  customer  list and lost
thruput income.

      Cost of Sales for the year ended August 31, 1997  increased by  $3,943,180
to  $14,677,380  from  $10,734,200  for the year  ended  August 31,  1996.  This
increase was due to additional gasoline product purchase requirements  primarily
relating to the Dino Oil  acquisition of $5,407,280 and increased  propane costs
of  $87,329.  These cost  increases  were  partially  off-set  by lower  product
purchases  for  home  heating  oil  in  the  amount  of   $1,526,700   primarily
attributable  to a warmer winter and to the sale of Rockland Fuel Oil's customer
list.  The  percentage  of cost of sales to sales for the twelve  month  periods
ending August 31, 1997 and 1966 were 78.6% and 70.1%, respectively. The increase
in the  percentage  of cost of sales to sales of 8.5% was due,  in part,  to the
Dino Oil acquisition,  the commercial business of which is characterized by high
volume and low gross profit.  In addition,  seven year record price increases in
the  cost  of  gasoline  and  distilates   sharply  reduced  the  gross  profit,
particularly in the Company's non-residential markets.

      Selling, General and Administrative Expenses for the year ended August 31,
1997  increased by $828,209 to  $4,069,135  from  $3,240,926  for the year ended
August 31,  1996.  The  increase  is  primarily  due to  increased  salaries  of
$551,242,  telephone uniforms and selling expense of $31,310, and office expense
of $34,625 all of which are primarily due to start up costs  associated with the
Dino Oil acquisition,  increased equipment leases of $118,563,  increase in real
estate taxes of $78,505 increased insurance of $33,764,  increased  professional
fees of $21,585  and all other  expenses  totaling a net  increase of $36,368 as
compared to the previous year. These increases in expenses were partially offset
by a decrease in advertising  expense of $64,435 and all other expenses totaling
a net decrease of $13,318 as compared to last year.

      Bad  Debt  expense  for the  year  ended  August  31,  1997  increased  by
$4,655,129  to $4,694,998  from $39,869 for the year ended August 31, 1996.  The
increase in bad debt expenses  primarily  resulting  from the ATI bankruptcy and
management's  decision to write-off the entire  pre-petition note receivable due
from ATI of 3,877,563 in addition to the other write-offs of $777,566.

      Depreciation and Amortization for the year ended August 31, 1997 increased
by $569,790 to $1,287,674  from $717,884 for the year ended August 31, 1996. The
increase is  primarily  attributable  to fixed asset  additions  of property and
equipment  of $511,031,  leaseholds  of $703,000  and a customer  list  totaling
$350,000  for  fiscal  1997 and a change in  estimated  useful  lives of certain
assets.

      Interest Income for the year ended August 31, 1997 decreased by $96,536 to
$5,451  from  $101,987  for the year ended  August 31,  1996.  This  decrease is
primarily  due to the decrease of interest  income due from the note  receivable
from ATI.  This amount is partially  offset by interest  income  resulting  from
invested funds and the note  receivable due from the sale of Rockland Fuel Oil's
customer list.

      Interest Expense for the year ended August 31, 1997 increased by $9,080 to
$407,969  from  $398,889 for the year ended August 31, 1996.  This  increase was
primarily due to an increase of indebtedness of the Company.

      Net Rental Income for the year ended August 31, 1997  increased by $84,039
to $502,517 from  $418,478 for the year ended August 31, 1996.  The increase was
due to increased  gasoline  station and other  rental  income of $14,039 and the
recovery of bad debt  previously  written-off  of  additional  rents due under a
third party lease agreement of approximately $70,400.

      Royalty Expense for the year ended August 31, 1997 decreased by $64,333 to
$31,769  from  $96,102  for the year ended  August 31,  1996.  The  increase  is
primarily  due to the  expense  associated  with the  warrants  issued to ATI in
exchange for use of the trademark "ATI."

      Other  Income for the year ended  August 31, 1997  increased by $75,408 to
$114,343  from $38,935 for the year ended August 31, 1996.  This increase is due
to rebates earned from available program connected to gasoline purchases.

      Gain on the sale of asset for the year ended August 31, 1997  increased by
$175,667.  The increase was due to the sale of the retail fuel oil customer list
of  Rockland  Fuel  Oil,   Inc.,  a   wholly-owned   subsidiary  of  HQ  Propane
("Rockland")., to an independent third party distributor.

      Income  Tax  Expense  for the year  ended  August 31,  1997  decreased  by
$102,696 to $ -0- from $102,696 for the year ended August 31, 1996. The decrease
is primarily atributable to the company reporting a net loss.

Liquidity and Capital Resources

      Management believes that the Company's diversified business operations and
continued  growth will result in  increased  sales  revenues  and gross  profits
(subject,   of  course,  to  the  effects  of  price  increases  which  are  not
sufficiently  passed through to the customers as referenced below) and result in
greater amounts of working capital being generated from operations. However, the
Company's  acquisition of the customer list and certain other assets of Dino Oil
has significantly  increased the Company's  working capital  requirements due to
increased gasoline purchase requirements,  increases in accounts receivable, and
increased operating expenses (including salary expense).  Additionally, rises in
the  cost of  petroleum  products  by as much  as 50%,  as well as  expenditures
relating to the  rebuilding  of certain of the Company's  gasoline  stations and
certain other capital expenditures, have further increased the Company's working
capital  requirements and have adversely  affected the Company's ability to meet
the same.  Though  management  has recently seen the cost of petroleum  products
declining,  there  can be no  assurance  as to the  extent  to which  this  will
continue. As a result,  without additional financing,  there can be no assurance
that the Company will be able to meet its cash  requirements for the next twelve
months.  If it  cannot do so,  the  Company  will be  forced  to scale  back its
operations.  The Company will  continue to pursue  additional  financing  from a
lending  facility or an offering of its securities to enable the Company to meet
such cash  requirements and to accomplish  growth through  acquisition which the
Company is actively pursuing.  There can be no assurance that the financing will
occur or that the Company  can find a suitable  acquisition  in the  foreseeable
future.

      HQ  Gasoline  will have to  invest  approximately  $325,000  over the next
eleven months in order to meet Federal EPA and State Regulations for underground
storage  tanks  by  December  1998.  Through  August  31,  1997,  the  mandatory
requirements  for  six  locations  of  the  Company's  25  locations  have  been
completed.

      In addition the Company plans to rebuild 10 of 25 gasoline  stations which
will  generally  require  $20,000 to $550,000  per  location for an aggregate of
$1,600,000  (inclusive of the  environmental  upgrades  referenced  above).  The
rebuilds will be phased in over two years in order to minimize volume losses due
to "downtime" encountered while each station location is under construction.

      Capital  expenditures  for the year ended August 31, 1997 were $1,214,031.
Included  in this  amount were  expenditures  for  propane and other  equipment,
improvement to gas stations and the terminal facility,  and improvements  and/or
purchases  of  trucks  and  auto  totaling  $511,032,  and  leaseholds  totaling
$703,000.

      On June 8, 1995 the Company  acquired  all of the  capital  stock of White
Plains Fuel, Inc. in an exchange of stock valued at $1,008,128. The stockholders
of White Plains Fuel, Inc.  received  168,020 shares of newly created Series A -
7.5%  Cumulative  Convertible  Redeemable  preferred  Stock of the Company  (the
"Series A  Preferred  Stock").  On various  dates  throughout  the 1997 and 1996
fiscal year, the Company  declared  dividends of the Series A Preferred for $.45
per share  totaling  $75,609 in each such year.  The fuel oil  business of White
Plains Fuel,  Inc. is conducted by a third party  operator  under the terms of a
four (4) year lease  under which HQ Propane  receives  annual  rental  income of
$288,000.

      On September 5, 1996, the Company  acquired the customer list of Dino Oil,
Inc. in exchange for 200,000  shares of the Company's  Common Stock at $1.25 per
share and $100,000  cash.  The  acquisition  was accounted for as a purchase and
resulted  in the  recognition  of a  customer  list in the  amount of  $350,000.
Subsequent to the September 5, 1996  acquisition,  the Company acquired 4 trucks
of Dino Oil at a fair market value of $166,226. This amount was financed through
a capital lease.

        On June 10, 1997, A. Tarricone,  Inc. ("ATI"),  the former parent of the
Company's  operating  subsidiaries  and divisions (ATI is wholly-owned by Claire
E.Tarricone, Anthony J.Tarricone and Joseph A.Tarricone, the Company's directors
and principal executive officers), filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in
possession  of  its  property  and  in  the  management  of  its  affairs  as  a
debtor-in-possession  under the applicable provisions of the Code. In connection
with  the  bankruptcy  proceeding,   the  Company  has  asserted  (and  ATI  has
acknowledged)  pre-petition  claims  arising under a receivable  from ATI in the
amount of $3,877,563 and pre-petition liens on certain leasehold interests.  The
proceeding is before the United States  Bankruptcy  Court,  Southern District of
New York, and is referenced as "A. Tarricone,  Inc.,  97B21488." The Company has
determined  that its  asserted  pre-petition  liens may not have  been  properly
"perfected,"  in which case the Company  would be deemed an  unsecured  creditor
(rather  than a  secured  creditor)  in the  proceeding.  If it were  ultimately
determined by the court that the Company's  status in the  proceeding is that of
an  unsecured  creditor,  the  Company's  legal  basis  for  recovery  would  be
materially,  adversely affected. The Company is pursuing all appropriate avenues
to protect its interests in this regard. However, there can be no assurance that
the  indebtedness  and the liens asserted by the Company in this proceeding will
be  recognized  or given  full  effect,  that the same  will not be  challenged,
modified or reduced, that all or any portion of such indebtedness will be repaid
to the Company or that the Company will  otherwise be  successful  in protecting
its  interests.  In this regard,  management  has elected to write-off,  and has
taken as a charge against  earnings as a bad debt expense,  the entire amount of
the receivable due from ATI at June 10, 1997, i.e.,$3,877,563. Additionally, all
executory contracts between ATI and the Company are susceptible to rejection, at
the election of ATI, under the applicable  provisions of the Code.  Furthermore,
any transfers  from ATI to the Company on account of antecedent  debt (of ATI to
the  Company)during  the  one-year  period  prior to the date of filing of ATI's
voluntary  petition may be subject to avoidance under the applicable  provisions
of the  Code.  The  occurrence  of any such  circumstances  may have a  material
adverse effect on the Company.

