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

                        FORM 10-KSB/A

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

          For the Fiscal Year Ended August 31, 1996

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

       For the Transition Period From ______ 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 its most recent fiscal year were $15,312,260.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
issuer as of January 1, 1997 was $1,014,525.56.

As of January 1, 1997,  the  issuer  had  3,873,601  shares of its Common  Stock
outstanding.



<PAGE>


PART I

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. On
July 23,  1987,  the Company  changed  its name to LMD  Acquisitions,  Inc.  and
effective  October 8,  1990,  changed  its  corporate  domicile  to the State of
Nevada.  On March 12, 1993, the Company changed its name to Castleview  Corp. On
August 5, 1993 Castleview  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;   Halstead  Quinn  Terminal  ("HQ   Terminal")  and  HQ  Gasoline  ("HQ
Gasoline"),  which are separate divisions of HQ Propane;  and Rockland Fuel Oil,
Inc., a  wholly-owned  subsidiary  of HQ Propane  ("Rockland").  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

      On July 17, 1996,  HQ Propane  acquired the customer list and other assets
of E. F. Osborn & Sons, a Pawling,  New York-based  retail propane  distributor.
The  acquisition  has provided  approximately  500 new  customer  accounts to HQ
Propane  and  additional  storage  facilities.  It  also  marked  the  Company's
expansion into a marketing region (Dutchess County),  where the company has been
trying to increase its market presence, and where there is currently significant
propane demand, which demand the Company expects will grow in the future.

      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 provided the Company with new customer accounts,
including  various  service  stations and fleet  garages,  located in the Bronx,
Queens,  Brooklyn,  Manhattan,  as  well  as  Nassau,  Suffolk  and  Westchester
counties, thus adding new, and broadening existing, marketing regions.
<PAGE>

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.
<PAGE>

Wholesale Distribution and Storage

      HQ Terminal,  with its terminal facility located in Yonkers, New York near
the New York  City  border,  operates  through  A.  Tarricone,  Inc.  (ATI) as a
wholesaler of fuel oil to third party resellers, and provides gasoline, fuel oil
and diesel storage facilities for other petroleum  companies,  such as Mobil Oil
Corporation.  In addition, most of the Company's product supply for fuel oil and
gasoline  originate from this terminal.  HQ Propane will assume the operation of
the terminal from ATI upon the issuance of its licenses. See "BUSINESS - Certain
Licenses Relating to the Company's Business."

      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 the 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.

      The terminal  facility has been operated by ATI pending the approval of HQ
Propane's  application  with New York State for a Terminal  Operator  and Diesel
Motor Fuel License.  See "CERTAIN  RELATIONSHIPS  AND RELATED  TRANSACTIONS" and
"BUSINESS - Certain Licenses Relating to the Company's
Business."

Gasoline

      HQ Gasoline  operates 21 retail gasoline stations  throughout  eastern New
York State under the trade names "ATI",  "Gulf" and "BP." 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's fuel oil distribution divisions.  Most of the stations are situated in
high traffic areas at major intersections. Presently, 5 of the 21 facilities are

<PAGE>

combination  convenience  store/gasoline pumping facilities.  The balance of the
outlets are combination  automotive  repair  shop/gasoline  pumping  facilities.
Seven  of  the  21  gasoline   stations   are  leased  from  ATI.  See  "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."

      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 effort on  changing  the image of the 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 shops,  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
combining the pumping 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  program will require  expenditures that range from $30,000
to $350,000 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  interests  extend by an average of 12
years beyond the Company's sublease with ATI. The acquisition of these leasehold
interests  will  protect the  Company's  investment  in, and long term  earnings
potential,  from this revenue  source.  See "CERTAIN  RELATIONSHIPS  AND RELATED
TRANSACTIONS."
<PAGE>

      Effective  September 26, 1995, HQ Propane  became a distributor of British
Petroleum  ("BP")  gasoline  and  diesel  fuel  pursuant  to  a  Branded  Jobber
Agreement.  . Management  believes that the  internationally  recognized BP name
will increase HQ Gasoline's  existing retail gasoline  customer base at selected
station  sites.  Management  also  believes that the BP  partnership  offers the
Company growth potential  through station  acquisitions,  and allows the Company
even greater  flexibility  in its  marketing  strategies  (particularly  with HQ
Gasoline's added ability to brand under the BP, Gulf or ATI  trademarks).  Under
the terms of the BP Agreement, HQ Gasoline must convert selected stations to BP,
improve the  stations to meet BP's image  standards,  and  purchase  all product
requirements from BP. BP offers various incentive  programs  including  rebates,
credit cards and financial assistance in connection with this conversion.

Fuel Oil

      The Company's fuel oil distribution  business is conducted by HQ Propane's
subsidiary, Rockland Fuel Oil, Inc.

      Rockland Fuel Oil, Inc., based in the northern  Rockland County industrial
town of Haverstraw,  New York, was  established in 1947 as a retailer of heating
oil and  commercial  diesel fuel to residents and business  throughout  Rockland
County.  It became a  wholly-owned  subsidiary  of HQ Propane in December  1992.
Rockland  operates  through  ATI pending  approval of its New York State  Diesel
Motor Fuel License.  See "BUSINESS - Certain Licenses  Relating to the Company's
Business."  The Company  believes  that Rockland has a 20% share of the fuel oil
market and 4% share of the diesel fuel market in Rockland County.

      Rockland  also  supplies,  installs and services oil heating and hot water
equipment for its customers. The Company considers the provision of installation
and  repair  services  to be an  integral  part of  Rockland's  basic  fuel  oil
business.  The Company  believes  that  Rockland is the only fuel oil company in
Rockland County that maintains an in-house service department offering 24 hour a
day service throughout the year. Except in isolated instances, Rockland does not
provide service to any person who is not a heating oil customer.

      Rockland's  account base totals  approximately  1,300 customers.  Of these
accounts, approximately 24% are diesel motor fuel customers and 76% are fuel oil
customers.  Fuel oil volume  sales are  seasonal in nature,  and are affected by
weather patterns from year to year.  Since Rockland's  diesel motor fuel account
base consists  largely of  construction  companies,  diesel fuel sales also have
seasonal  aspects,  tending to  increase  over the  spring  and  summer  months.
Rockland's  diesel  motor  fuel  customers  are also  affected  by the  economic
conditions of that industry.
<PAGE>

      The Company  believes that the fuel oil heating market in Rockland  County
is not experiencing any new growth. However, neighboring Orange County, New York
is  experiencing  rapid  growth  and  the  Company  believes  that  Rockland  is
positioned  to gain a share of this growing  market.  Based upon  research,  the
Company  also  believes  that  there is a large  diesel  motor  fuel  market  in
Rockland's  operating area.  Rockland  intends to attempt to increase its market
presence in these areas  through  competitive  pricing and  increased  sales and
marketing efforts.

      Rockland  is  supplied  with both  diesel  and fuel oil by ATI from the HQ
Terminal.  Rockland's  base  of  operations  is a  Rockland  owned  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 and Rockland have 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 and Rockland's  customer base each year
include  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 and Rockland  deliver fuel oil or 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  and
Rockland's customers receive their fuel oil and propane pursuant to an automatic
delivery  system,  without the customer  having to make an affirmative  purchase
decision  each time oil or propane is needed.  In addition,  both HQ Propane and
Rockland provide home heating equipment repair service on a seven day a week, 52
weeks a year basis.

      Retail gasoline  customers are generally brand loyal or price shoppers who
generally factor appearance,  convenience,  and credit cards into their decision

<PAGE>

making  process before making an affirmative  purchase  decision.  HQ gasoline's
ability  to market  under the  trademarks  Gulf,  BP, 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
standards  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 very  significantly  from one year to the next.  A warmer than usual  winter
would  reduce  the number of  gallons  of fuel oil sold  which  would  result in
reduced  revenues from the Company's fuel oil regulated  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 sale 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, 1996.

      The Company met  substantially  all of its gasoline  product  requirements
through Gulf Oil, BP and ATI for the fiscal year ended August 31, 1996. Gulf Oil
supplied  approximately  30%,  and ATI provided  approximately  65% (through its
primary supplier, Warex Terminals), 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, through purchases of such  requirements  either from its
primary supplier,  Warex Terminals,  or on the spot market. Upon the issuance of

<PAGE>

its Terminal  Operator and Motor Fuel Diesel  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  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 and Rockland intend to acquire two types of
distributors.  The first type are relatively small distributors which management
believes could be easily  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 unit 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 economies 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.
<PAGE>

Competition

      The Company's  business is highly  competitive.  The Company competes with
fuel oil,  diesel  fuel,  propane and  gasoline  distributors  and/or  retailers
offering a broad range of services and prices,  from full  service  distributors
similar to the Company, to those offering supply or retailing only.  Competition
with other  companies in the fuel oil and propane  industries is based primarily
on customer service and price.  Long-standing customer relationships are typical
in the retail fuel oil and propane  industries.  Many companies in the industry,
including  the Company,  deliver fuel oil and propane to their  customers  based
upon weather conditions and historical consumption patterns without the customer
having to make an affirmative purchase decision each time fuel oil or propane is
needed. In addition, most companies,  including HQ Propane and Rockland, provide
equipment repair service on a 24-hour a day basis, which tends to build customer
loyalty. 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 and BP 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  and diesel  motor fuel license and the  applications  of
Rockland Fuel Oil, Inc. and White Plains Fuel, Inc. for their respective  diesel
motor fuel licenses.  On October 6, 1995,  New York State  requested HQ Propane,
Rockland Fuel 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 recently 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 motor fuel license) pending
the  completion  of the  licensing  process  with  respect to the balance of the
licenses. Management is optimistic about the prospects of obtaining the approval
of such  licenses,  though there can be no assurance in this regard.  The $.0025
per  gallon  fee  charged  by  ATI  for  these   services  would  be  eliminated

<PAGE>

simultaneously with the issuance of HQ Propane's terminal operator's license and
its  diesel  motor  fuel  license.   See  "CERTAIN   RELATIONSHIPS  AND  RELATED
TRANSACTIONS."

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 16 of the 18 Gasoline
Stations presently leased by the Company.  (Three of the 21 stations operated by
the Company are Supply Contracts only, and therefore management does not believe
that the Company would be subject to any environmental  exposure.) 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 $400,000 over the
next  two  years in order to meet  EPA and  State  regulations  for  underground
storage tanks by December, 1998.