      On December 31, 1996,  the Company  entered into an agreement with a third
party  distributor to lease four (4) gasoline  stations for a period of 10 years
with an option for renewal. The distributor prepaid the Company $149,000 for the
first year of rental  expense and the  Company is  carrying  $67,968 as deferred
income.  Simultaneously,   the  Company  terminated  the  previous  third  party
agreement for $192,907 which resulted in a note receivable and additional rental
income of approximately $70,400.

      On May 16, 1997, the Company entered into an agreement for the sale of the
retail  fuel  oil  customer  list of  Rockland  to an  independent  third  party
distributor.  The terms of the sale were  $200,000 at  closing,  $200,000 on the
first  anniversary,  and $127,000 on the second  anniversary,  with  interest on
outstanding  amounts at a rate of 6% per annum.  The Company is  recording  this
sale on an  installment  basis and has recognized a gain of $175,667 in the year
ended August 31, 1997 financial statements.

      During the quarter ended February 28, 1997, the Company issued for certain
consulting  services  400,000 five (5) year  warrants  dated 2/27/97 at $.41 per
warrant  exercise  price (for the year ended  August 31,  1997,  85,000 of these
warrants were exercised), 100,000 five (5) year warrants (10,000 dated 11/04/96,
and 90,000 dated 2/18/97) at $.3125 per warrant  exercise price, and 15,000 five
(5) year warrants dated 11/05/96 at $1.00 per warrant exercise price.

      On June 9, 1997, the Company obtained a one-year revolving credit facility
in the  maximum  principal  amount of  $1,000,000.  The  maturity  date has been
extended to September 4, 1998.  Interest accrues on outstanding  balances at the
prime rate plus 10% per  annum,  subject to a minimum of 17% per annum and until
June 1, 1998, at which time minimum will  increase to 20% per annum.  The credit
facility  is secured by a security  interest  in all of the  Company's  accounts
receivables,  general intangibles,  contract rights and inventory, as well as by
the  guarantees  of Claire E.  Tarricone,  Joseph A.  Tarricone  and  Anthony J.
Tarricone. As of August 31,1997, the outstanding principal balance was $715,000.

      On  September  24,  1997,  the Company,  Claire E.  Tarricone,  Anthony J.
Tarricone and Joseph A. Tarricone and Infinity  Investors  Limited  ("Infinity")
entered into a certain Restructuring  Agreement (the "Restructuring  Agreement).
Under the terms of the  Restructuring  Agreement,  Infinity  agreed to  exchange
77,419  shares of Series B  Preferred  Stock in the  Company and all accrued and
unpaid  dividends on the outstanding  shares of Series B Preferred Stock for the
Company's Subordinated  Promissory Note in the principal amount of $600,000 (the
"Note"). The Note accrues interest at 12% per annum compounded quarterly through
September 24, 1999 and accrues simple  interest at 12% per annum after September
24,  1999.  The note  matures on  September  24,  2002,  although the Company is
required to make mandatory prepayment upon the occurrence of certain events. The
terms of the balance of the 560,126 shares of Series B Preferred  Stock owned by
Infinity were amended to provide, among other things, for (i) a fixed conversion
price of $2.00  per share of  Series B  Preferred  Stock,  (ii) the  removal  of
certain  limitations on the rights of holders of the Series B Preferred Stock to
convert those shares into the Company's  Common Stock,  and (iii) an increase in
the dividend rate of the Series B Preferred Stock to 12% from 8% per annum.  The
Company also agreed to register such shares of Common Stock.  In connection with
the execution and delivery of the Restructuring  Agreement,  Infinity granted to
Elizabeth Mandel  ("Mandel") an option to purchase all of the Shares.  Under the
terms of the  option,  Mandel has the option to acquire  all of the shares for a
price of $2.00 per share until the 18- month  anniversary  of the effective date
of the registration statement relating to the above-referenced registration (the
"Effective Date"), subject to earlier termination in the event that Mandel fails
to purchase at least an aggregate of 250,000  Shares on or prior to the 90th day
following the Effective  Date and an aggregate of 400,000  Shares on or prior to
the last day of each  succeeding  90 day  period  commencing  90 days  after the
Effective Date.


      The Company had a working capital  deficiency of $1,131,017 and a ratio of
current  assets to current  liabilities  of  approximately  .71% or 1:1.41 as at
August 31, 1997.

      There was no significant impact on the Company's operations as a result of
inflation during fiscal 1995, fiscal 1996, and fiscal 1997.

Inflation

      There was no significant impact on the Company's operations as a result of
inflation during fiscal 1996 and fiscal 1997.

Year 2000 Computer Software Conversions

      The  Company  relies  on  numerous  computer  programs  in its  day to day
business.  Older computer programs use only two digits to identify a year in its
date field.  As a result,  when the Company has to identify  the year 2000,  the
computer  will think it means the year 1900 and the  operation  attempting to be
performed may fail or crash thus resulting in the potential  interference in the
operations  of the  Company's  business.  The  Company has  formulated  plans to
safeguard   against  the  Year  2000  conversion   problem.   The  cost  of  the
implementation of the Year 2000 safeguards will not be material to the Company.

New Accounting Standards

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
Statement  of  Financial  Accounting  Standards  No.  128,  Earnings  Per  Share
("SFAS#128"),  which is  required to be adopted on December  31,  1997.  At that
time,  the  Company  will be  required  to change the method  currently  used to
compute  earnings  (loss) per share and to restate all prior periods.  Under the
new requirements  for calculating  basic earnings (loss) per share, the dilutive
effect of stock options will be excluded. The Company does not expect the impact
on the earnings (loss) per share to be material.

ITEM 7.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The consolidated financial statements of the Company,  including the notes
thereto, together with the independent auditors' report, are presented beginning
on page F-2.

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

      The  information  required by this item was reported by the Company in its
Current  Reports on Form 8-K filed with the SEC on December 1, 1997 and December
9, 1997.


<PAGE>


                               PART III

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

                              MANAGEMENT

The names and ages of the directors and executive officers of the Company are as
follows:

Name                     Age            Position with the Company
----                     ---            -------------------------

Claire E. Tarricone      41             President and Director

Anthony J. Tarricone     36             Vice President, Secretary and Director

Joseph A. Tarricone      35             Vice President, Treasurer and Director

Edwin Goldwasser         65             Director

      Claire E. Tarricone has been the President and a Director of
the Company since July 27, 1993.  Ms. Tarricone has also served as
the President and a Director of HQ Propane and Rockland Fuel since
1992.  In June 1995 Ms. Tarricone also became Director of White
Plains Fuel, Inc.  From 1991 until 1992, Ms. Tarricone served as Vice
President/General Manager of HQ Propane in charge of its operating
divisions.   Ms. Tarricone has been President and Director of ATI
since November 1992, and Vice President for at least three years
prior thereto.

      Anthony J. Tarricone has been Vice President,  Secretary and a Director of
the  Company  since  July 27,  1993.  Mr.  Tarricone  has been  Vice  President,
Secretary and a Director of HQ Propane and Rockland  Fuel since 1992.  From 1991
until the present,  Mr. Tarricone has served as ATI's gasoline  division manager
and has served in similar capacity with HQ Gasoline since September 1993.

      Joseph A.  Tarricone has been Vice  President,Treasurer  and a Director of
the Company since July 27, 1993. Mr. Tarricone has been Vice President,Treasurer
and a Director of HQ Propane and Rockland Fuel since  November  1992.  From 1990
until 1992, Mr. Tarricone was sales manager for HQ Propane and ATI,  responsible
for the development of commercial gasoline and diesel fuel sales for HQ Terminal
and ATI.  From  1988 to 1993,  Mr.  Tarricone  served  as  President  of  Energy
Technology Services, Inc., an energy use and planning consulting firm.

      Edwin  Goldwasser  has been a Director of the Company since July 27, 1993.
From April 1992 to the present, Mr. Goldwasser has served as a consultant to the
Company.  For at least the five years prior to that,  Mr.  Goldwasser  served as
Vice  President  of  Administration  and  Finance  in charge  of all  financial,
accounting and legal affairs for ATI.

      Claire Tarricone, Anthony Tarricone and Joseph Tarricone are
siblings.

      All  Directors   hold  office  until  the  next  annual   meeting  of  the
shareholders and the election and qualification of their  successors.  Directors
currently  receive no  compensation  for serving on the Board of  Directors.  No
Director received any cash compensation for serving as a Director of the Company
during the past fiscal year.  Officers of the Company are appointed  annually by
the Board of Directors.

      As permitted  under Nevada law, the  Company's  Articles of  Incorporation
eliminates the personal  liability of the Directors to the Company or any of its
shareholders for damages for breaches of their fiduciary duty as Directors. As a
result of such provisions, shareholders may be unable to recover damages against
Directors  for  actions  taken  by them  which  constitute  negligence  or gross
negligence or that are in violation of their  fiduciary  duty.  The inclusion of
this  provision  in the  Company's  Articles  of  Incorporation  may  reduce the
likelihood  of  derivative  litigation  against  directors  and  other  types of
shareholder litigation.

      The directors and executive officers of the Company and the owners of more
than ten percent (10%) of the Company's outstanding Common Stock are required to
file  reports  with the  Securities  and  Exchange  Commission  and with  NASDAQ
reporting  changes  in the  number  of  shares  of the  Company's  Common  Stock
beneficially owned by them. Such persons are required by Securities and Exchange
Commission  regulation  to furnish the Company with copies of all Section  16(a)
forms  they  file.  Based  solely  on its  review of the  copies  of such  forms
furnished to the Company and written representations from the executive officers
and directors,  the Company believes that all Section 16(a) filing  requirements
were met during  fiscal 1996 and 1997,  except that  Claire  Tarricone,  Anthony
Tarricone  and Joseph  Tarricone  filed one report after the  applicable  filing
deadline.

ITEM 10.     EXECUTIVE COMPENSATION

Summary Compensation

      The following table shows,  as to the Chief Executive  Officer and each of
the  other  executive  officers  whose  salary  plus  bonus  exceeded  $100,000,
information  concerning  compensation  paid for  service  to the  Company in all
capacities  during the  fiscal  year ended  August  31,  1997,  as well as total
compensation  paid to each such individual for the Company's two previous fiscal
years (to the extent that such person was the Chief Executive officers and/or an
executive officer, as the case may be, during any part of such fiscal year):

                           Summary Compensation Table
                         --------------------------
                                                            Long Term
                               Annual Compensation      Compensation Awards
                               -------------------      -------------------
Name and Principal             Fiscal      Other Annual   Restricted  Options
Position (1)           Year  Salary/Bonus Compensation(2) Stock Awards SARs(#)
                       ----  ------------ --------------- ----------- -------
Claire E. Tarricone    1997    $54,600       $9,297                   420,000(3)
President              1996     54,600       15,034                  100,000 (3)
                       1995     54,600        6,931

      (1) The Company does not have any executive  officers  whose  compensation
      exceeded $100,000 during the applicable fiscal periods.

      (2) Represents amount payable under Ms. Tarricone's  employment  agreement
      with the Company for certain  insurance  premiums and for taxes  resulting
      from such additional compensation.

      (3) Reflects the grant of options under the Company's 1996 Stock Incentive
      Plan,  which  options  are not  intended  to qualify as  "incentive  stock
      options" under Section 422 of the United States  Internal  Revenue Code of
      1986,  as amended and which options are  exercisable  for a price of $4.50
      per share of the company's  common stock,  par value $.001 per share.  The
      100,000  options were  canceled on November 14, 1996 in favor of the grant
      of  400,000  new  options to Ms.  Tarricone,  which  options  (a) were not
      granted  under the  aforesaid  plan,  (b) are not  intended  to qualify as
      "incentive  stock options" under Section 422 of the United States Internal
      Revenue Code of 1986, as amended,  and (c) are  exercisable for a price of
      $.3125 per share of the Company's common stock, par value $.001 per share.
      In addition,  on August 12, 1997, Ms. Tarricone was granted 20,000 options
      under the plan with an exercise price of $0.63 per share.

      The Board of Directors of the Company  voted to adopt the  Company's  1996
Stock  Incentive  Plan (the "Plan") on January 10, 1996,  subject to shareholder
approval.  The  shareholders  of the  Company  approved of the Plan on April 22,
1996. The Plan was amended by the Board of Directors  effective December 1,1996.
The Plan gives the Company the flexibility to enable it to obtain and retain the
continued  services of the personnel  necessary for its growth and  development.
The Plan provides, among other things, for the granting of options to acquire up
to 650,000 shares of the Company's common stock, $.001 per value per share. Such
options  may  qualify as  "incentive  stock  options"  under  Section 422 of the
Internal Revenue Code of 1986, as amended, or as non-qualified options.

      The Company  does not  presently  maintain any other stock option or other
stock or long-term compensatory plan for its employees.

Employee Agreements

      The Company has entered into five year Employment  Agreements with each of
Claire E.  Tarricone,  Anthony  Tarricone and Joseph  Tarricone.  The Employment
Agreements  automatically  extend for an additional  one year at the end of each
year of the term  unless  either  party  notifies  the other of his,  her or its
election  not to so further  extend the term.  The  employment  contracts  which
became  effective  on  August 5,  1993,  provide  for  annual  salaries  to such
individuals  of (i)  $100,000,  $75,000  and  $75,000  in  years  one  and  two,
respectively,  (ii)  $125,000,  $100,000  and  $100,000 in years three and four,
respectively, (iii) $150,000 , $125,000 and $125,000 in year five, respectively.
Each of the Tarricone's has waived her or his rights (as the case may be) to any
unpaid annual salary (in excess of $54,600,  $60,000 and $60,000,  respectively)
attributable to the fiscal years ending August 31, 1994, August 31, 1995, August
31,  1996,  August  31,  1997 and  August  31,  1998.  After the fifth  year the
Employment  Agreements  provide  that the base salary of such  individuals  will
increase  by an amount  equal to the  greater  of 15% or the  annual  percentage
increase if any, in the Consumer  Price Index  distributed  by the United States
Department of Labor.  Under such  Employment  Agreements,  each of the foregoing
persons  must  devote  substantially  all of his or  her  time  to the  Company;
provided,  however, that such person is entitled to be engaged as an employee by
ATI. The  Employment  Agreements are terminated by the Company on 60 days notice
for "cause" or if any of the Tarricone's have become so incapacitated  that they
are unable to resume,within  the ensuing 540 days,  their respective  employment
with the Company by reasons of physical or mental  illness or injury,  or is any
shall not have substantially  performed their duties for 540 consecutive days by
reason of any such physical or mental illness.

      Each  of  the  Tarricone's  will  be  entitled  to  terminate  his  or her
employment  and receive a severance  payment equal to 2.99 times his or her base
salary at the time of termination  upon (i) the acquisition of securities of the
Company  representing  50% or more of the combined voting power of the Company's
then  outstanding  securities in a transaction  to which any of the  Tarricone's
does  not  consent.  (ii)  the  future  disposition  by  the  Company  of all or
substantially all of its business and/or assets in a transaction to which any of
the  Tarricone's  does not consent,  (iii) the  occurrence  of any  circumstance
which,  in the reasonable  judgment of any of the  Tarricone's has the effect of
significantly reducing their duties or authority, (iv) the breach by the Company
of  its  material   obligations  under  the  Employment  Agreement  or  (v)  the
termination of the Employment Agreement by the Company for any reason other than
for cause or by mutual  agreement  of the  Company  and any of the  Tarricone's.
Additionally,  upon  termination,  each of the Tarricone's would receive (a) the
estimated  amount  which would have been  payable to each  pursuant to any bonus
pool  established  by  the  Company  for  the  fiscal  year  during  which  such
termination occurred;  (b) health,  accident,  life and disability insurance for
the longer of one (10) year or the balance of the Employment Agreement;  and (c)
immediate  rights to exercise any stock options  granted,  regardless of whether
such options were exercisable at the time of termination.

      Each of the  Employee  Agreements  contains a covenant not to compete with
the Company or solicit its  customers or employees  for a period of one (1) year
after the employment of any of the Tarricone's is terminated, provided that such
person is entitled to be engaged as an employee by ATI.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                    AND MANAGEMENT

Principal Stockholders

      The  following  table sets forth  information  regarding  ownership of the
Company's  voting  securities  as of October 5, 1997 by (a) each person known by
the Company to beneficially  own more than five percent (5%0 of any class of the
Company's  voting  securities,  (b) each  Director  of the  Company  and (c) all
Directors and Officers of the Company as a group. Except as otherwise indicated,
the named  person has sole  voting  and  investment  power with  respect to such
person's shares.

Name and Address of     Title of     No.of Shares   Percentage of   General
Beneficial Owner         Class          Owned      Class Owned (1) Voting Power
------------------      --------     ------------  --------------- ------------
Claire E. Tarricone   Common Stock   1,221,609(3)    23.85%(3)      23.09%(3)
33 Hubbells Drive
Mt. Kisco, NY 10549

Anthony J. Tarricone  Common Stock   1,221,608(4)    24.33%(4)      23.54%(4)
33 Hubbells Drive
Mt. Kisco, NY 10549

Joseph A.Tarricone    Common Stock   1,221,608(5)    24.33%(5)      23.54%(5)
33 Hubbells Drive
Mt. Kisco, NY 10549

Alan Cianflone        Series A          84,010       50.0%           1.8%
42 Virginia Lane      Cumulative
Thornwood, NY 10549   Convertible
                      Redeemable
                      Preferred Stock

Jack Troccolie        Series A          84,010       50.0%           1.8%
42 Virginia Lane      Cumulative
Thornwood, NY 10549   Convertible
                      Redeemable
                      Preferred Stock

Infinity Investors, Ltd. Series B      560,126(6)   100.0%           40.33%(6)
42 Virginia Lane      Cumulative
Thornwood, NY 10549   Convertible
                      Redeemable
                      Preferred Stock

Elizabeth R. Mandel   Common Stock   2,170,488       32.42%(7)       31.63%(7)
885 Araphoe Avenue
Boulder, CO 80302

Laurence Hughes       Common Stock     420,000        8.854%(8)       8.851%(8)
49 Mountain Road
Pleasantville, NY 10570

Edwin Goldwasser      Common Stock         -0-             (9)            (9)
7616 Mansfield Hollow Drive
Delray Beach, Florida 33446

All Executive Officers and
Directors as a group(4 persons)      3,308,275      57.42%          55.79%

      (1) Based upon 4,523,601 shares of Common Stock outstanding as of December
      29, 1997.

      (2) Based on 4,523,601 common and 168,020 Series A Cumulative  Convertible
      Redeemable  Preferred Shares  outstanding as of December 29, 1997. Each of
      the 168,020 shares of Series A Cumulative Convertible Redeemable Preferred
      Stock is entitled  to vote,  together  with the  holders of the  Company's
      Common  stock,  based upon the number of shares of Common Stock into which
      such shares are convertible.

      (3) Includes 420,000 shares of Common Stock that may be purchased pursuant
      to presently  exercisable stock options and 178,275 shares of Common Stock
      that may be purchased by ATI pursuant to certain  warrants held by ATI and
      as to which Ms. Tarricone has an indirect  beneficial interest through her
      ownership  of  one  third  of  ATI.  Ms.  Tarricone  disclaims  beneficial
      ownership as to two-thirds of such 178,275 shares, which disclaimed amount
      correlates to the aggregate ownership percentage in ATI held by Anthony J.
      Tarricone and Joseph A.
      Tarricone.

      (4) Includes 320,000 shares of Common Stock that may be purchased pursuant
      to presently  exercisable stock options and 178,275 shares of Common Stock
      that may be purchased by ATI pursuant to certain  warrants held by ATI and
      as to which Mr. Tarricone has an indirect  beneficial interest through his
      ownership  of  one  third  of  ATI.  Mr.  Tarricone  disclaims  beneficial
      ownership as to two-thirds of such 178,275 shares, which disclaimed amount
      correlates to the aggregate ownership percentage in ATI held by Anthony J.
      Tarricone and Claire E.
      Tarricone.

      (5) Includes 320,000 shares of Common Stock that may be purchased pursuant
      to presently  exercisable stock options and 178,275 shares of Common Stock
      that may be purchased by ATI pursuant to certain  warrants held by ATI and
      as to which Mr. Tarricone has an indirect  beneficial interest through his
      ownership  of  one  third  of  ATI.  Mr.  Tarricone  disclaims  beneficial
      ownership as to two-thirds of such 178,275 shares, which disclaimed amount
      correlates to the Tarricone and Claire E. Tarricone.

      (6) The Series B  Cumulative  Convertible  Redeemable  Preferred  Stock is
convertible  into 2,170,488 shares of Common Stock.  Additionally,  Infinity has
the right under the Restructuring  Agreement to acquire an additional  1,000,000
options from the Tarricones if certain conditions are not met.

      (7)  Includes   option  to  purchase  all  of  the  Shares  from  Infinity
exercisable within 60 days.

      (8) Includes 220,000 shares of Common Stock that may be purchased pursuant
to presently exercisable stock options.