Employees

      As of January 2, 1997,  the Company had a total of 33 employees,  of which
20 are office,  clerical and customer service personnel,  6 were drivers, 4 were
mechanics,  and 3 were executive officers of the Company. Three of the Company's
employees are part-time and one is  seasonally  employed.  Approximately  9 full
time   employees  and  the  one  seasonal   employee  are   represented  by  the
International  Brotherhood of Teamster and Chauffeurs  Union,  Local 456 under a

<PAGE>

contract  which  expires on December  31,  1997.  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 situated 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,  1996,  HQ leased  the  following  stations  from ATI (See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"):
<PAGE>

           Station Name and #                  Address

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

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

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

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

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

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

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

      Five of the above  leases  expire on August 31,  1998,  with the other two
expiring on August 31, 2018.  The  aggregate  annual  rental  amount under these
leases is $195,976 for the fiscal year ending August 31, 1996; $199,272 for each
of the fiscal  years  ending  August 31, 1997 and August 31,  1998.  For the two
leases expiring on August 31, 2018; the aggregate  rental amount will range from
$54,000 in the fiscal year ending  August 31, 1999 to $88,800 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 December 31, 1996,  there has been no
further action in this case.

      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.
<PAGE>

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,
1996,  as  reported by NASDAQ,  which bid prices  reflect  inter-dealer  prices,
without retail mark-ups,  mark-downs or commissions and may 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 15/16         5
Second Quarter.................     6 3/4           4 7/8
Third Quarter....................   7 3/4           4 15/16
Fourth Quarter..................    7 3/4           1 1/4

      As of January 1, 1997,  there were 150 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 and Company have not been broken down.

      The Company does not currently  pay  dividends on its Common Stock.  It is
management's  intention not to declare or pay dividends on the Company's  Common
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.
<PAGE>

      The  Company has been  notified by NASDAQ of the failure of the  Company's
common  stock to maintain a closing  inside bid price  greater  than or equal to
$1.00 for a period of ten consecutive  trade dates, and that the Company will be
provided  ninety  calendar days (to February 14, 1997) in which to either regain
compliance  with the minimum  bid price  requirement  (i.e.,  that the shares of
common  stock of the Company  report a closing bid price of $1.00 or greater for
ten consecutive  trading days prior to the end of such ninety day period) or the
alternative  requirement  (i.e., that the Company's capital and surplus equal or
exceed  $2,000,000,  and the market value of the public  float of the  Company's
common stock equal or exceed $1,000,000,  for ten consecutive trading days prior
to the end of such ninety day  period).  NASDAQ has notified the Company that if
the  Company  is  unable  to  demonstrate  compliance  with at least  one of the
foregoing  requirements prior to February 14, 1997, it must submit a proposal by
that same date for  achieving  compliance.  If the Company fails by February 14,
1997 to  either  achieve  compliance  or to  submit  a  proposal  for  achieving
compliance,  NASDAQ would consider  delisting the Company's  common stock on The
Nasdaq Small Cap Market.

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

Results of Operations

Fiscal Year ended August 31, 1996 Compared to Fiscal Year
ended August 31, 1995.

      Revenues  increased from  $15,174,559 for the fiscal year ended August 31,
1995 to  $15,312,260  for the fiscal year ended August 31, 1996. The increase of
$137,701 is attributable to increase in sales totaling $1,251,018  primarily due
to increased  sales revenues of #2 oil of $769,306,  increased sales revenues of
propane of  $245,626,  increased  thru-put  revenues of $196,626  and  increased
service  and tank  rental  revenues  totaling  $39,460.  These  increased  sales
revenues  were reduced by  $1,113,317  as a result of  management's  decision to
lease gasoline stations to an independent third party distributor.

      Cost of Sales decreased from  $11,059,346 for the fiscal year ended August
31, 1995 to $10,734,200  for the fiscal year ended August 31, 1996. The decrease
of $325,146 is  primarily  due to reduced  gasoline  purchases  of $917,601 as a
result  of  leasing  four  gasoline  stations  to  an  independent  third  party
distributor.  This decrease is partially  offset by an increase in cost of goods
resulting  primarily  from  increased  purchases of propane,  #2 oil and service
parts purchases totaling $592,455.  The percentage of cost of sales to sales are
72.9% and 70.1% for fiscal 1995 and 1996, respectively.  The increase of 2.8% is
primarily  attributable to the increased #2 oil purchases  characterized by high
volume and low gross profit.

      Selling, General and Administrative Expenses increased from $2,916,401 for
the fiscal year ended  August 31, 1995 to  $3,278,968  for the fiscal year ended
August 31,  1996.  The  increase of $362,567 is comprised of an increase in real

<PAGE>

estate taxes of $71,956,  increased  advertising expenses of $57,318,  increased
professional fees of $101,763,  increased office expenses of $35,601,  increased
other expenses of $31,314,  increased  equipment expenses of $27,537,  increased
insurance  expense of $18,446 and all other expenses  totaling a net increase of
$18,632.

      Depreciation  and  Amortization  Expenses for the fiscal year ended August
31, 1996  increased  by $228,291 to $679,842.  The increase is due  primarily to
depreciation and amortization  expenses  associated with the purchase of certain
leaseholds,  the addition of fixed  assets and the purchase of certain  customer
lists (in connection  with the purchase of White Plains Fuel, Inc. and the E. F.
Osborn transaction).

      Interest  Income for the year ended August 31, 1996  decreased by $145,465
to $101,987 from  $247,452 for the year ended August 31, 1995.  This decrease is
due to the  Company  acquiring,  on  November  1, 1995 and March 22,  1996,  two
gasoline leaseholds from ATI, which acquisitions  represented partial payment in
the amount of $450,000  and  $915,000,  respectively,  of the  outstanding  note
receivable balance due from ATI.

      Interest  Expense for the year ended August 31, 1996 increased by $150,872
to $398,889  from  $248,017 for the year ended August 31, 1995.  The increase is
due primarily to the interest expense associated with certain bank indebtedness,
certain note payable indebtedness, and certain 8.5% interest bearing convertible
debentures.

      Rental Income  increased for the year ended August 31, 1996 by $228,530 to
$418,478 from  $189,948 for the year ended August 31, 1995.  The increase is due
primarily to rental income  resulting from the lease by White Plains Fuel of its
customer list to an independent third party distributor.

      Bad Debt Expense  decreased from the year ended August 31, 1996 by $34,289
to $39,869 from $74,158 for the year ended August 31, 1995.  The decrease is due
primarily to increased  security deposits for gasoline and increased  collection
efforts.

      Royalty expense  decreased for the year ended August 31, 1996 by $3,436 to
$96,102  from  $99,538 for the year ended  August 31,  1995.  The  reduction  is
attributable to the Company entering into an agreement with ATI by which ATI was
granted  warrants in exchange  for the Company  continuing  to license the trade
name "ATI" for a period of five  years.  The Company no longer pays a royalty of
$.01 per gallon for gasoline station sales.

      Other  Income  decreased  for the year ended August 31, 1996 by $76,498 to
$38,935 from  $115,433  for the year ended August 31, 1995.  The decrease is due
primarily to a decrease in rebate refunds from a gasoline supplier.

      Net Income for the fiscal year ended August 31, 1996 was $181,094 compared
to $256,648 for the fiscal year ended  August 31, 1995.  The decrease of $75,554

<PAGE>

is due to the net change resulting from an increase in gross profit of $462,847,
an increase in depreciation expense of $228,291, an increase in interest expense
of  $150,872,  a decrease in interest  income of  $145,465,  a decrease in other
income of  $76,498,  an increase in rental  income of  $228,530,  an increase in
selling,  general and administrative expenses of $362,567, a decrease in royalty
expense of $3,436 and a decrease in bad debt expense of $34,289.

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 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 subsequent to the year end has significantly increased the Company's
working capital  requirements due to increased  gasoline purchase  requirements,
increases in accounts  receivable,  and  operating  expenses  (including  salary
expense)  Recent rises in the cost of  petroleum  products by as much as 50% has
further  increased  the Company's  working  capital  requirements.  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 for such increased
supply  requirements,  and for its proposed  capital  improvements  and mandated
capital  improvements for underground storage tanks. In this regard, 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  $400,000 over the next two years in order
to meet  Federal EPA and State  Regulations  for  underground  storage  tanks by
December  1998.  Through  August 31, 1996,  the mandatory  requirements  for two
locations have been initiated and $84,160 has been capitalized or expensed.

      In addition the Company plans to rebuild 12 of 21 gasoline  stations which
will require  $35,000 to $350,000  per location for an aggregate of  $2,600,000.
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.

      The capital  expenditures  during fiscal 1996 were  $557,013.  Included in
this  amount are  expenditures  for  propane and other  equipment  of  $266,564,
improvements to gas stations and the terminal facility of $99,225 and trucks and
auto of $191,224.

      Another factor affecting the operating  activities  during Fiscal 1996 was
the  additional  depreciation  expense  associated  with the  acquisition of two
leasehold  interests  from ATI to the Company during  November,  1995 and March,
1996. The  depreciation  expense  associated  with such leaseholds is $6,000 and
$12,300  respectively  for the fiscal period ended August 31, 1996. In addition,

<PAGE>

the  Company  on  March 5,  1996  issued  warrants  to ATI in  exchange  for the
exclusive use of the "ATI" trademark.  The royalty expense  associated with such
warrants is $50,405.42 for the fiscal year 1996.

      HQ Propane,  an operating  subsidiary  of the Company,  has obtained  from
lending  institutions  a $500,000  mortgage  loan and a $500,000  line of credit
which the Company  completed  during May 1994.  The mortgage  loan has a term of
five  years at a rate of  interest  equal to 8.5% per annum with  principal  and
interest  payable  monthly.  The line of credit is available for a term of three
years at a floating  rate of interest  equal to 2.5% above the bank's prime rate
in effect from time to time with interest  only payable  monthly to the advances
outstanding  on the line of credit.  The loan and the line of credit are secured
by the Company's  headquarters and the terminal facility at Alexander Street. HQ
Propane, Claire Tarricone, Anthony Tarricone and Joseph Tarricone are guarantors
on the loans.

      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 shareholders
of White Plains Fuel, Inc.  received  168,020 shares of newly created Series A -
7.5%  Cumulative  Convertible  Redeemable  preferred  Stock of the  Company.  On
various dates throughout the fiscal year, the Company declared  dividends on the
Series A Preferred for $.45 per share totaling $75,609. 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 January 10, 1996,  a total of 650,000  shares of the  Company's  common
stock was reserved for the 1996 stock  incentive  plan for officers,  employees,
and  consultants.  The total options granted through August 31, 1996 are 200,000
leaving a balance of 450,000 shares in reserve as of August 31, 1996.

      On March 5, 1996, the Company issued  warrants to purchase  297,125 shares
of the  Company's  common  stock  to A.  Tarricone,  Inc.  in  exchange  for the
Company's  exclusive use of the "ATI" trademark.  The exercise price is equal to
the lessor of $2.60 per share or a 40%  discount  from the  average  closing bid
price. The warrants provide that 59,425 are immediately  vested, and the balance
become  vested in four equal annual  installments.  The market price at issuance
was $4.30 per share.