      (9 ) Less than one percent.

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

      As of December 29, 1997,  1,907,961 shares of Common Stock  (approximately
42.18% of the  outstanding  Common  Stock) were owned of record by Cede & Co., a
nominee of the Depository Trust Company. The Company has been advised by each of
the firms which Cede & Co.  indicates own more than 5% of the Common Stock that,
except as set forth above, as of the most recent  practical date it did not hold
more than 5% of the  Company's  outstanding  voting  securities  for any  single
person or, to its knowledge, any group.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On  December  7, 1992,  ATI  distributed  all of the  capital  stock of HQ
Propane to its sole  shareholders  Claire E.  Tarricone,  Anthony  Tarricone and
Joseph  Tarricone.  Simultaneously  with the  distribution,  ATI transferred the
assets of the HQ Terminal  division and all of the outstanding  capital stock of
Rockland  to HQ Propane  in partial  satisfaction  of ATI's  indebtedness  to HQ
Propane of  $4,200,000  previously  incurred by ATI in order to provide  certain
capital  improvements and additional working capital.  The appraised fair market
value of the assets  transferred by ATI to HQ Propane was  $2,200,000.  However,
the transaction was recorded at ATI's book value.

      ATI's  indebtedness  to the Company is evidenced by a 6% Promissory  Note,
dated August 31, 1993,  with accrued  interest and  principal  due on August 31,
1998 (the "ATI Note"),  the balance of which  aggregated to $3,877,563 on August
31,  1997.  On February 28, 1995 and July 31, 1995,  ATI  granted/transferred  8
station  leaseholds and 1 fee property  having an appraised fair market value of
$5,760,000  and  2  station  leaseholds  and 2  twenty  year  station  leasehold
extensions for $985,000  respectively  as partial  satisfaction of the ATI note.
The fee property was granted/transferred to the company subject to two mortgages
payable in the amounts of $140,999 and $496,177. A former director of one of the
entities  holding a  mortgage,  Don  Guarnieri,  was  formerly a director of the
Company.  On November 30, 1995 and March 22,  1996,  ATI  granted/transferred  2
station  leaseholds  having an  appraised  fair market  value of  $1,365,000  in
partial  satisfaction  of the ATI Note.  On November  29, 1996 and  February 28,
1997, ATI  granted/transferred  4 additional leaseholds having an appraised fair
market value of $690,000 in partial satisfaction of the ATI Note.
See "Risk Factors -- ATI Bankruptcy."

         On June 10, 1997, A. Tarricone,  Inc. ("ATI"), the former parent of the
Company's  operating  subsidiaries  and divisions (ATI is wholly-owned by Claire
E.Tarricone, Anthony J.Tarricone and Joseph A.Tarricone, the Company's directors
and principal executive officers), filed a voluntary petition for reorganization
pursuant to Chapter 11 of the Bankruptcy Code (the "Code"). ATI has continued in
possession  of  its  property  and  in  the  management  of  its  affairs  as  a
debtor-in-possession  under the applicable provisions of the Code. In connection
with  the  bankruptcy  proceeding,   the  Company  has  asserted  (and  ATI  has
acknowledged)  pre-petition  claims  arising under a receivable  from ATI in the
amount of $3,877,563 and pre-petition liens on certain leasehold interests.  The
proceeding is before the United States  Bankruptcy  Court,  Southern District of
New York, and is referenced as "A. Tarricone,  Inc.,  97B21488." The Company has
determined  that its  asserted  pre-petition  liens may not have  been  properly
"perfected,"  in which case the Company  would be deemed an  unsecured  creditor
(rather  than a  secured  creditor)  in the  proceeding.  If it were  ultimately
determined by the court that the Company's  status in the  proceeding is that of
an  unsecured  creditor,  the  Company's  legal  basis  for  recovery  would  be
materially,  adversely affected. The Company is pursuing all appropriate avenues
to protect its interests in this regard. However, there can be no assurance that
the  indebtedness  and the liens asserted by the Company in this proceeding will
be  recognized  or given  full  effect,  that the same  will not be  challenged,
modified or reduced, that all or any portion of such indebtedness will be repaid
to the Company or that the Company will  otherwise be  successful  in protecting
its  interests.  In this regard,  management  has elected to write-off,  and has
taken as a charge against  earnings as a bad debt expense,  the entire amount of
the receivable due from ATI at June 10, 1997, i.e.,$3,877,563. Additionally, all
executory contracts between ATI and the Company are susceptible to rejection, at
the election of ATI, under the applicable  provisions of the Code.  Furthermore,
any transfers  from ATI to the Company on account of antecedent  debt (of ATI to
the  Company)during  the  one-year  period  prior to the date of filing of ATI's
voluntary  petition may be subject to avoidance under the applicable  provisions
of the  Code.  The  occurrence  of any such  circumstances  may have a  material
adverse effect on the Company.

      In December 1992, HQ Propane entered into a management  agreement with ATI
pursuant to which ATI furnishes clerical,  administrative,  accounting,  payroll
and  insurance  services to HQ Propane.  ATI receives a fee of $30,000 per month
for its services.  The management  agreement expires on August 31, 1998. Further
HQ Propane  entered into agreements with ATI under which it leased the 21 of the
service stations  comprising its HQ Gasoline  Division from ATI until August 31,
1998 and paid rent for the service stations in the approximate amount of $54,000
per month.  Additionally,  until  March 5, 1996 the  Company was paying to ATI a
license fee of $.01 per gallon of  gasoline  and diesel fuel sold for the rights
to use the "ATI" trademark. The Company currently leases 9 service stations from
ATI at a reduced rent payment in the approximate amount of $19,000 per month.

      On March 5, 1996, the Company issued  warrants to purchase  297,125 shares
of the  Company's  common stock to ATI in exchange for the  Company's  exclusive
right to use the "ATI" trademark. The exercise price of the warrants is equal to
the  lessor of $4.30 per share or a 40%  discount  to the  average  closing  bid
price.  The average closing bid price is calculated  based on the average of the
closing bid prices of the Company's Common Stock as reported by the NASDAQ Small
Cap stock market for the five trading days immediately preceding the date of the
exercise of the  warrant.  The  warrants  provide  that 59,425 were  immediately
vested on March 5, 1996, an additional  59,425 vested on March 5, 1997,  and the
balance become vested in threee equal annual  installments.  The market price at
issuance was $4.30 per share. In consideration of the issuance of such warrants,
the Company is no longer  required to pay the license fee of $.01 per gallon for
gasoline station sales.

      HQ Propane cannot operate its principal  terminal facility until such time
as the pending applications for a terminal operator's license and diesel license
from the State of New York have been approved. Accordingly, ATI has continued to
operate the terminal facility on behalf of HQ Propane. Upon the issuance of such
licenses, HQ Propane will assume operations of its facilities directly. ATI also
supplies the Company's  operating  divisions  with fuel oil and diesel fuel, and
previously supplied the Company with gasoline, at ATI's cost plus one quarter of
one cent ($.0025) per gallon purchased,  which aggregated  $51,112 during fiscal
year ended August 31, 1994;  $42,494  during  fiscal year ended August 31, 1995;
$38,671  during the fiscal year ended  August 31, 1996;  and $22,500  during the
fiscal year ended August 31, 1997.

      The Company has  outstanding  certain  promissory  notes in the  aggregate
principal  amount of $317,000 issued in connection  with a private  placement of
165,000 shares of Common Stock of the Company ("Bridge Notes").  Interest on the
Bridge  Notes  payable  quarterly  at a rate of 8% per  annum,  and  payment  of
principal  thereof was tied to the exercise of the Company's  1,600,000  Class A
and 1,600,000 Class B Redeemable  Warrants (the  "Warrants")  which were issued,
and subsequently  redeemed, by the Company. In light of the Company's redemption
of its outstanding Warrants, it is unclear when its obligation to make principal
payments on the  outstanding  Bridge Notes will come due.  However,  the Company
acknowledges  an obligation to make  principal  payments on the Bridge Notes and
continues to maintain such  obligation on its balance sheet.  Don  Guarnieri,  a
former  Director of the  Company,  purchased  one unit in  connection  with such
private  placement,  which unit was comprised of a $25,000  promissory note from
the Company and 8,250 shares of the Company's common stock.

      Claire,  Anthony  and  Joseph  Tarricone  are also  parties  to a Buy/Sell
Agreement  pursuant to which,  upon the death or disability of any of them,  the
non-deceased or non-disabled shareholders are required to purchase the shares of
the Company owned by the deceased or disabled  shareholder  for a price equal to
the fair market value of such shares. Each of the Tarricone's holds a $3,000,000
insurance  policy on the life of the others to partially  fund the buyout of the
shares upon death. In addition,  the  Tarricone's  have $1,000,000 of disability
buyout  insurance  which  will fund the  buyout  of such  shares in the event of
permanent disability.  In the event that the proceeds of such insurance policies
are  insufficient  to pay the full  price for such  shares,  the  balance of the
purchase price for the shares will be paid over a ten year period.

      On August 30, 1996,  Claire Tarricone loaned to the Company $80,000,  with
interest at 8% per annum,  payable  demand at any time on or after  September 1,
1998. At various times since then,  certain  related  parties have loaned to the
Company an  aggregate of $359,280  non  interest  bearing,  payable on demand at
anytime on or after September 1, 1998.





<PAGE>


              INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



PAGE(S)
Halstead Energy Corp. and Subsidiaries


      Independent Auditors'Report...............................F-2 - F-3

      Consolidated Financial Statements:

          Consolidated Balance Sheet as of
             August 31, 1997....................................F-4 - F-5

          Consolidated Statements of Operations for
             the years ended August 31, 1997 and
             1996...............................................F-6

          Consolidated Statements of Stockholders'
             Equity for the years ended August 31,
             1997 and 1996......................................F-7

          Consolidated Statements of Cash Flows for
             the years ended August 31, 1997 and
             1996...............................................F-8

          Notes to the Consolidated Financial
             Statements.........................................F-9 - F-18













                                  F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders of
Halstead Energy Corp.


      We have audited the  accompanying  consolidated  balance sheet of Halstead
Energy  Corp.  and   subsidiaries  as  of  August  31,  1997,  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  then  ended.   These  consolidated   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
presently fairly, in all material  respects,  the financial position of Halstead
Energy Corp.  and  Subsidiaries  as of August 31, 1997, and the results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.



                                    MAHONEY COHEN & COMPANY, CPA, P.C.



January 12, 1998




                                   F-2


<PAGE>



                     INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders of
Halstead Energy Corp.

     We have audited the  accompanying  consolidated  statements of  operations.
stockholders'  equity  and cash  flows for the year  ended  August  31,  1996 of
Halstead Energy Corp. and Subsidiaries.  These consolidated 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.

     The August 31, 1996 consolidated statement of stockholders' equity has been
restated to give effect to the transaction  disclosed in Note 2 to the Financial
Statements.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the results of operations and cash
flows of Halstead  Energy Corp. and  Subsidiaries  for the year ended August 31,
1996 in conformity with generally accepted accounting principles.

                                        GOLDMAN & MURPHY, LLP

January 16, 1997

                                   F-3

<PAGE>







                HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET
                            August 31, 1997
<TABLE>
<CAPTION>
                              A S S E T S
<S>                                                        <C>
CURRENT ASSETS
      Cash...............................................  $   63,295
      Accounts  Receivable - Trade,  Net of Allowance
        for Doubtful  Accounts of $110,000 (Note 7)......   1,048,464
      Inventories  (Notes 1D and 7)......................     168,930
      Notes Receivable (Note 5)..........................     230,000
      Note Receivable - Related Party (Note 6)...........     578,848
      Prepaid Expenses and Other Current Assets (Note 3).     615,823
      Deferred Tax Asset (Note 8)........................      45,000
                                                            ---------
           TOTAL CURRENT ASSETS..........................   2,750,360


PROPERTY, PLANT AND EQUIPMENT - NET (Notes 4 and 7)        12,173,547

OTHER ASSETS
      Deferred Tax Asset (Note 8)........................      337,000
      Notes Receivable - Net of Current Portion (Note 5).      337,765
      Intangible Assets - Net (Notes 1G and 7)...........    1,480,593
      Deposits...........................................        2,045
                                                            ----------
           TOTAL OTHER ASSETS............................    2,157,403
                                                            ----------
           TOTAL ASSETS..................................  $17,081,310
                                                           ===========


<FN>

                          See Accompanying Notes
</FN>
</TABLE>




                                  F-4


<PAGE>


                HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                      CONSOLIDATED BALANCE SHEET
                            AUGUST 31,1997
<TABLE>
<CAPTION>

                 LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                        <C>
CURRENT LIABILITIES
      Cash Overdraft.................................      $     98,475
      Accounts Payable -Trade........................         1,789,718
      Notes Payable (Note 7).........................           500,000
      Current Portion of Long-Term Debt (Note 7).....           441,401
      Deferred Revenue...............................           675,146
      Accrued Expenses and Other Current Liabilities.           376,637
                                                            -----------
      TOTAL CURRENT LIABILITIES......................         3,881,377


Long-Term Debt - Net of Current Portion (Note 7).....         2,964,772

Security Deposits Payable............................           237,806
Due to Related Parties (Note 6)......................           359,280
                                                            -----------
      TOTAL LONG TERM LIABILITIES....................         3,561,858

Preferred Stock, $.001 Par Value, 168,020 Shares
    Authorized-Series A 7.5% Cumulative Convertible
    Redeemable 168,020 Shares Issued and Outstanding
    ($1,008,120 aggregate liquidation preference)(Note 12)          168
Paid-In Capital:Preferred Stock .....................         1,064,001
                                                            -----------
                                                                       1,064,169
                                                            ===========
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)

STOCKHOLDERS' EQUITY
     Prefeferred Stock,$.001  Par  Value,
       580,646 Shares Authorized Series B
       8.0%  Cumulative Convertible 567,085
       Shares Issued and  Outstanding
       ($4,394,909 aggregate iquidation
       preference) (Note 12)..........................              567
     Common Stock, $.001 Par Value, 50,000,000 Shares
     Authorized, 4,118,601 Issued and Outstanding.....            4,119
     Paid-in Capital:Preferred Stock..................        3,770,183
                     Common Stock ....................        5,773,015
     Accumulated Deficit..............................         (873,978)
     Subscription Receivable..........................         (100,000)
                                                             -----------
     TOTAL STOCKHOLDERS' EQUITY                               8,573,906
                                                            -----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $17,081,310
                                                            ===========
 <FN>
                          See Accompanying Notes
</FN>
</TABLE>
                                   F-5

<PAGE>


                     HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                    Years Ended
                                                     August 31,

                                                    1997         1996
                                               -------------   ----------
<S>                                           <C>             <C>
Sales........................................ $  18,667,132   $15,312,260

Cost of Sales................................    14,677,380    10,734,200
                                              -------------    ----------

GROSS PROFIT.................................     3,989,752     4,578,060

OPERATING EXPENSES
  Selling, General and Administrative Expenses    4,122,851     3,240,926
  Management Fee, Related Party (Note 6)......      360,000       360,000
  Net Rental Income (Note 10).................     (502,517)     (418,478)
  Royalty Fee (Note 6)........................       31,769        96,102
  Gain on Sale of Asset.......................     (175,667)           -0-
  Depreciation and Amortization...............    1,287,674       717,884
  Bad Debt Expense (Note 6)...................    4,694,998        39,869
                                               ------------    ----------
      TOTAL OPERATING EXPENSES                    9,819,108     4,036,303
                                               ------------    ----------

      INCOME (LOSS) FROM OPERATIONS...........   (5,829,356)      541,757

OTHER INCOME (EXPENSES)
      Interest Income.........................        5,451       101,987
      Interest Expense........................     (407,969)     (398,889)
      Other Income............................      114,343        38,935
                                               ------------    ----------

      NET OTHER EXPENSES                           (288,175)     (257,967)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE          (6,117,531)      283,790

INCOME TAX EXPENSE (Note 8)                               0       102,696
                                               -------------   ----------
Net Income (Loss)                                (6,117,531)      181,094
Preferred Stock Dividends                          (429,393)     (164,308)
                                               -------------   -----------
Net Income (Loss) Applicable to Common Shares  $ (6,546,924)     $ 16,786
                                               =============   ===========

Net Income (Loss) Per Share................... $      (1.66)     $   0.00
                                               =============   ===========

Weighted Average Number of Common
      Shares Outstanding......................    3,949,479     3,416,743
                                               ============    ===========


<FN>
                          See Accompanying Notes
</FN>
</TABLE>
                                   F-6



<PAGE>

               HALSTEAD ENERGY CORP. AND SUBSIDIARIES
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>

<CAPTION>
                                                    Retained
        Preferred Stock, Common Stock,     Paid     Earnings   Stock
           $.001 Par      $.001 Par        In     (Accumulated   Sub.  Total
         Issued Amount  Issued  Amount    Capital   Deficit)     Rec.  Equity
         ------ ------  ------  ------    -------  ---------   ------- ------

<S>         <C>  <C>    <C>        <C>     <C>        <C>        <C> <C>
Balance at
August 31,
1995        0    $ 0    3,338,117  $ 3,338 $4,364,721 $5,215,906 $ 0 $9,583,965

Cash Dividends
 Declared
 Preferred,
 Series A  0       0            0        0          0    (75,610)  0   (75,610)

Cash Dividends
 Declared Preferred,
 Series B  0       0            0        0          0       (756)  0      (756)

Debentures
 Converted
 into Common
 Shares     0       0      104,647       105   363,740          0   0   363,845

Common Shares
 Issued    0       0        2,250         2    12,092          0   0    12,094

Preferred
 Stock
 Issued  580,646  580           0         0 4,499,420          0   0 4,500,000

Private Placement
 Costs     0       0            0         0  (625,246)         0   0  (625,246)

Conversion of
 Preferred
 Shares to
 Common
 Shares (8,400)   (8)       18,816       19       745          0   0       756

Conversion
 of Note
 Payable to
 Common
 Shares    0       0        27,510       28    46,398          0   0     46,426

Issuane of
 Stock
 Warrants  0       0             0        0   511,055          0   0    511,055

Net Income
 August 31,
 1996      0       0             0        0         0    181,094   0    181,094
        -----    -----      ------     ----   -------    -------  ---   -------
Balance at
 August 31,
 1996
 (as restated
 in 1997)
 (Note 2)572,246 572     3,491,340   3,492  9,172,925  5,320,634  0 14,497,623


Private
 Placement
 Costs    0         0             0       0     (5,151)        0   0     (5,151)


Cash
 Dividends
 Declared
 Preferred
 Series A 0         0             0       0          0   (75,610)  0   (75,610)

Cash
 Dividends
 Declared:
 Preferred,
 Series B 0         0             0       0          0    (1,471)  0    (1,471)

Common Shares
 issued to
 employees 0      $ 0        15,000    $ 15    $ 8,560     $  0   $0   $ 8,575

Common
 Shares
 issued for
 acquisition of
 customer
 list     0         0       200,000     200    249,800        0    0   250,000

Conversion
 of Preferred
 Shares and
 Unpaid
 Dividend
 to Common
 Shares (5,161)    (5)      162,261     162      1,314        0    0     1,471

Common Shares
 issued to
 employee 0         0       200,000     200     99,800        0(100,000)     0

Common Shares
 issued on
 Conversion of
 Options 0          0        50,000      50     15,950       0     0    16,000

Net (Loss)
 August 31,
 1997     0         0             0       0        0   (6,117,531) 0 (6,117,531)
        -----    ------      -------  -------  -------  --------  --- ---------
Balance
 at August 31,
 1997 567,085   $567 4,118,601 $4,119 $9,543,198 ($873,978)($100,000)$8,573,906
      =======   ==== ========= ====== ==========  ========  ======== ==========













<FN>
                          See Accompanying Notes
</FN>
</TABLE>
                                  F-7

<PAGE>



                HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
                                                           YearEnded
                                                           August 31,
                                                        1997             1996
                                                   ----------     ----------
<S>                                                  <C>             <C>
Cash Flows From Operating Activities:

      Net Income (Loss)........................      $(6,117,531)    $  181,094

      Adjustments to Reconcile Net Income (Loss)
       to Net Cash provided by Operating Activities:
      Depreciation and Amortization................    1,287,674        717,884
      Gain on the Sale of Customer List............     (175,667)             0
      Bad Debt Expense ............................    4,694,998         38,052
      Deferred Income Tax Expense..................      230,406        103,756
      Change in Operating Assets and Liabilities:
        Accounts Receivable........................      (82,646)      (316,771)
        Inventory..................................       82,520        (59,212)
        Prepaid Expenses and other Curent Assets...     (286,609)       (99,778)
        Accounts Payable, Accrued Expenses and Other
        Current Liabilities........................    1,310,307        (87,825)
        Deferred Revenue...........................      661,386           (444)
        Income Taxes Payable.......................            0       (157,133)
        Discount Deposits Payable..................            0         12,363
                                                       ---------     -----------