      In May  31,  1996  the  Company  issued  580,646  shares  of  Series  B 8%
Cumulative  Convertible  Redeemable Preferred Stock with a stated value of $7.75
per share totaling  $4,500,000 in a private placement  pursuant to Regulation S.
The Company received proceeds, net of commissions, of $3,870,000. On July 23 and
November 20, 1996, the Private Placement Holder converted $65,100 (8,400 shares)
and  $39,998  (5,161  shares)  of the Series "B"  Preferred  Stock plus  accrued
dividends of $756.23 and $1,472.79 respectively,  into 18,816 and 162,261 shares
of the Company's common stock.
<PAGE>

      On September  29,  1995,  two short term demand notes of HQ Propane in the
amount of $300,000 and $200,000 from a financial institution were converted to a
5 year commercial mortgage at a prime commercial lending rate plus 1% and a five
year  balloon  payment  with a 15 year  amortization  schedule.  The  commercial
mortgage is guaranteed by the Company, Claire E. Tarricone, Anthony J. Tarricone
and Joseph A. Tarricone,  and is secured by certain  commercial  properties.  In
addition,  on December 20, 1995,  HQ Propane  obtained a 5 year mortgage loan in
the amount of $200,000 from the same financial institution at prime plus 1%. The
commercial  mortgage is guaranteed by Claire E. Tarricone and secured by certain
commercial properties.

      On October 19, 1995, the Company received  $500,000 and issued $500,000 in
principal amount of 8.5%  convertible  debentures due on October 19, 1997. As of
May 31, 1996,  $250,000  principal amount debentures  remained  outstanding.  On
December 4,  January 19,  March 6, April 16,  June 27 and August 14,  1996,  the
subscriber converted a total of $350,000 of debentures for 104,647 common shares
of the  Company.  On August 20,  1996 the Company  purchased  the balance of the
outstanding  convertible  debentures  for  $150,000  plus  accrued  interest  of
$10,793.84.

      On November 1, 1995 and March 22, 1996, ATI  transferred to HQ Propane two
(2) leaseholds is partial  satisfaction of the note receivable due from ATI. The
appraised value of these leaseholds was $450,000 and $915,000  respectively.  As
of August 31, 1996,  the note  receivable due from ATI was  $1,355,576.  The ATI
note is  secured by  certain  gasoline  leaseholds  with an  appraised  value of
$2,330,000.

      The  Company  had  working  capital of  $3,226,040  and a ratio of current
assets to current liabilities of 2.85:1 as at August 31, 1996.

Inflation

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

New Accounting Standards

     In  February,   1992,  the  Financial  Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards  No. 109  ("Statement  No.  109"),
"Accounting for Income Taxes."  Statement No. 109 will require the  utilization,
if any exist,  of the net  operating  loss carry  forwards  of the Company to be
recorded as part of the regular income tax provision and not as an extraordinary
item. The implementation of Statement No. 109 is not expected to have a material
impact on the results of  operations  of  financial  condition  of the  Company.
Statement No. 109 is effective  for fiscal years  beginning  after  December 15,
1992.

<PAGE>

ITEM 7.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The consolidated financial statements of the Company,  including the notes
thereto,  together with the report of independent  certified public  accountants
thereon, are presented beginning at page F-1.

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
Annual  Report on Form 10-KSB for the fiscal year ended  December  31,1992 filed
with the SEC on March 31, 1993 and in the Company's  Current  Report on Form 8-K
filed with the SEC on November 26, 1993.



<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            40              President and Director

Anthony J. Tarricone           35              Vice President, Secretary
                                                and Director

Joseph A. Tarricone            34              Vice President, Treasurer
                                                and Director

Edwin Goldwasser               64              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.  For the three years prior to 1991, she served as Vice
President of HQ Propane.  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. From
1989 to  1991,  Mr.  Tarricone  served  as  Marketing  Representative/Properties
Manager for ATI's gasoline divisions.

      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,

<PAGE>

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  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 provision,  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,  except  that each of Claire  Tarricone,  Anthony
Tarricone and Joseph Tarricone, all officers and directors of the Company, 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,  1996,  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  officer and/or an
executive officer, as the case may be, during any part of such fiscal year):

<PAGE>

                  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 1996  $54,600       $15,034                     100,000 (3)
President           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 amounts 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.

      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 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 par 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 plans for its employees.

Employment 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

<PAGE>

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  Tarricones has waived her or his rights (as the case may be) to any
unpaid  annual salary  attributable  to the fiscal years ending August 31, 1994,
August  31,  1995 and  August  31,  1996.  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 terminable 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 if any shall not have
substantially  performed their duties for 540 consecutive  days by reason of any
such physical or mental illness.

      Each of the Tarricones 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 Tarricones. Additionally, upon
termination, each of the Tarricones 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 (1) 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 Employment  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 Tarricones is terminated,  provided that such
person is entitled to be engaged as an employee by ATI.

<PAGE>

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 January 1, 1997 by (a) each person known by
the Company to beneficially  own more than five percent (5%) 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(2)

Claire E. Tarricone   Common Stock 1,142,184(3)     26.0%(3)          25.0%(3)
33 Hubbells Drive
Mt. Kisco, NY 10549

Anthony J. Tarricone  Common Stock 1,142,183(4)     26.6%(4)          25.6%(4)
33 Hubbells Drive
Mt. Kisco, NY 10549

Joseph A. Tarricone   Common Stock 1,142,183(5)     26.6%(5)          25.6%(5)
33 Hubbells Drive
Mt. Kisco, NY 10549

Alan Cianflone        Series A        84,010        50.0%              2.1%
42 Virginia Lane      Cumulative
Thornwood, NY 10594   Convertible
                      Redeemable
                      Preferred Stock

Jack Troccoli         Series A        84,010        50.0%              2.1%
40 Reservoir Court    Cumulative
Carmel, NY 10512      Convertible
                      Redeemable
                      Preferred Stock

Infinity Investors,   Series B       572,246       100.0%             4.99%(6)
Ltd.                  Cumulative
27 Wellington Road    Convertible
Cork, Ireland         Redeemable
                      Preferred Stock

Edwin Goldwasser      Common Stock    -0-              (7)              (7)
7616 Mansfield Hollow 
Drive
Delray Beach, Florida 
33446

All Executive Officers and
Directors as a group
(4 persons)                         3,188,850       64.87%              61.79%
                                    ---------       ------              ------
<PAGE>

(1)   Based upon 3,873,601 common shares outstanding as of January 1, 1997.
(2)   Based on  3,873,601  common and 168,020  Series A  Cumulative  Convertible
      Redeemable Preferred Shares outstanding as of January 1, 1997. Each of the
      168,020  shares of Series A Cumulative  Convertible  Redeemable  Preferred
      Stock  presently  carries  (i.e.,  prior to conversion  into Common Stock)
      general voting power.
(3)   Includes 400,000 shares of Common Stock that may be purchased  pursuant to
      presently  exercisable  stock  options and 118,850  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  (59,425 of such  shares  may be  purchased
      pursuant to presently  exercisable  warrants,  while another 59,425 shares
      may be purchased within sixty days through the exercise of warrants).  Ms.
      Tarricone disclaims  beneficial ownership as to two thirds of such 118,850
      shares,  which  disclaimed  amount  correlates to the aggregate  ownership
      percentage in ATI held by Anthony J. Tarricone and Joseph A. Tarricone.
(4)   Includes 300,000 shares of Common Stock that may be purchased  pursuant to
      presently  exercisable  stock  options and 118,850  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  (59,425 of such  shares  may be  purchased
      pursuant to presently  exercisable  warrants,  while another 59,425 shares
      may be purchased within sixty days through the exercise of warrants).  Mr.
      Tarricone disclaims  beneficial ownership as to two thirds of such 118,850
      shares,  which  disclaimed  amount  correlates to the aggregate  ownership
      percentage in ATI held by Claire E. Tarricone and Joseph A. Tarricone.
(5)   Includes 300,000 shares of Common Stock that may be purchased  pursuant to
      presently  exercisable  stock  options and 118,850  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  (59,425 of such  shares  may be  purchased
      pursuant to presently  exercisable  warrants,  while another 59,425 shares
      may be purchased within sixty days through the exercise of warrants).  Mr.
      Tarricone disclaims  beneficial ownership as to two thirds of such 118,850
      shares,  which  disclaimed  amount  correlates to the aggregate  ownership
      percentage in ATI held by Anthony J. Tarricone and Claire E. Tarricone.
(6)   The  Series  B  Cumulative   Convertible  Redeemable  Preferred  Stock  is
      presently  convertible  by the holder  thereof,  provided that the maximum
      amount  of shares of Common  Stock  that may be held by such  holder  upon
      conversion is 4.99% of the outstanding shares of Common Stock.
(7)   Less than one percent.

      As of January 1, 1997,  1,069,945  shares of Common  Stock  (approximately
27.6% 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

<PAGE>

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  $5,067,578 on August 31,
1994.  On  February  28,  1995 and July 31,  1995,  ATI  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 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.  The balance of the ATI note  currently  aggregates  $1,355,576  and is
secured by a  security  interest  in the  remaining  6  leasehold  interest  and
improvements  underlying  the  21  service  stations  currently  operated  by HQ
Gasoline.

      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 19 service
stations  comprising its HQ Gasoline Division from ATI until August 31, 1998 and
pays  rent  for the  service  stations  in the  amount  of  $54,000  per  month.
Additionally,  until March 5, 1996 (see the immediately  succeeding  paragraph),
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.  As a result of the
combined extension and transfer of 12 station leaseholds,  and the conveyance of
1 fee property,  the Company now leases 8 service stations from ATI at a reduced
rent payment of $18,850 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 $2.60 per share or a 40%  discount  from 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 vest  immediately
(i.e., on March 5, 1996),  with the balance becoming vested in four 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 or Rockland Fuel
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,

<PAGE>

ATI has continued to operate the terminal facility and Rockland for HQ Propane's
benefit.  Upon the issuance of such licenses,  HQ Propane and Rockland Fuel will
assume operations of their respective facilities directly. ATI also supplies the
Company's  operating  divisions with fuel oil, diesel fuel and gasoline at ATI's
cost  plus  one  quarter  of one  cent  ($.0025)  per  gallon  purchased,  which
aggregated  $51,112  during the fiscal  year ended  August 31,  1994 and $42,494
during the fiscal year ended August 31, 1995, and $38,671 during the fiscal year
ended August 31, 1996.