      Net Cash Provided by Operating Activities....    1,604,838        331,986

Cash Flows From Investing Activities:

      Net Proceeds From the Sale of Customer List..      175,667              0
      Intangible Assets............................      (72,067)       (84,235)
      Acquisition of Property and Equipment........     (263,907)    (1,922,013)
      Note Receivable..............................     (487,765)       (80,000)
      Advances to ATI..............................   (4,306,018)    (1,888,190)
      Repaymet of Notes Receivable ATI.............      360,000      1,725,000
      Security Deposits Payable....................      (21,752)        40,358
                                                       ---------     -----------
      Net Cash Used In Investing
        Activities                                    (4,615,842)    (2,209,080)

Cash Flows From Financing Activities:

      Increase (Decrease)in Cash Overdraft..........      98,475        (66,351)
      Net Proceeds from the Issuance of Common Stock      19,424      4,297,875
      Proceed from Short Term Borrowings............     715,000              0
      Proceeds from Long Term Debt Borrowing........     265,000              0
      Net Borrowing from Related Parties............     359,280              0
      Repayment of Long Term Debt...................    (288,744)      (296,590)
      Repayment of Stockholder'sLoan................     (80,000)        80,000
      Preferred Stock Dividends.....................     (75,610)       (76,366)

      Net Cash Provided by Financing Activities.....   1,012,825      3,938,568

      Net Increase (Decrease) In Cash and Cash
        Equivilents.................................  (1,998,179)     2,061,474


      Cash and Cash Equivelents at Beginning of Year   2,061,474              0

      Cash  and Cash Equivelents at End of Year.....  $   63,295   $  2,061,474
                                                      ----------    -----------

Supplemental Disclosure - Cash Paid During the Year For:
      Interest Expense..............................     407,969   $    361,931
                                                      ----------    -----------
      Income Taxes..................................       6,597   $    162,631
                                                      ----------    -----------
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
Supplemental Schedule of Non-cash Investing and Financing Activities:

                                                      1997            1996
                                                      ----            ----
      <S>                                         <C>            <C>
      Acquisition of Leaseholds in Exchange for
        Repayment of Note Receivable ATI          $  690,000     $ 1,365,000
                                                  ----------     -----------
      Acquisition of Customer List in Exchange
        for Common Stock                          $  250,000     $         0
                                                  ----------     -----------
      Common Stock Issued in Exchange for Note
        Receivable                                $  100,000     $         0
                                                  ----------     -----------
      Acquisition of Trademark in Exchange for
        Warrants                                  $        0     $   511,055
                                                  ----------     -----------
      Acquisition of Equipment in Exchange for
        Note Payable                              $  260,124     $         0
                                                  ----------     -----------
      Common Stock Issued in Exchange for
        Unpaid Dividends                          $    1,471     $         0
                                                  ----------     -----------


<FN>
                        See Accompanying Notes
</FN>
</TABLE>




                                F-8


<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A)   Organization

      The Company is engaged in the retail sale of propane,  propane  equipment,
      fuel oil, gasoline and diesel fuel. Fuel oil, gasoline and diesel fuel are
      also sold to wholesalers.  The Company also services  propane and fuel oil
      heating equipment.

(B)   Principles of Consolidation

      The  consolidated  financial  statements  include the accounts of Halstead
      Energy  Corp.(the  "Company")  and its  wholly-owned  subsidiaries,  White
      Plains Fuel, Inc.,and Halstead Quinn Propane,Inc.("HQP"),and Rockland Fuel
      Oil, Inc.,a wholly-owned  subsidiary of HQP (together the "Companies").All
      inter-company accounts have been eliminated.

(C)   Use of Estimates

      The preparation of the accompanying  consolidated  financial statements in
      conformity  with  generally  accepted  accounting   principles,   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 consolidated  financial  statements and the
      reported amounts of revenue and expenses during the period. Actual results
      could differ from those estimates.

(D)   Inventories

      Inventories,  primarily  finished  petroleum  products,  are stated at the
      lower  cost or  market.  A  monthly  moving  average  method  is used  for
      determining  petroleum  product  costs.  Other  materials and supplies are
      valued at average cost.

(E)   Depreciation and Amortization

      Assets recorded under leaseholds are amortized on the straight-line method
      over the  shorter  of the  term of the  lease  or the  useful  life of the
      related assets.  Depreciation of property and equipment is computed by use
      of the straight-line  method over their estimated useful lives. The useful
      lives are as follows:

      Buildings and improvements                10-30 years
      Equipment                                  3-20 years
      Furniture and fixtures                     3-10 years
      Vehicles                                   3-10 years

                              F-9


(F)   Impairment of Long-Lived Assets

      The Company  periodically  assesses  the  recoverability  of the  carrying
      amount  of  long-lived  assets,  including  intangible  assets.  A loss is
      recognized  when  expected  future  cash flows  (undiscounted  and without
      interest) are less than the carrying  amount of the asset.  The impairment
      loss is determined as the  difference by which the carrying  amount of the
      asset exceeds it fair value.

(G)   Intangible Assets

      Intangible assets, consisting of customer lists and a trademark, are being
      amortized  on a  straight-line  basis  over 4 - 15 years,  the  period the
      Company  expects  to receive  benefits.  At August  31,  1997,  intangible
      assets, net of accumulated amortization of $524,591, was $1,480,593.

(H)   Customer Credit Balances

      Customer credit balances,  which is included in accrued expenses and other
      current  liabilities,  represent payments received from customers pursuant
      to a budget  payment plan (whereby  customers pay their  estimated  annual
      fuel  charges  on a fixed  monthly  basis) in excess of actual  deliveries
      billed.

(I)   Income Taxes

      Deferred  income  taxes are  provided  for the  effect of items  which are
      reported for income tax purposes in year different from that in which they
      are recorded for financial sttement purposes.

(J)   Revenue Recognition

      Revenue is recognized at the time the products are shipped to and accepted
      by the  customer  either  directly  from the Company or a vendor,  on drop
      shipments or from pick-up company facilities. Retail revenue is recognized
      when delivered to the customer. In connection with certain sales, when the
      related  receivables  are  collectible  over extended  periods of time and
      collectibility  is uncertain,  profit is recognized  under the installment
      method as receivables are collected.

(K)   Concentration of Credit Risk

      1.    Geographic Area

      Substantially   all  of  the  Company's   customers  are  located  in  the
      Westchester, Rockland, Putnam, Orange, Dutchess and Bronx Counties.

                                      F-10



      2.     Major Vendors

      The  Company  purchases  a  majority  of its  gasoline  and  oil  for  its
      operations  from five vendors  (including  ATI).  Those vendors  represent
      approximately  98% and 88% of total  purchases  for years ended August 31,
      1997 and 1996. At August 31, 1997, these five vendors represented 39.8% of
      the accounts payable balance.

      3.     Accounts Receivable

      The Company  performs  ongoing  credit  evaluations  of its  customers and
      records reserves for potentially  uncollectible accounts  receivable,which
      are declared credit risks as determined by management.

      4.    Cash

      The companies  maintain their cash in bank deposit accounts at high credit
      quality  financial  institutions.  These  amounts  are  insured  up to the
      federally insured limits.

(L)   Environmental Costs

      The Company expenses,  on a current basis,  costs associated with managing
      hazardous substances and pollution in ongoing operations. The Company also
      accrues  for  costs  associated  with  the  remediation  of  environmental
      pollution when it becomes  probable that a liability has been incurred and
      the amount can be reasonably estimated.

(M)   Earnings (Loss)Per Share

      Earnings (loss) per share is computed by dividing net earnings (loss) less
      preferred  dividends  by the weighted  average  number of shares of common
      stock  outstanding  during  the year.  Common  stock  equivalents  are not
      included in earnings (loss) per share  computations  since their effect is
      anti-dilutive.

      In  February  1997,  the  Financial   Accounting  Standards  Board  issued
      Statement of Financial  Accounting  Standards No. 128,  Earnings Per Share
      ("SFAS#128"),  which is required to be adopted on December  31,  1997.  At
      that time,  the Company  will be  required to change the method  currently
      used to compute  earnings Loss per share and to restate all prior periods.
      Under the new  requirements  for  calculating  basic  earnings  (loss) per
      share, the dilutive effect of stock options will be excluded.  The Company
      does not expect the impact on the earnings per share to be material.


Note 2 - RESTATEMENT OF  CONSOLIDATED  STOCKHOLDERS'EQUITY

     The August 31,1996 consolidated  stockholders'equity previously reported as
     $14,036,973  has been  restated to reflect the  recording of an  intangible
     asset  of  $460,650  net  of  accumulated   amortization  relating  to  the
     acquisition  of a trademark  from ATI (see Note 6), which was recorded as a
     reduction  to  stockholders'  equity in the year  ended  August  31,  1996.
     Accordingly,  Stockholders  equity has been  restated at August 31, 1996 to
     $14,497,623.
                              F-11


Note 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

      Prepaid Expenses and other current assets consist of the following:



      Income Tax Refund Receivable              $241,000
      Prepaid Insurance                          182,262
      Miscellaneous                              192,561
                                               ---------

                TOTAL                           $615,823
                                               ---------
                                               ---------

Note 4 - PROPERTY, PLANT AND EQUIPMENT

      Property,  plant  and  equipment  is stated  at cost and  consists  of the
      following:



      Land                                     $    894,000
      Gas Station Leaseholds                      8,813,000
      Building and Improvements                   2,449,434
      Equipment                                   1,914,899
      Furniture and Fixtures                         83,587
      Vehicles                                    1,425,555
                                               ------------

                TOTAL                            15,580,475


      Less: Accumulated Depreciation             (3,406,928)

            NET                                 $12,173,547
                                                -----------
                                                -----------
NOTE 5 - NOTES RECEIVABLE

     Notes  receivable  consist of various notes relating to the sale of certain
     equipment,  customer  lists and issuance of common stock.  These notes have
     interest  rates ranging from 6% to 9% and are payable in monthly and annual
     installments through June 1, 2004.