      The Company has  outstanding  certain  promissory  notes in the  aggregate
principal  amount of $321,426 issued in connection  with a private  placement of
165,000 shares of Common Stock of the Company ("Bridge Notes").  Interest on the
Bridge  Notes is payable  quarterly  at a rate of 8% per annum,  and  payment of
principal thereof is 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  Tarricones  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 Tarricones 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 on demand.



<PAGE>



            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                         PAGE(S)

Halstead Energy Corp. and Subsidiaries:

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

      Consolidated Financial Statements:

           Consolidated Balance Sheets as of
           August 31, 1996 and 1995........................F-3, F-4

           Consolidated Statements of Operations for
           the years ended August 31, 1996 and 1995........F-5

           Consolidated Statements of Stockholders'
           Equity for the years ended August 31,
           1996 and 1995...................................F-6

           Consolidated Statements of Cash Flows for
           the years ended August 31, 1996 and 1995........F-7

           Notes to the Consolidated Financial Statements..F-8, F-31


                                      F-1
<PAGE>


                   INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders of
Halstead Energy Corp.
Mount Kisco, New York

      We have audited the accompanying  consolidated  balance sheets of Halstead
Energy Corp.  and  subsidiaries  as of August 31, 1996 and 1995, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  years  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 audits.

      We conducted our audits 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 audits provide a reasonable basis for our opinion.

      The August  31,  1996 and 1995  financial  statements  have been  restated
because  errors were  detected to August 31, 1995 and prior  reports  during the
course of this audit (see Note 17).

      In our opinion,  the consolidated  financial  statements referred to above
present fairly,  in all material  respects,  the financial  position of Halstead
Energy Corp. and Subsidiaries as of August 31, 1996 and 1995, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with generally accepted accounting principles.


                              GOLDMAN & MURPHY, LLP

Valley Stream, New York
January 16, 1997, except for Note 17, dated May 2, 1997

                                      F-2
<PAGE>




              HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS


                                                  August 31,

                                         1996                    1995
                                     As Restated              As Restated

                           A S S E T S

CURRENT ASSETS
  Cash and Cash Equivalent.........  $  2,061,474               $  -0-
  Accounts Receivable - Trade, Net
of Allowances for
  Uncollectible Receivables of        
$227,869 and $189,817
  respectively (Note 2)............     1,628,070                1,349,351
  Rent Receivable..................       122,497                   85,543
  Other Receivable.................         4,798                    7,395
  Inventory (Note 3)...............       251,450                  192,238
  Prepaid Expenses (Note 4)........       195,361                  136,498
  Prepaid Income Taxes.............         6,558                   -0-
                                        ---------                ----------

   TOTAL CURRENT ASSETS............     4,270,208                1,771,025

   NET DEFERRED TAX ASSET (Note 17)       612,406                  716,612
                                        ---------                ---------


PROPERTY, PLANT AND EQUIPMENT - NET (Note 5)

  Land ............................       894,000                  894,000
  Property, Plant and Equipment ...    10,952,437                9,624,042
                                       ----------                ---------


   TOTAL PROPERTY, PLANT AND           11,846,437               10,518,042
    EQUIPMENT - NET


OTHER ASSETS

  Note Receivable..................        80,000                     -0-
  Note Receivable - Related Party       
  (Note 7)...........................   1,355,516               1,192,386
  Intangible Assets - Net (Note 6).     1,098,629               1,088,255
  Deposits.........................         2,045                   2,045

   TOTAL OTHER ASSETS..............     2,536,250               2,282,686
                                        ---------               ---------

   TOTAL ASSETS (Note 17)..........  $ 19,265,301            $ 15,287,915
                                     ============            ============









          See Notes to Consolidated Financial Statements

                                      F-3
<PAGE>



              HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                    CONSOLIDATED BALANCE SHEETS


                                                    August 31,
                                                1996            1995
                                            As Restated     As Restated

                LIABILITIES & STOCKHOLDERS' EQUITY

LIABILITIES

CURRENT LIABILITIES

  Accounts Payable - Trade................   545,595         $ 706,832
  Cash Overdraft..........................      -0-             66,351
  Current Portion of Long-Term Debt (Note 8) 284,802           293,055
  Customer Credit Balances Payable........   105,791           128,906
  Accrued Expenses........................   171,740            90,865
  Sales Tax Payable.......................    17,371             6,816
  Deferred Revenue - Service Contracts 
  (Note 10)                                   13,760            14,204
  Security Deposits Payable...............   259,558           219,200
  Income Taxes Payable (Note 11)..........    10,454           167,587
  Note Payable - Officer..................    80,000             -0-
  Pension Payable.........................     5,097             -0-
                                              ------            ------

      TOTAL CURRENT LIABILITIES...........   1,494,168       1,693,816


LONG-TERM LIABILITIES

   Private Placement Notes (Note 8).......     321,426         462,637
   Long-Term Debt (Note 8)................   2,348,565       2,483,328

      TOTAL LONG-TERM LIABILITIES.........   2,669,991       2,945,965

      TOTAL LIABILITIES (Note 17).........   4,164,159       4,639,781

   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)                       168             168
   Paid In Capital:  Preferred............   1,064,001       1,064,001
        ..................................   1,064,169       1,064,169

STOCKHOLDERS' EQUITY

   Preferred Stock, $.001 Par Value, 
     5,000,000 Shares Authorized
   Preferred Stock, $.001 Par Value,    
     580,646 Shares Authorized-Series B
     8.0% Cumulative Convertible 572,246 
     Shares Issued and Outstanding 
     ($4,434,900 aggregate liquidation 
     preference)                                  572              -0-
   Common Stock, $.001 Par Value,50,000,000 
     Shares  Authorized,  3,491,340 and
     3,338,117  Shares Issued and Outstanding 
     as of August 31, 1996 and August 31,
     1995,                                       3,492           3,338
   Paid in Capital:  Preferred............   3,815,328             -0-
   Common (As restated in 1995) (Note 17).   4,896,947       4,364,721
   Retained Earnings (Note 17)............   5,320,634       5,215,906

      TOTAL STOCKHOLDERS' EQUITY (Note 17)  14,036,973       9,583,965

      TOTAL LIABILITIES & STOCKHOLDERS'
      EQUITY (Note 17)....................$ 19,265,301     $ 15,287,915




          See Notes to Consolidated Financial Statements

                                      F-4
<PAGE>


                              F - 30
              HALSTEAD ENERGY CORP. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF OPERATIONS



                                                       Year Ended
                                                       August 31,
                                             1996                 1995
                                          As Restated          As Restated

Sales.....................................$ 15,312,260         $ 15,174,559

Cost of Sales.............................  10,734,200           11,059,346

GROSS PROFIT..............................   4,578,060            4,115,213

Selling, General & Administrative Expenses   3,278,968            2,916,401
Management Fee, Related Party (Note 12)...     360,000              360,000
Bad Debt Expense (Note 9).................      39,869               74,158
Net Rental Expense (Income)...............    (418,478)            (189,948)
Royalty Fee (Note 12 E)...................      96,102               99,538
Depreciation & Amortization...............     679,842              451,551
                                              --------             --------

   INCOME FROM OPERATIONS.................     541,757              403,513

OTHER INCOME AND (EXPENSES)
   Interest Income........................     101,987              247,452
   Interest Expense.......................    (398,889)            (248,017)
   Other Income...........................      38,935              115,433
                                               -------             --------

   NET INCOME BEFORE TAXES................      283,790             518,381

PROVISION FOR INCOME TAXES:
   (Notes 11 & 17)
   Current (Note 17)......................        14,160            268,246
   Deferred...............................        88,536             (6,513)
                                                ----------         --------

   NET INCOME (Note 17)...................     $ 181,094          $ 256,648
                                                 =======            =======

Net Income Per Share (Note 20)
   Earnings Per Share.....................        $ 0.00          $ .08
                                                    ----            ---
   Primary EPS............................          0.00          $ .08
                                                   -----            ---
   Fully Diluted EPS......................        $ 0.00          $ .08
                                                   -----            ---
Weighted Average Number of Common and Common
   Equivalent Shares Outstanding..........     3,416,473          3,061,418
                                              ----------         ----------








          See Notes to Consolidated Financial Statements


                                      F-5
<PAGE>


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

               PREFERRED STOCK   COMMON STOCK                        TOTAL
               $.001 PAR VALUE  $.001 PAR VALUE  PAID IN  RETAINED STOCKHOLDERS'
               ISSUED  AMOUNT    ISSUED AMOUNT   CAPITAL  EARNINGS   EQUITY

Balances at 
August 31,1994
(As previously
 reported)        0    $ 0    2,779,050 $2,779 $ 2,484,741 $5,018,724 $7,506,244

Adjustment for 
the omission of 
paid in capital 
( Note 17)        0      0      0       0         984,477      0        984,477

Adjustment for
the understatement 
of deferred
income tax liability 
(Note 17)        0       0      0       0          0        (46,865)   (46,865)
                --      --     --       --         --    ----------- ----------

Balances at August 
31, 1994 (As 
restated in 1995) 
(Note 17)        0       0  2,779,050    2,779  3,469,218  4,971,859  8,443,856

October 1994, 
Pursuant to Private
Placements, $1.75 
per share         0      0    115,000      115     201,135   0          201,250

December 1994 
through February 
1995, Pursuant to 
Private Placement, 
$1.75 per share    0     0      90,000      90     157,410   0         157,500

March 1995 through
May 1995, Pursuant 
to Private Placement,
$1.75 per share    0     0     352,142     352     615,897   0         616,249

Employee 
Compensation 
3/95, $2.50 
per share          0     0       1,925       2       4,811   0           4,813

Private Placement 
Costs              0     0      0            0     (83,750)  0          (83,750)

Net Income - 
August 31, 1995
(As restated in 
1995) (Note 17)    0     0      0            0       0      256,648      256,648

Cash Dividends 
Declared: 
Preferred,
Series A, $0.45 
per share          0      0     0            0       0      (12,601)    (12,601)
                  --     --     --           --     --      ---------  ---------

Balances at 
August 31, 1995
(As restated in 
1995) (Note 17)    0      0   3,338,117    3,338 4,364,721  5,215,906  9,583,965

Cash Dividends
Declared: 
Preferred,
Series A $0.45 
per share          0      0       0        0        0        (75,610)   (75,610)
 
Cash Dividends
Declared: 
Preferred, 
Series B           0      0       0        0         0           (756)  (756)

Debentures 
Converted at an 
average price of
$3.48 per share    0      0   104,647    105      363,740         0    363,845

Employee 
Compensation 
March 1996,
$5.38 per share    0      0     2,250      2       12,092        0      12,094

Preferred Stock 
Issued at $7.75 
per share      580,646   580        0      0     4,499,420       0    4,500,000

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

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

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

Issuance of 
Stock Warrants 
for 297,125 Shares
March 1996          0      0       0       0       511,055       0     511,055

Deferred 
Expense-Stock 
Warrants            0      0       0       0      (460,650)      0    (460,650)

Net Income - 
August 31,1996      0      0       0       0        0       181,094   181,094
                   --     --      --       --       --     --------- ----------

Balances at 
August 31, 1996
(as restated in 
1996)          $740,266 $572 $3,491,340 $3,492 $8,712,275 $5,320,634 $14,036,973
               =======  ==== ==========  =====  =========  =========  ==========





              See Notes to Consolidated Financial Statements

                                      F-6
<PAGE>


                  HALSTEAD ENERGY CORP. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 Year Ended
                                                 August 31,
                                             1996         1995
                                          As Restated  As Restated
Cash Flows from Operating Activities:
 Net Income (Note 17).....................181,094      $256,648
 Adjustments  to Reconcile Net Income  
 to  Net  Cash  used  in Operating
 Activities, Depreciation and 
 Amortization.............................667,479       451,551
 Amortization of Deferred Expense
 -Trademark............................... 50,405           -0-
 Bad Debt Provision....................... 38,052        52,647
 Deferred Income Tax Adjustments 
 (Note 17)................................103,756         3,550
 (Increase) Decrease In Accounts 
 Receivable..............................(316,771)      (61,811)
 (Increase) Decrease In Rent Receivable...(36,954)      (85,543)
 (Increase) Decrease In Other Receivable..  2,597        (7,395)
 (Increase) Decrease In Inventory.........(59,212)       61,117
 (Increase) Decrease In Prepaid Expenses..(58,863)      (24,242)
 (Increase) Decrease In Prepaid Income 
  Taxes................................... (6,558)          -0-
 (Increase) Decrease In Deposits..........    -0-           325
 Increase  (Decrease)  In  Accounts  
 Payable  - Trade  and  Accrued
 Expenses..................................(80,362)      280,518
 Increase (Decrease) Sales Taxes........... 10,555         2,134
 Increase (Decrease) In Customer Credit 
 Balances Payable..........................(23,115)       17,837
 Increase (Decrease) In Pension Plan 
 Payable...................................  5,097          -0-
 Increase (Decrease) In Deferred Revenue...   (444)         (57)
 Increase (Decrease) In Income Taxes 
 Payable..................................(157,133)      111,455
 (Increase) Decrease In Note Payable 
  - Officer................................ 80,000           -0-
 (Increase) Decrease In Discount on Notes 
  Payable.................................. 12,363       125,337
 (Increase) Decrease In Security Deposits 
  Payable.................................. 40,358         9,167
                                           -------        ------

 TOTAL ADJUSTMENTS........................ 271,250       936,590

 Net Cash Provided By Operations.......... 452,344     1,193,238

Cash Flows From Investing Activities:
 Intangible Assets........................(84,235)   (1,060,179)
 Acquisition of Property and Equipment....(1,922,013)(7,548,434)
 Advances in Note Receivable..............(80,000)          -0-
 Advances in Note Receivable - ATI........(1,888,190)(3,229,808)
 Repayments in Note Receivable - ATI...... 1,725,000  7,105,000
 Net Cash Provided (Used) By Investing
 Activities...............................(2,249,438)(4,733,421)

Cash Flows From Financing Activities:
 Proceeds from Capital Contribution.......4,297,875   1,960,231
 Preferred Dividends......................(76,366)      (12,601)
 Increase (Decrease) in Long-Term Debt....(296,590)   1,498,754
 Increase (Decrease) in Cash Overdraft.... (66,351)      66,351
                                          --------      -------
Net Cash Provided (Used) by Financing 
 Activities...............................3,858,568   3,512,735
                                         ------------ ---------
Net Increase (Decrease) In Cash...........2,061,474     (27,448)

 Cash and Cash Equivalents at Beginning 
 of Period................................    -0-        27,448
                                             ----       -------

Cash and Cash Equivalents at End 
 of Period................................2,061,474    $    -0-
                                         ============ ==========

Supplemental Disclosures - Cash Paid 
During the Year for:
 Interest Expense......................... 361,931  $   227,862
 Income Taxes............................. 162,631  $   175,948
 Acquisition of Property & Equipment...... 557,013  $   679,435

Supplemental Schedule of Non-cash Investing and Financing  Activities:  
On March 1, 1996, the company granted ATI warrants for use of its trademark. 
Amortization for 1996 was  $50,405  (Note  12(E)).  During  1996,  the company  
acquired  two leaseholds  with a total value of $1,365,000 from ATI as  payment 
on its note receivable  (Note 14(D)).  
On June 8, 1995 the company issued preferred stock to acquire White Plains Fuel 
Inc., valued at $1,064,169 (Note 14(B)).


          See Notes to Consolidated Financial Statements

                                      F-7
<PAGE>




Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


(A)   Organization

     Halstead Energy Corp. (the "Company") (formerly Castleview Capital Corp., a
Nevada  Corporation)  was incorporated in the state of Utah on January 15, 1986.
Effective  October 8, 1990,  the Company  changed  its  domicile to the state of
Nevada.  On August 5, 1993, the Company  acquired  Halstead Quinn Propane,  Inc.
("HQP"). This transaction has been accounted for as a purchase, in which HQP was
the acquiring corporation, and the Company was the acquired corporation (reverse
acquisition).  The  financial  statements  account  for  the  transaction  as  a
recapitalization  of HQP, with the issuance of 2,170,000  shares of Common Stock
for the net assets of the company.

     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 distributed  wholesale.  Finally, the Company services propane and fuel oil
heating equipment.

(B)   Principles of Consolidation

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

(C)   Use of Estimates

     The  preparation  of financial  statements  in  accordance  with  generally
accepted accounting  principles  requires  management  estimates and assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.


(D)   Cash and Cash Equivalents

     The Company  considers all highly liquid debt instruments  purchased with a
maturity  of 90 days or less to be  cash  equivalents  for  financial  statement
purposes.


                                      F-8
<PAGE>

(E)   Inventories

     All inventories are stated at the lower of cost or market. A monthly moving
average method is used for determining inventory costs.

(F)   Depreciation and Amortization

     Depreciation   of  property  and  equipment  is  computed  by  use  of  the
straight-line  method for  financial  statement  purposes  over their  estimated
useful lives. The rates are as follows: 

                  Leaseholds                   37.5 years
                  Buildings and improvements   10-30 years
                  Equipment                     3-20 years
                  Furniture and fixtures        3-10 years
                  Vehicles                      3-10 years


(G)   Intangible Assets

     The cost of intangible  assets is amortized on a  straight-line  basis over
the period the Company  expects to receive  benefits.  The  periods  used are as
follows:

                  Customer List           15 years
                  Goodwill                40 years


(H)   Customer Credit Balances

     Customer  credit  balances   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)   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 (see Note 10).

                                      F-9
<PAGE>

(J)   Concentration of Credit Risk

      1.   Geographic Area

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

      2.   Major Customers and Vendors

     A. The Company has certain significant customers resulting from the storage
of  fuel at its  terminals.  These  customers  represent  1.5%,  3.5%  and  2.7%
respectively  of total  revenues,  or an aggregate of 7.9% for fiscal 1995,  and
2.5%, 3.5%, and 2.8%, or 8.8% aggregate for fiscal 1996.

     B. The Company has certain significant  vendors,  which represent purchases
of  propane,  gasoline  and oil  for its  operations.  Those  vendors  represent
purchases  for propane of 6% and gasoline and oil of 88% of total  purchases for
fiscal 1995, and 8% and 93% for fiscal 1996.

      3.   Consideration of Credit Risk

     The companies  maintain their cash in bank deposit  accounts at high credit
quality  financial  institutions.  The balances,  at times, may exceed federally
insured  limits.  At August 31, 1996, the Company  exceeded the insured limit by
approximately $1,921,982.


(K)   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  premediation of  environmental  pollution
when it becomes  probable  that a liability has been incurred and the amount can
be reasonably estimated.


(L)   Earnings Per Share

     Earnings per share are computed  based on the  weighted  average  number of
shares outstanding  during the periods  presented.  Common stock equivalents are
included in the calculation when they are dilutive.


(M)   New Authoritative Pronouncements

     The  Accounting  Standard  Executive  Committee  has  issued  Statement  of
Position 93-7  "Reporting on  Advertising  Costs" ("SOP 93-7").  The Company has
adopted the  provisions of SOP 93-7, and there is no effect on the income before



                                      F-10
<PAGE>

extraordinary  items, net income, and related per share amounts.  The Company is
expending  advertising costs as incurred.  These expenditures are not for direct
response advertising.

      The Company's advertising expenses are as follows:

                                          August 31,
                                       1996        1995

           Advertising              $ 64,435    $ 12,435
                                      ======      ======


Note 2 - ACCOUNTS RECEIVABLE - TRADE

     The Company has accounts  receivable in the normal course of business,  net
of allowances for uncollectible receivables, of the following:

                                          August 31,
                                       1996        1995

           Trade                 $ 1,855,939 $ 1,539,168
           Less:  Allowances        (227,869)   (189,817)
                                   ---------   ---------
           NET                   $ 1,628,070 $ 1,349,351
                                   =========   =========


Note 3 - INVENTORY

      Inventory consisted of the following:

                                          August 31,
                                       1996        1995

           Propane                  $ 10,985     $ 5,393
           Gasoline                  110,769      88,372
           Service Parts & Supplies   39,500      39,500
           # 2 Fuel Oil               38,978      47,867
           Diesel                     51,218      11,106
                                     -------     -------
              TOTAL                $ 251,450   $ 192,238
                                     =======     =======

                                      F-11
<PAGE>

Note 4 - PREPAID EXPENSES

      Prepaid Expenses consisted of the following:

                                          August 31,
                                       1996        1995

           Prepaid Real Estate Taxes$ 105,364  $ 106,019
           Prepaid Insurance          65,014         -0-
           Prepaid Financing Costs    24,983      28,924
           Miscellaneous                  -0-      1,555
              TOTAL                $ 195,361   $ 136,498
                                     =======     =======

Note 5 - PROPERTY, PLANT & EQUIPMENT

     Property, Plant & Equipment are stated at cost. The components of Property,
Plant & Equipment are summarized as follows at:

                                            August 31,
                                        1996          1995

           Land                      $ 894,000     $ 894,000
           Gas Station Leaseholds    8,110,000     6,745,000
           Building and Improvements 2,312,731     2,227,660
           Equipment                 1,848,638      1,620,612
           Furniture & Fixtures         81,790         29,099
           Vehicles                  1,119,285        928,061
              TOTAL                 14,366,444     12,444,432

           Less:
           Accumulated Depreciation (2,520,007)    (1,926,390)

              NET                 $ 11,846,437   $ 10,518,042
                                    ==========     ==========


                                      F-12
<PAGE>

Note 6 - INTANGIBLE ASSETS

     Goodwill represents the excess of the cost of assets acquired over the fair
value of their net assets at dates of acquisition.  Customer list represents the
fair value of the customer list  purchased  from White Plains Fuel,  Inc. less a
deficiency  of cost under the fair  value of its net  assets at the  acquisition
date.  Amortization  expense charged to operations for 1996 and 1995 was $73,861
and $19,546, respectively.