NOTE 6 RELATED PARTY
     TRANSACTIONS

     (A) The Company has advanced funds to A. Tarricone, Inc. ("ATI") its former
     parent and brother-sister  corporation with the same majority shareholders,
     for necessary and ordinary gasoline and diesel purchases.  ATI is currently
     operating under Chapter 11 of the Federal Bankruptcy Laws.Such advances are
     secured by a first lien of 50% of all of the ATI's post-petition assets and
     a second lien on the balance of ATI's post petition assets.In addition, the
     Company reimburses ATI, under a management agreement expiring on August 31,
     1998,  for clerical,  administrative,  payroll and other costs  incurred by
     ATI. Such  management fee is accrued monthly and is recorded as a reduction
     of the amount due to ATI.  For each of the years ended  August 31, 1997 and
     1996, the Company was charged $360,000 in connection with such expenses.

                              F-12

     (B) For the period September 1, 1995 through February 28, 1996, the Company
     paid ATI a royalty  fee of  $45,697  for the use of the ATI  trademark.  On
     March 1, 1996, the Company granted  warrants to ATI for the purchase of its
     trademark which was valued at $511,055 (see Note 13).  Amortization expense
     for the years  ended  August 31,  1997 and 1996 was  $31,769  and  $50,405,
     respectively.

     (C) For the year ended  August 31,  1996,  the Company paid ATI $38,671 for
     the storage of fuel oil at the terminals' operated by ATI.

     (D) Notes payable to stockholders and affiliated  entities are non-interest
     bearing and are payable on demand at anytime on or after September 1, 1998.

     (E)  During  the year  ended  August 31,  1997,the  Company  acquired  four
     gasoline station leaseholds from ATI(see Note 5)for $690,000(the leaseholds
     were  valued  by  an  independent  appraiser).  In  consideration  for  the
     leaseholds, the Company forgave $690,000 of the note receivable from ATI.

     (F) During the year ending  August 31, 1997,  the Company made  advances to
     ATI of $4,237,563 of which $360,000 was repaid and the remaining balance of
     $3,877,563 was written off as a bad debt. At August 31, 1997 the Company is
     owed $578,848, which is due on June 10, 1997.

Note 7- DEBT

      Short-term borrowings consists of the following:

          $500,000 revolving line of credit with a bank due
          5/17/98 with interest at 11.75%(3.25% above prime)(B)      $ 500,000
                                                                      --------
                                                                      --------

      Long-term debt consists of the following:

          $1,000,000,000  revolving  line of credit  with a
          bank originally due 6/8/98,which has been extended
          to September 4, 1998 with interest at 18.5% (10%
          above prime)(A)                                            $ 715,000

          Mortgage  payable  with  interest  at 9%  and  monthly  principal  and
          interest  payments  of $5,038 with a balloon  payment of $378,359  due
          1/16/01 (D) 452,064

                              F-13

          Mortgage  payable  with  interest at 9.5% (1% above prime) and monthly
          principal  payments of $2,800 with a balloon  payment of $334,800  due
          10/01/00(C) $ 435,600

          Mortgage payable with interest at 8.5% and monthly
          principal payments of $2,778 with a balloon payment
          of $333,333 due 5/17/99 (B)                                  391,667

          Notes  payable with interest at 8%, each note was to
          be repaid in full with accrued  interest  within ten
          days of the Company  effectuating a warrant conversion
          resulting in gross proceeds of at least $1,000,000.
          The warrant  conversion  never took place and,
          accordingly, there is no payment date and terms on the
          notes                                                        317,000

          Unsecured notes payable due on 7/1/01 and 8/31/02 with interest at 10%
          and 11% (2.5% above prime) and aggregate annual principal and interest
          payments of $60,400,through 7/1/01 with a final payment of $40,000 due
          on 8/31/02 265,849

          Mortgage  with  interest at 12.5% and monthly  principal  and interest
          payments of $1,704, with a balloon payment of $116,913 due 1/15/01 (D)
          132,757

          Mortgage due 12/01/99 with interest at 9.5% (1% above
          prime) and monthly principal payments of $3,300 (C)           94,400

          Notes payable for equipment  payable in various monthly  principal and
          interest  payments with interest  ranging from 7.95%, to 12.3% and due
          dates ranging from 3/1/98 to 7/1/02,  collateralized by equipment with
          a market value of approximately $698,000 601,836
                                                                    ----------
      Total                                                          3,406,173
      Less: Current Portion                                            441,401
                                                                    ----------
      Total Long-Term Debt                                          $2,964,772
                                                                    ----------
                                                                    ----------

A) The loan is secured by the Company's  accounts  receivable,  inventories  and
intangible  assets.  Certain officers of the Company have personally  guaranteed
the loan.

(B) The loan is secured by a first  mortgage on the Company's  headquarters  and
terminal  facility at  Alexander  Street.  Certain  officers of the Company have
personally guaranteed the loan.

(C) The loan is secured by a second mortgage on the property noted in (B).

(D) Secured by a gas station with a book value of $700,000.

Aggregate  principal  payments for each of the next five years  relating to long
term debt are as follows:
                                   Year Ending
                                   August 31,
                                ------------
                                    1998        $   441,401
                                    1999          1,712,785
                                    2000            255,503
                                    2001            940,434
                                    2002             56,050
                                               ------------
                                                 $3,406,173
                                               ------------
                                               ------------
                              F-14

NOTE 8 - INCOME TAXES

      The  following  is a  reconciliation  of the expected  federal  income tax
provision (benefit) and the actual provision (benefit) for income taxes:

                                                       1997            1996
                                                       ----            ----
      Expected tax (benefit) at statutory federal
         income tax rate of 34%                   ($2,079,961)      $  96,489

      State taxes, net of federal benefit            (363,256)         -----

      Net operating loss carry back                   241,000          -----

      Valuation Allowance                           2,128,000          -----

      Other                                            74,217           6,207
                                                    ---------        --------
                                                   $      -0-        $102,696
                                                    =========        ========

      Deferred income taxes are provided for the temporary  differences  between
      the  financial  statement  and  tax  bases  of the  company's  assets  and
      liabilities .

      The components of deferred tax assets are as follows:

                                                                            1997
                                                           -----------
      Deferred Tax Assets:
        Current:
          Allowance for Doubtful Accounts                   $   45,000
                                                            ==========


        Non Current:
          Property Plant and Equipment                      $  337,000
          Net Operating Loss Carry forward                  $2,128,000
          Valuation Allowance                               (2,128,000)
                                                           -----------
          Total Non Current Deferred Asset                  $  337,000
                                                           ===========

     The  Company  has a net  operating  loss  carry  forward  of  approximately
     $5,100,000  for federal and New York State tax purposes,  which will expire
     in  the  year  ending  August  31,  2012.   The  company  will  carry  back
     approximately  $710,000 of its net  operating  loss and has  recognized  an
     income tax  receivable  of  $241,000  on the  accompanying  balance  sheet.
     Management has established a valuation allowance of $2,128,000 for the year
     ended August 31, 1997.


NOTE 9 - FINANCIAL INSTRUMENTS

     The Company's  financial  instruments consist of cash, notes receivable and
     debt  instruments.  The carrying amount of cash and short-term  instruments
     approximates  their fair values because of the  relatively  short period of
     time  between  the  origination  of  the  instruments  and  their  expected
     realization.  The fair value of the Company's  debt is based on the current
     market  interest rates being paid, and as a result,  it  approximates  fair
     value.  The Company cannot  estimate the fairvalue of the notes  receivable
     and payable from its related parties due to the repayment terms.

NOTE 10 - OPERATING LEASES

     The Company leases gas stations and equipment under operating  leases which
     expire at various dates through  August 2013.  The Company also  sub-leases
     the above gas stations under operating leases which expire at various dates
     through January 2007.

      Minimum future rental payments and receipts under the operating  leases as
      at August 31, 1997 are as follows:

      For the Year Ending         Lease           Sublease
            August 31,           Payments         Receipts              Net
      -------------------     -----------      -----------        ----------
            1998              $  868,100       $  841,000         $   27,100
            1999                 770,100          498,700            271,400
            2000                 775,300          396,400            378,900
            2001                 652,500          240,500            412,000
            2002                 370,900          145,200            225,700
         Thereafter            1,730,400          371,500          1,358,900
                              ----------       -----------        ----------
                              $5,167,300        $2,493,300        $2,674.000
                              ==========       ===========        ==========

     The rental  payments  under the leases are subject to annual cost of living
     increases.  Net rental income  credited to  operations  for the years ended
     August 31, 1997 and 1996 amounted to $502,517 and  $568,052,  respectively,
     inclusive of $288,000 of income  relating to the rental of a customer  list
     to a third party.
                                   F-15

NOTE 11 - COMMITMENTS AND CONTINGENCIES

     (A)  Employment Agreements

     The Company has entered into employment  agreements with its officers for a
     five  year  term  ending  on  August  31,  1998.  The  remaining  aggregate
     compensation to be paid for the year ending August 31, 1998 is $174,000.

     (B)  Licenses Pending

     HQP's  principal  terminal  facility is  currently  operated by ATI pending
     approval  of HQP's  application  with the State of New York for a  terminal
     operator's  and diesel motor fuel  license,  and the  application  of White
     Plains Fuel,  Inc.("WPF") for their respective  diesel motor fuel licenses.
     Management  believes  the Company  has  substantially  completed  all steps
     necessary to receive such  licenses.  However,  these licenses have not yet
     been granted.  Management is awaiting approval of these licenses,  although
     there can be no assurances in this regard.

     (C) Litigation

     The Company has pending  certain legal  actions and claims  incurred in the
     normal course of business and is actively pursuing the defense thereof.  In
     the opinion of management these actions and claims are either without merit
     or are covered by insurance and will not have a material  adverse effect on
     the Company's financial position.

NOTE 12 - PREFERRED STOCK

     A) The Company has 5,000,000  shares of Authorized  Preferred  Stock with a
     par value of $.001.

     B) The Company has issued Series A 7.5% Cumulative  Convertible  Redeemable
     Preferred Stock, $0.001 par value ("Series A Preferred Stock"). The holders
     of the  outstanding  shares of Series A Preferred Stock are entitled to the
     following:

          The Preferred Stock bears a cumulative cash dividend rate of $0.45 per
          annum,  payable  quarterly,  when,  and if  declared  by the  Board of
          Directors of the Company.  The  Preferred  Stock  becomes  convertible
          after June 8, 1998 into shares of Common Stock at a conversion rate of
          one share of Common Stock for each share of Preferred Stock subject to
          adjustment in certain events.

          The Preferred  Stock is  redeemable  at the option of the Company,  in
          whole  or in  part,  at any time at a  redemption  price of $6.00  per
          share, plus accrued and unpaid dividends.

          Holders of Preferred  Stock may request to have their shares  redeemed
          by the  Company at $6.00 per share at any time  commencing  on June 8,
          2000 and ending June 7, 2004.