      The following is a summary of Intangible Assets.

                                          August 31,
                                       1996        1995

           Customer List         $ 1,144,414  $ 1,060,179
           Goodwill                   72,797       72,797
                                     -------      -------
              TOTAL                1,217,211    1,132,976

           Less:
           Accumulated Amortization (118,582)    (44,721)

              NET                $ 1,098,629 $ 1,088,255
                                   =========   =========


Note 7 - NOTE RECEIVABLE - RELATED PARTY

(A)   The Company had advanced funds to A. Tarricone,  Inc. ("ATI"), it's former
      parent company.  These advances,  which  originated  approximately  during
      fiscal 1990,  are evidenced by a demand  promissory  note with interest at
      6%, due on August 3, 1998. The  outstanding  note  receivable  balance was
      satisfied by ATI on February 28, 1995 (see Note 14).

(B)   The Company has had  transactions  with ATI since  February 28, 1995,  the
      balance  of which  is  represented  above  (see  Note  14).  This  debt is
      evidenced by a promissory note with interest at 6% due on August 31, 2000.
      The Company has not  established an allowance for  uncollectible  amounts,
      due to the fact that ATI has  collateralized  its note with  certain  real
      estate having significant fair market value.

                                                       August 31,
                                                   1996        1995

           Note Receivable - Related Party     $ 1,355,576  $ 1,192,386


                                      F-13
<PAGE>

Note 8 - DEBT


(A)   Private Placements

      The  Company is indebted to certain  investors  for amounts in  connection
      with the Company's private placement (see Note 13(A)).

      The private  placement  consisted of 20 units in the amount of $25,000 per
      unit,  each unit consisting of (i) a note payable in the amount of $25,000
      with interest payable at a rate of 8%, and (ii) 8,250 shares of restricted
      Common Stock of the Company.  The value of such shares has been  accounted
      as $1.50 per share. Accordingly, the effective interest rate on such notes
      is calculated at approximately 58%, taking into consideration the discount
      on the notes. The following summarizes such notes payable:

                                                August 31,
                                             1996        1995

           Face Amount of Note Payable    $ 321,426    $ 475,000

           Less:
             Discount of Note Payable
             Net of Amortization              -0-        (12,363)

             Net                          $ 321,426    $ 462,637
                                            =======      =======




                                      F-14
<PAGE>

(B)   Notes Payable

                                                   August 31,
                                                 1996     1995

   1. Bank commercial mortgage (i) due 
      12/20/99 with interest at 10.5%,
      or 1% above prime.....................$ 134,000  $ 173,600

   2. Bank commercial mortgage (i) due 
      10/01/00 with interest at 1% 
      above prime...........................  469,200        -0-

   3. Bank demand note (ii) due 9/29/95
      with interest at 1% above prime.  
      This note was paid off on September
      29, 1995..............................      -0-    500,000

   4. Bank commercial mortgage (iii) due 
      5/17/99 with interest at 8.5%.........  425,000    458,334

   5. $500,000 revolving line of credit 
      (iii) with a bank due 5/17/97
      with interest at 11.5% currently, 
      or 2.5% above prime...................  500,000    500,000

   6. Bank commercial mortgage (iv) due 
      1/16/01 with interest at 9.25%........  470,914    488,127

   7. Commercial mortgage (iv) due 
      1/15/01 with interest at 12.5%........  136,364    139,550

   8. The company was indebted to bank 
      for a $35,000 line of credit
      due 12/31/95 with interest at 2% 
      above prime...........................      -0-     35,000

   9. The company was indebted to an
      individual for $50,000.  This
      is a demand note with interest at 0%..      -0-     50,000

   10.Notes payable for certain equipment 
      financed through several
      purchase money agreements.  These 
      notes are payable in monthly 
      installments or principal and 
      interest, and collateralized by 
      such equipment........................  497,889    431,772

      Total.................................2,633,367  2,776,383

      Current Portion....................... (284,802)  (293,055)
                                             ---------  ---------

      TOTAL................................$2,348,565$ 2,483,328

      (i) is secured by second mortgage on the Alexander Street
      Terminal.
      (ii) is secured by a general security agreement on personal
      property.
      (iii) is secured by a first mortgage on both the company's
      headquarters, and terminal facility at Alexander Street, and
      further by an assignment of station leases.  The commitment
      calls for certain covenants relating to minimum cash
      balances, rent deposits, and insurance.  Certain officers of
      the  company have personally guaranteed the loan as well.
      (iv) is secured the retail gas station acquired from A.
      Tarricone, Inc. on February 28, 1995 (Note 7).



                                      F-15
<PAGE>

Note 9 - BAD DEBT EXPENSE

     The  Company  has  established  a  reserve  for  uncollectible  receivables
relating to trade  activities from the normal course of business.  During fiscal
1996 and 1995,  the Company had bad debts in the amounts of $39,869 and $74,158,
respectively.


Note 10 - DEFERRED REVENUE

     Deferred  revenue  represents the  unamortized  balance of annual  unearned
service contract  revenue for burner service.  These amounts are being amortized
into income  monthly  during the heating season when the majority of the service
calls are made. Deferred revenue was summarized as follows at:

                                          August 31,
                                       1996        1995

           Deferred Revenue         $ 13,760    $ 14,204
                                      ======      ======


Note 11 - INCOME TAXES

     The  Company  utilizes  the  Financial  Accounting  Standard  Board  issued
Statement of  Financial  Accounting  Standards  No. 109  "Accounting  for Income
Taxes"  ("Statement  No. 109").  Statement No. 109 requires  companies to change
from the deferral method to the liability method of accounting for income taxes.
Statement No. 109 requires the  utilization,  if any, of the net operating  loss
carry-forwards  of the Company to be recorded as part of the regular  income tax
provision and not as an  extraordinary  item. The Company has adopted  Statement
No. 109 for periods after the fiscal year ended August 31, 1993.

     The  Company's  ability  to file a  consolidated  return and to use its net
operating loss carryovers from ATI and Castleview Capital Corp. to offset income
allocable to periods after a public offering is extremely limited. Under the Tax
Reform Act of 1986, the Company's  taxable income in any tax year ending after a
more than 50  percentage  point change in ownership  that can be offset by a net
operating loss carryover before such ownership change cannot exceed a prescribed
rate of the value if the Company's  stock on the date of ownership  change.  For
this purpose, except as may otherwise be provided in regulations,  the holder of
a  convertible  stock or  warrants  to  acquire  stock is  treated as owning the
underlying stock if such presumption would result in an ownership shift.

     In such case,  subsequent  exercise of a  convertible  stock or warrants is
disregarded.  Since the rule is applied on a warrant-by  warrant basis,  certain
convertible  securities  and warrants may be deemed  exercised  while others are
not.  Similar  rules apply to the  contingent  rights to acquire stock and other
similar interests.

                                      F-16
<PAGE>

     Deferred  income taxes are provided  for to reflect the  difference  in the
timing of  deductions  from  earnings for  financial  statements  and income tax
reporting and are primarily due to the use of accelerated  depreciation  methods
for income tax return purposes.

     Income tax  provision is  summarized  as follows for the years ended August
31, 1996 and 1995 (as restated, see Note 17).

                                                     August 31,
                                                 1996        1995

           Current                              14,160   $ 277,466
           Deferred                             88,536      (6,513)
                                                ------      -------

             TOTAL                           $ 102,696   $ 270,953
                                               =======     =======

                                                   August 31,
                                                  1996        1995

           Statutory Rates                         34%         34%
           Income Taxes at Statutory Rates   $ 186,899   $ 298,287
           Realization of Deferred Tax
           Benefit                             (70,261)    (75,759)
                                               116,638     222,528

           Income Tax Effects Related to the Following Items:

           Benefit from Accelerated 
           Depreciation                       (42,928)      (5,123)
           Non-deductible Items                28,986       53,548
                                               -------      -------
             TOTAL                          $ 102,696    $ 270,953
                                              =======      =======

           Effective Rate of Income Tax          36.2%       50.0%

           Components of Net Deferred Tax Asset:

             Deferred Tax Asset              $ 698,661   $ 768,922
             Deferred Tax Liability             86,255      70,261
                                               -------     -------
             Net Deferred Tax Asset          $ 612,406   $ 698,661
                                               =======     =======


                                      F-17
<PAGE>

(A)   See Note 7.


(B)   See Note 14.


(C)   Management Agreement - A. Tarricone Inc.

     The  Company   reimburses  ATI,  it's  former  parent  and   brother-sister
corporation  with the same majority  shareholders,  for certain monthly expenses
relating  to  clerical,  administrative,   accounting,  payroll,  and  insurance
expenses.  This  agreement is for fiscal years  subsequent  to the December 1992
spin off,  commencing  in December  1992,  and expiring on August 31, 1998.  The
agreement calls for the  reimbursement of the approximate  actual costs incurred
by ATI for such expenses in the amount of $30,000 per month. Such management fee
is accrued  monthly,  and  recorded as a reduction of the loan due from ATI (see
Note 7). For the years  ended  August 31,  1996 and 1995,  the  Company  accrued
$360,000 and $360,000, respectively, in connection with such expenses.

(D)   Terminal Operations

     The Company's  Alexander Street Terminal and Rockland Fuel Oil, Inc., which
provides  storage for retail and wholesale  distribution of fuel oil, diesel and
gasoline,  is operated by the Company's former parent, ATI, until such time that
the Company obtains its terminal  operator's  license from the State of New York
(see Note  13(C)).  The cost of these  services is  incorporated  in the cost of
product at $.0025 per gallon.  For the fiscal  years  ended  August 31, 1996 and
1995,  the  amounts  paid  to such  related  party  were  $38,671  and  $51,112,
respectively.


(E)   Royalty Agreement

     The Company entered into an agreement on September 1, 1993, whereby it pays
a royalty fee of $0.01 per gallon of gasoline  and diesel,  sold at the nineteen
(19)  retail gas  stations  it was  previously  leasing  from ATI.  The  Company
purchased  thirteen (13) of the station  leaseholds  from ATI (see Note 14), but
the royalty  agreement is still in force on all  nineteen  (19)  stations  until
August 31, 1998. As of March 1, 1996,  the Company  granted  warrants to ATI for
use of its trademark for 5 years,  subject to limitations based on sales volume.
These warrants were valued at $511,055,  which approximates the future value for
use of the  trademark  based  on past  compensation.  Amortization  for 1996 was
$50,405.  The royalty  fees  incurred for the fiscal years ended August 31, 1996
and 1995, inclusive of amortization, were $96,102 and $99,538, respectively.