          The Company shall not be required to redeem from any holder during any
          twelve (12) month period a number of shares of Preferred Stock greater
          than twenty  percent (20%) of the shares of Preferred  Stock then held
          by the  applicable  holder and the  Company  shall not be  required to
          redeem shares of Preferred Stock from any holder more than once during
          any twelve (12) month period.

          Each share of Preferred  Stock shall entitle its holder to a number of
          votes  equal to the  number  of  shares  of  Common  Stock  (including
          fractional  shares) that such share would be converted into,if it were
          so converted, as of the close of business on the day immediately prior
          to the date of such vote,  and with respect to such votes, a holder of
          shares of  Preferred  Stock shall have full  voting  rights and powers
          equal to the voting  rights and powers of a holder of shares of Common
          Stock, and shall be entitled to a notice of any stockholders'  meeting
          in accordance  with the Bylaws of the Company and shall be entitled to
          vote with holders of Common Stock together as a single class.

                                      F-16

     C) The Company has issued Series B, 8.0% cumulative, convertible, Preferred
     Stock,  $0.001 par value  ("Series B Preferred  Stock" - see Note 15).  The
     holders of the outstanding  shares of Series B Preferred Stock are entitled
     to the following:

          The Preferred Stock bears a cumulative cash dividend rate of $0.62 per
          annum, payable quarterly, when, as and if declared by the
     Board of Directors of the Company.  The Preferred Stock is convertible into
     an  unspecified  number  of shares of  Common  Stock at a  conversion  rate
     formula  based in part on the market  value of the Common Stock on the date
     of  conversion.  During the year ended  August 31,  1997,  5,161  shares of
     Series B  Preferred  Stock were  converted  into  162,261  shares of Common
     Stock.

          The Preferred  Stock is  redeemable  at the option of the Company,  in
     whole or in part,  at any time at a  redemption  price of $10.00 per share,
     plus accrued and unpaid dividends.

          Except as required  by  applicable  law,  shares of Series B Preferred
     Stock shall not entitle  the holder to any voting  rights,  but such holder
     shall be entitled  to a notice of any  stockholder  meetings in  accordance
     with the bylaws of the Company.

NOTE 13 - STOCK OPTIONS

     During the year ended  August 31,  1996,  the  Company  granted  297,125 of
     warrants to a related party to purchase common stock at the lesser of $4.30
     or 60% discount off the market price on the exercise  date. The fair market
     value of the  underlying  common  shares  on the  grant  date was $4.30 per
     share. The options are exercisable for a period of 5 years beginning on the
     grant date (see Note 6).

     During the year ended August 31, 1997, the Company  granted 515,000 options
     to consulting  firms to purchase common stock at an average  exercise price
     of $.41  per  share,  in  connection  with  the  Restructuring  Transaction
     disclosed in Note 15A. The options are  exercisable for a period of 5 years
     beginning on the grant date.  400,000  options  expire on February 27, 2000
     with the remaining 115,000 options expiring November 2001.

     During the year ended  August  31,  1997,  the  Company  granted  1,634,000
     options to employees at an average  exercise  price of $.35 per share.  The
     options  are  exercisable  for a period of 5 years  beginning  on the grant
     date. 1,425,000 options expire November 13, 2001 with the remaining 209,000
     options expiring on August 12, 2002.


     The Company  accounts  for stock  based  compensation  using the  intrinsic
     value-based method provided in APB Opinion 25, "Accounting for Stock issued
     to Employees."  The Company has adopted the  disclosure-only  provisions of
     SFAS  123,  "Accounting  for Stock  Based  Compensation."  Accordingly,  no
     compensation  cost has been  recognized for the year ended August 31, 1997.
     Had compensation cost been determined based on the fair value method on the
     date of grant,  the Company's net loss and loss per common share would have
     increased by approximately $573,000 and $.15, respectively.

     The  weighted  average  fair  value at the date of grant for the year ended
     August 31, 1997 was approximately  $.32 per option.  The fair value of each
     option granted was estimated using the Black- Scholes  option-pricing model
     based on the following assumptions: expected dividend yield of 0%, expected
     volatility of 293%,a risk-free interest rate of 5.6%, and expected lives of
     5 years.  The  compensation  cost as  generated  by this  method may not be
     indicative  of the future  benefit,  if any,  that will be  received by the
     option holder.

                                   F-17

NOTE 14 - EMPLOYEE BENEFIT PLANS

     The  Company  maintains a qualified  401(k)  plan for  non-union  employees
     meeting  certain   requirements.   Under  the  plan,  annual  discretionary
     contributions  to the plan are  determined  by the Board of  Directors  and
     employees may make voluntary contributions.  For the years ended August 31,
     1997 and 1996, the Company did not make any contributions to the plan.

     The  Company  contributes,   along  with  many  other  employers,   to  the
     International  Brotherhood of Teamsters and Chauffeurs Union,  Local 456, a
     multi-employer  defined  benefit  plan.  The Pension Plan  Amendment Act of
     1980,  imposes certain  liabilities  upon employers who are contributors to
     multi-employer plans in the extent that employers withdraw from such a
     plan.

NOTE 15 - SUBSEQUENT EVENTS

     (A) Restructuring  Agreement:  On September 24, 1997, the Company,  entered
     into a Restructuring Agreement (the "Restructuring  Agreement").  Under the
     terms of the Restructuring  Agreement,  the Preferred Series B Stockholders
     agreed to exchange  77,419  shares and all accrued and unpaid  dividends on
     the  outstanding  shares of  Series B  Preferred  Stock  for the  Company's
     Subordinated  Promissory  Note in the  principal  amount of  $600,000  (the
     "Note").  The  Note  will  accrue  interest  at 12%  per  annum  compounded
     quarterly  through September 24, 1999 and accrue simple interest at 12% per
     annum after  September  24, 1999.  The Note matures on September  24, 2002,
     although  the Company is required to make  mandatory  prepayments  upon the
     occurrence of certain events.

     The terms of the  balance  of the shares of Series B  Preferred  Stock were
     amended to provide, among other things, for (i) a fixed conversion price of
     $2.00 per share of Series B  Preferred  Stock,  (ii) the removal of certain
     limitations  on the rights of holders  of the Series B  Preferred  Stock to
     convert those shares into the Company's Common Stock, and (iii) an increase
     in the  dividend  rate of the Series B  Preferred  Stock to 12% from 8% per
     annum.  The Company  also agreed to register  the shares of Common Stock of
     the Company to which this Restructuring Agreement relates.

     (B)  Pending Delisting

     The Company has been notified by NASDAQ that its stock will be delisted due
     to the failure to meet the filing  requirements  of its Form 10-KSB for the
     fiscal year ended  August 31,  1997.  The  delisting  has been stayed and a
     hearing will be held on February 5, 1998.



                                   F-18

ITEM 13.    EXHIBITS LIST AND REPORTS ON FORM 8-K

(a)   Exhibits

3.1   Articles of Incorporation of the Company, as amended.*

3.2   By-laws of the Company.*

3.3   Certificate to set forth Designations, Voting Powers, Preferences,
      Limitations, Restrictions and Relative Rights of Series A 7.5%
      Cumulative Convertible Redeemable Preferred Stock.**

3.4   Certificate  of Amendment  and  Restatement  to  Certificate  to Set Forth
      Designations,  Voting Powers, Preferences,  Limitations,  Restrictions and
      Relative Rights of Series B 8% Cumulative Convertible Redeemable Preferred
      Stock, $.001 Par Value.*****

4.1   Specimen Common Stock Certificate.*

4.2   Specimen Series A Preferred Stock Certificate.**

4.3   Specimen Series B Preferred Stock Certificate.***

4.4   Halstead Energy Corp. Amended and Restated 1996 Stock Option Plan. ****

10.1  Agreement and Plan of Reorganization dated as of July 5, 1993 between
      Halstead Quinn Propane, Inc. and the Company.*

10.2  Lease Agreement between HQ Propane and ATI.*

10.3  Management Agreement by and between HQ Propane and ATI.*

10.4  Form of Employment Agreement by and between the Company and Claire E.
      Tarricone.*

10.5  Form of Employment Agreement by and between the Company and Anthony
      Tarricone.*

10.6  Form of Employment Agreement by and between the Company and Joseph
      Tarricone.*

10.7 Promissory Note, dated August 31, 1993, of ATI in favor of HQ Propane.*

10.8  ATI Purchase Agreements.**

10.9  Agreement and Plan of Reorganization by and among Halstead Energy
      Corp., Allan Cianflone and Jack Troccoli.**

10.10 Consulting and Warrant Compensation Agreement between the Company
      and Boulder Financial Group. ****

10.11 Restructuring  Agreement,  dated  September  24,  1997,  by and  among the
      Company, Infinity Investors Limited, Claire E. Tarricone, Anthony J.
      Tarricone and Joseph A.Tarricone. *****

10.12 12%  Subordinated  Promissory  Note of the  Company  dated  September  24,
      1997.*****

21.1  Subsidiaries of the Small Business Issuer.**

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

*     Incorporated by reference to the Company's  Registration Statement on Form
      SB-2 filed with the SEC on November 19, 1993.

**    Incorporated  by reference to the  Company's  Annual Report on Form 10-KSB
      filed with the SEC on December 14, 1996.

***   Incorporated by reference to the Company  Quarterly  Report on Form 10-QSB
      filed with the SEC on July 15, 1996.

****  Incorporated by reference to the Company's  Registration Statement on Form
      S-8 filed with the SEC on September 10, 1997.

***** Incorporated  by reference to the Company's  Registration  on Form SB-21/A
      filed with the SEC on December 1, 1997.


(b)   Reports on Form8-K - None


<PAGE>


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

Dated:  January,              Halstead Energy Corp.

                           By: s/s Claire E. Tarricone
                                    President

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

           Signature           Title            Date

PRINCIPAL EXECUTIVE
 OFFICER:

/s/ Claire E. Tarricone       President        February 2, 1998
Claire E. Tarricone

PRINCIPAL FINANCIAL
 AND ACCOUNTING OFFICER:

/s/ Joseph A. Tarricone       Vice President   February 2, 1998
Joseph A. Tarricone           and Treasurer

DIRECTORS:

/s/ Claire E. Tarricone       Director         February 2, 1998
Claire E. Tarricone

/s/ Anthony J. Tarricone      Director         February 2, 1998
Anthony J. Tarricone

/s/ Joseph A. Tarricone       Director         February 2, 1998
Joseph A. Tarricone

Edwin Goldwasser              Director         February 2, 1998