                                      F-18
<PAGE>

(F)   Leases

     The  Company  had  entered  into a lease  agreement  with ATI,  whereby the
Company was to lease and operate one (1) retail gas station for a period of five
(5) years. The agreement became effective  September 1, 1993.  Subsequently,  on
February  28, 1995 and July 31, 1995 (see Note 14),  the  Company  acquired  the
underlying  lease in partial  satisfaction  of the  Company's  outstanding  Note
Receivable due from ATI (see Note 7).


Note 13 - COMMITMENTS AND CONTINGENCIES


(A)   Private Placements

     In June,  1993,  the  Company  entered  into a  letter  of  intent  with an
investment banker to provide financing in the amount of $500,000, in the form of
a private placement not requiring registration,  pursuant to Section 2(3) of the
Securities  Act of 1933,  as amended,  and SEC release  #33-929,  dated July 29,
1936.  The private  placement  consists of 20 units in the amount of $25,000 per
unit,  each unit  consisting of (i) a note payable in the amount of $25,000 with
interest  payable at 8% and (ii) 8,250 shares of restricted  Common Stock issued
from the  Company.  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 Company has  accounted  for the shares  issued in  connection  with the
private  placement notes in accordance with APB 14,  discounting the notes based
on the fair  value at $1.50  per  share.  The  amortized  interest  expense  for
Discount on Notes  Payable for the  periods  ended  August 31, 1996 and 1995 was
$12,363 and $125,337, respectively.

     Following is a summary of Private Placement activity from June 1993 through
August 31, 1996:

           Year Ended         Activity              Amount

           August 31, 1993    9 Units Sold        $ 225,000  
           August 31, 1994    12 Units Sold         300,000 
           August 31, 1995     2 Units Repaid       (50,000) 
           Aggregate  value of August 31, 1995:     475,000

           August 31,  1996    5 Units Repaid      (125,000)  
           August 31,  1996    3 Units Converted(i) (75,000)  
           August 31,  1996    3 Units  Amended(i)   46,462
           Aggregate value of August 31, 1996:    $ 321,462
      ------------------------


                                      F-19
<PAGE>

      (i)  On August 23, 1996, the Company converted three (3)
           Private Placement units valued at $92,852 ($75,000
           principle plus $17,851.61 accrued interest) which was
           split evenly with $46,426 converted to Common Stock and
           $46,426 representing principle balance of amended
           units, for a new aggregate amount of $321,462 as per
           above (see Note 8).
      ------------------------

     On April 11, 1994, the Company  registered  3,200,000  shares of its Common
Stock  for  sale by the  Company  upon  the  exercise  of its  then  outstanding
1,600,000  Class  A and  1,600,000  Class B  Redeemable  Common  Stock  Purchase
Warrants  (collectively,  the "Warrants").  The Warrants were distributed by the
Company  to  all  stockholders  of  record  in  connection  with  the  Company's
acquisition of HQP. As of August 11, 1994, the Company  redeemed all outstanding
Warrants at a price of .001 per Warrant redeemed.

     In light of the Company's  redemption of its  outstanding  Warrants,  it is
unclear when its obligation to make principal  payments on the Private Placement
notes will come due.  However,  the Company  acknowledges  an obligation to make
principal payments on the Private Placement notes and continues to maintain such
obligation on its balance sheet.

(B)   Employment Agreements

     The Company has entered into employment agreements with its President, Vice
President/Secretary,  and Vice  President/  Treasurer  for five year terms.  The
agreements provide for the following base compensation:

           Years          President   VP/Secretary  VP/Treasurer

           8/5/93-8/4/95$ 100,000       $ 75,000    $ 75,000

           8/5/95-8/4/97$ 125,000       $ 100,000   $ 100,000

           8/5/97-8/4/98$ 150,000       $ 125,000   $ 125,000

     Compensation  paid to the officers from 9/1/93 to 8/31/96 was less than the
amounts stated above.  However,  the officers  signed revised  agreements at the
beginning of each fiscal year through 8/31/96, waiving their right to additional
compensation.


(C)   Licenses Pending

     HQP's  principal  terminal  facility is  currently  operated by ATI pending
approvals of HQP's application with State of New York for a terminal  operator's
and diesel motor fuel license,  and the  applications of Rockland Fuel Oil, Inc.
("Rockland")  and White Plains Fuel, Inc.  ("WPF") for their  respective  diesel
motor fuel licenses.


                                      F-20
<PAGE>

     On October 6, 1995,  New York State  requested  that HQP,  Rockland and WPF
post certain bonds as a  prerequisite  to obtaining the foregoing  licenses.  On
October 25, 1995,  these bonds were obtained by the Company in  compliance  with
the  State's  request.  At  that  time,  management  believed  the  Company  had
substantially completed all steps necessary to receiving such licenses. However,
these licenses have not as yet been granted.  Management is awaiting approval of
these licenses, although there can be no assurances in this regard.


(D)   Litigation

     The Company is not party to any  litigation  which  individually  or in the
aggregate could  reasonably be expected to have a material adverse effect on the
Company.

Note 14 - ACQUISITIONS

(A)  On February 28, 1995 the Company acquired eight gas station  leaseholds
and one fee property  from its related party ATI (see Note 12).  These  stations
are located throughout the operating area of Company.
     
     The purchase price for the stations was as follows:

           1.Eight leaseholds (average additional
             years added to existing leases, 12 years)            $ 5,010,000

           2.One Fee Property                                         750,000
             Less:  Mortgages Assumed                                (637,176)
                                                                  $ 5,122,824

     This  acquisition  was  in  partial   satisfaction  of  the  existing  note
receivable due from ATI.

(B)  On June 8, 1995  the Company  purchased  the stock of  White Plains Fuel,
Inc. ("WPF"),  a diesel and fuel oil distributor  located in Hawthorne,  NY. The
aggregate  purchase  price  for the  stock  of WPF was $  1,064,169  payable  as
follows:

           168,020 shares of Series A 7.5% cumulative,
             convertible, redeemable preferred stock,
             $0.001 par value                                      $1,064,169

     Since the transaction  was accounted for as a purchase,  the purchase price
was allocated to the acquired assets based on their estimated fair market values
at acquisition,  with $124,000 allocated to property and equipment,  $167,342 to
accounts receivable,  $17,204 to inventory,  $1,060,179 to customer list, $1,555
to prepaid expenses, $1,702 to deferred income, and $307,813 to liabilities.


                                      F-21
<PAGE>

(C)   Effective  July 31, 1995,  the  Company  acquired  two leaseholds and two
leasehold  extensions from ATI, a related party (see Note 12). These  leaseholds
were  appraised by an  independent  appraiser  for $985,000,  on  aggregate.  In
consideration  of the transfer of the two gasoline  station  leaseholds  and the
additional  twenty year extension of two other  leaseholds,  the company forgave
$985,000 of the note receivable due from ATI.

(D)   The Company  acquired two  leaseholds from ATI, a related party, on March
22,  1996 and  November 1, 1995.  In  consideration  of the  transfer of the two
gasoline station leaseholds,  valued at $1,365,000 by an independent  appraiser,
the Company forgave $1,365,000 of the note receivable due from ATI.

Note 15 - PREFERRED STOCK

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

     The Preferred Stock at par value $0.001 per share,  bears a cumulative cash
dividend rate of $0.45 per annum,  payable  quarterly,  commencing June 8, 1995,
when, as 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. As the Preferred Stock is mandatorily  redeemable,  it is properly
listed above the equity section of the balance sheet.

     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


                                      F-22
<PAGE>

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  By-laws of the  Company and shall be entitled to vote with
holders of Common Stock together as a single class.

(B)   The  Company  has  issued  series  B,  8.0%  cumulative,  convertible,
Preferred Stock,  $0.001 par value ("Series B Preferred Stock").  The holders of
outstanding  shares of  Series B  Preferred  Stock  should  be  entitled  to the
following:

     The Preferred Stock at par value $0.001 per share,  bears a cumulative cash
dividend rate of $0.62 per annum,  payable  quarterly,  commencing May 31, 1996,
when, as and if declared by the board of directors of the Company. The Preferred
Stock  becomes  convertible  after July 15, 1996 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.

     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 by-laws
of the Company.

Note 16 - OPERATING LEASES

     The Company leases  facilities  under operating  leases expiring at various
times.

     Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of August 31, 1996 for each of the next
five years and in the aggregate are:

           August 31     Amount

             1997       577,517
             1998       586,517
             1999       577,566
             2000       579,560
             2001       578,588
                       --------
             Total  $ 2,899,748
                      =========



                                      F-23
<PAGE>

     Rent expense for 1996 and 1995 under  various  leases  amounted to $568,052
and $607,578, respectively.

Note 17 -  ERROR CORRECTION

(A)   On December 7, 1992,  ATI,  HQP's former  parent,  transferred  assets,
including HQP and Rockland customer lists and Rockland  equipment and assets, in
partial  satisfaction of its note due to the Company (see Notes 7 and 12(C)). In
accordance with Accounting  Interpretations No. 27 and 39 of APB 16 for entities
under  common  control,  the Company has  accounted  for this  transaction  as a
"similar to pooling"  combination  and properly  recorded  these assets at their
book values, totaling $84,676.

     For tax purposes,  however, these assets were recorded at their fair market
values totaling $2,479,998.

     The future tax benefit from the  difference  between book and tax treatment
gives rise to a deferred tax asset  calculated by multiplying this difference by
the tax rate to arrive at the deferred tax asset. This deferred tax asset arises
from a related party transaction and is therefore classified as Paid in Capital:

           Common Stock.

           Tax Basis of Assets Transferred                       $ 2,479,998
           Less Book Basis of Assets Transferred                      84,676

           Additional Future Depreciation for Tax Purposes         2,395,322

           Tax Rate                                                    41.1%

           Deferred Tax Asset/Paid in Capital: Common Stock      $   984,477

     Previously  the  difference  between  the Book Basis and Tax Basis was only
taken into consideration in calculating Deferred Tax Liability.

     This error,  resulting in the misstatements of previously  reported assets,
liabilities,  equity,  and  income  was  discovered  during  the  current  year.
Correction of this error resulted in changes  previously  reported net income as
follows:

                      Year              (Decrease)
                      ----              ----------
                     8/31/93          $ (25,589)
                     8/31/94            (21,276)
                                         ------

                     Cumulative Effect  (46,865)
                     8/31/95            (10,063)

                     Cumulative Effect$ (56,928)



                                      F-24
<PAGE>

     The August 31, 1995 consolidated  statement of operations has been restated
for the effect of  correcting  this error.  The following  schedule  details the
nature and amount of each error:

        Omission of Deferred Tax Asset (Paid in Capital)         $ 984,447

        Reclassification of Deferred Income Tax Liability         (211,387)

        Understatement  of Deferred  Income Tax Liability 
        (See above for effects in prior period income)             (56,928)

        Net Deferred Tax Asset at 8/31/95                        $ 716,162

(B)   In accordance  with comments  received  from the  Securities  and Exchange
      Commission,  the August 31, 1996 and 1995 financial  statements  have been
      restated as follows:

     1. The  previously  issued  August 31,  1995  income  statement  improperly
included sales, cost of sales, and selling,  general and administrative expenses
of newly  acquired WPF from  September 1, 1994 through June 8, 1995, the date of
acquisition.  The net effect of this change after taxes, $13,829, was improperly
included in the  calculation of acquired  liabilities,  which have been restated
(see Note 14(B)).  Eliminations from the August 31, 1995 income  statement,  and
the related valuation adjustment to the WPF purchase are as follows:

           Eliminations

           Sales                    $ 1,598,406
           Cost of Sales                914,224
           Selling, General and
             Administrative Expenses    661,133
           Net Income Before Taxes       23,049
           Provision for Taxes            9,220
           Net Income                    13,829

           Valuation Adjustment

           WPF Purchase Price as
             previously reported      1,050,340

           WPF Purchase Price as
             Restated (see Note 14(B))$ 1,064,169

      2.   The value of  redeemable  preferred  stock  issued to acquire WPF has
           been  revalued  as per above,  and  properly  reclassified  above the



                                      F-25
<PAGE>

           equity section of the balance  sheet,  and thus  eliminated  from the
           Consolidated Statement of Stockholder's Equity.

      3.   An  additional  footnote has been  provided (see Note 20) showing the
           calculation of Earnings Per Share ("EPS").  The EPS amounts have been
           restated  because  previously  reported amounts had not been adjusted
           for the effect of declared and  undeclared  dividends  on  cumulative
           preferred stock.

      4.   The Statement of Cash Flows has been restated for the
           following:

           Proceeds from Capital  Contribution and changes in Cash Overdraft are
           now classified as financing activities.

           The  Supplemental   Schedule  of  Non-cash  Investing  and  Financing
           Activities  now  includes a reference  to the  issuance of  preferred
           stock to acquire WPF.

      5.   Rental Income,  previously listed with Other Income And (Expenses) in
           the Consolidated Statement of Operations, has been renamed Net Rental
           Expense  (Income)  and has been  properly  listed  above  Income From
           Operations.  Also moved above  Income From  Operations  were Bad Debt
           Expense and Royalty Fee.

      6.   A paragraph is added to Note 11 to disclose  separately the asset and
           liability components of Net Deferred Tax Asset.

      7.   The first  sentence  of Note 13(A) now  includes a  reference  to the
           specific exemption relied upon for this private placement.

      8.   The last  sentence  of Note  13(B)  has  been  reworded  to  properly
           indicate that the waiving of compensation under employment agreements
           occurred at the beginning of each fiscal year.

      9.   The last  sentences  of Note 14 (C) and (D) now  include  information
           showing the independent  appraisals of leaseholds  transferred from a
           related  party,  to  support  subsequent  reductions  of the  related
           party's note  receivable  in the same  amounts,  with no gain or loss
           recognized.

      10.  The  first  sentence  of  Note  15(B)  describing   "series  B,  8.0%
           cumulative,  convertible,  Preferred  Stock",  now properly omits the
           word  "redeemable"  as this issue is only  redeemable by the Company,
           and not the
           shareholders.

      11.  The segment information  disclosed in Note 18 for August 31, 1995 has
           been  adjusted for the  elimination  of WPF sales and expenses  (Note
           17(B)(1)).


                                      F-26
<PAGE>

Note 18 - SEGMENT INFORMATION

      The Company's  operations were classified into three business  segments as
      follows:

                    Year Ending August 31, 1996

                         Fuel Oil    Propane      Gasoline   Consolidated

      Net Sales        $ 5,756,345 $ 2,577,093   $ 6,978,822 $ 15,312,260
                         =========  =========      =========   ==========

      Gross Profit       1,455,358   1,513,914     1,608,788    4,578,060
      Operating Expenses 1,173,590     986,134     1,557,400    3,717,124
      Depreciation and
      Amortization         135,968     117,985       425,889      679,842
      Operating Income   $ 145,800  $  409,795    $ (374,501)   $ 181,094
      Capital 
      Expenditures       $ 132,550  $  385,599    $ 1,403,864  $1,922,013
      Assets            $2,607,462  $1,841,191    $10,659,517 $15,108,170

      Corporate Assets                                          4,157,131
      Total Assets                                           $ 19,265,301


                    Year Ending August 31, 1995
    
                        Fuel Oil    Propane      Gasoline    Consolidated

      Net Sales       $ 4,861,869 $ 2,290,658  $ 8,022,032   $ 15,174,559
                        =========   =========    =========     ==========

      Gross Profit      1,026,274   1,397,289    1,691,650      4,115,213
      Operating Expenses  795,222     953,147    1,658,645      3,407,014
      Depreciation and
      Amortization         90,310      45,155      316,086        451,551
      Operating Income  $ 140,742 $   398,987   $ (283,081)     $ 256,648
      Capital 
      Expenditures      $ 298,334 $   330,765   $ 6,919,335   $ 7,548,434
      Assets          $ 2,448,098 $ 1,539,286   $ 9,362,638  $ 13,350,022

      Corporate Assets                                          1,937,893
      Total Assets                                           $ 15,287,915

      Sales by segment include sales to unaffiliated customers and inter-segment
      sales. Retail prices are used to report inter-segment sales.

      Operating  income is total revenue less operating  expenses,  and excludes
      general corporate expenses, interest expense and income taxes.


                                      F-27
<PAGE>

      Identifiable  assets  are  those  used by each  segment  of the  Company's
      operations.  Corporate  assets are primarily cash and note receivable from
      related party (see Note 7).



Note 19 - DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL
      INSTRUMENTS.

      Cash, Accounts Receivable, Rent Receivable, Other
      Receivables, Other Current Assets, Working Capital
      Borrowings, Accounts Payable, and Accrued Expenses.

     The carrying amount  approximates  fair value because of the short maturity
of these instruments.

      Notes Receivable, Private Placement Notes, Long-Term Notes.

     The fair values of each of the Company's long-term  financing  instruments,
including  current  maturities,  are based on the  amount of future  cash  flows
associated  with  each  instrument,   discounted  using  the  Company's  current
borrowing rate for similar instruments of comparable maturity.

     The estimated fair value of the Company's non-trading financial instruments
are summarized as follows:

                                             Carrying       Estimated
                                              Amount        Fair Value

           At August 31, 1995

           Note Receivable                   $ -0-          $ -0-
           Note Receivable - Related Party   1,192,386      1,150,652
           Private Placement Notes             462,637        462,637
           Long Term Debt                    2,776,383      2,672,268

           At August 31, 1996

           Note Receivable                    $ 80,000       $ 78,800
           Note Receivable - Related Party   1,355,576      1,308,131
           Private Placement Notes             321,426        321,426
           Long Term Debt                    2,633,367      2,490,521

      Limitations

     Fair  value  estimates  are made at a  specific  point  in  time,  based on
relevant  market  information and  information  about the financial  instrument.
These estimates are subjective in nature and involve  uncertainties  and matters
of  significant  judgment and  therefore  cannot be determined  with  precision.
Changes in assumptions could significantly affect the estimates.


                                      F-28
<PAGE>

Note 20 - Earnings Per Share

     The  following  table sets forth the  computation  of Net Income per common
share, as contained in the  Consolidated  Statements of Operations for the years
ended August 31, 1996 and 1995.

                                                 August 31,
                                              1996      1995

           Net Income                        181,094   256,648

           Preferred Stock Dividends:
           Declared                          (76,366)  (12,601)
           Undeclared (cumulative)           (87,942)      -0-
           Undeclared
           Net Income applicable to
           common shares                      16,786   244,047

           Divided by:
           Weighted average of Common
           Stock outstanding                3,416,473 3,061,418

           Earnings Per Share                $ 0.00    $ 0.08
                                               ====      ====


Note 21 - SUBSEQUENT EVENTS


(A)   Acquisition:

      On September 4, 1996,  the Company  acquired the assets of Dino Oil, Inc.,
      in  consideration  for which it paid  $100,000 and issued 200,00 shares of
      its $.001 par value stock, restricted under Rule 144 of the Securities and
      Exchange Act of 1933.


(B)   Pending Delisting:

      The  Company has been  notified by NASDAQ of the failure of the  Company's
      Common Stock to comply with its minimum bid price requirement, which is to
      maintain a closing  inside bid price  greater than or equal to $1.00 for a
      period of ten consecutive trade dates. The Company will be provided ninety
      calendar days (to February 14, 1997) in which to either regain  compliance
      with the  minimum bid price  requirement  or the  alternative  requirement
      (i.e.,  that the Company's  capital and surplus equal or exceed $2,000,000
      and the market  value of the public  float of the  Company's  Common Stock
      equal or exceed $1,000,000,  for ten consecutive trading days prior to the
      end of such ninety day  period).  If the Company is unable to  demonstrate
      compliance  with at  least  one of the  foregoing  requirements  prior  to
      February  14,  1997,  it must  submit a  proposal  by that  same  date for
      achieving compliance.  If the Company fails by February 14, 1997 to either
      achieve compliance or fails to submit a proposal for achieving compliance,
      NASDAQ would consider delisting the Company's Common Stock on NASDAQ Small
      Cap Market.


                                      F-29
<PAGE>


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 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

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.*

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

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

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

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

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

10.10 ATI Purchase Agreements**

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

21.1   Subsidiaries of the Small Business Issuer**

24.1  Consent of Goldman & Murphy, LLP
---------------------------
*     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's Quarterly Report on Form 10-QSB
      filed with the SEC July 15, 1996.
                    --------------------------

(b)   Reports on Form 8-K - None.

                                      F-30
<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 14, 1997           Halstead Energy Corp.

                               By:  /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                                    January 14, 1997
 OFFICER:

/s/ Claire E. Tarricone             President          January 14, 1997
Claire E. Tarricone

PRINCIPAL FINANCIAL
 AND ACCOUNTING OFFICER:

/s/ Joseph A. Tarricone             Vice President and
Joseph A. Tarricone                 Treasurer          January 14, 1997

DIRECTORS:

/s/ Claire E. Tarricone             Director
Claire E. Tarricone                                    January 14, 1997

/s/ Anthony J. Tarricone            Director
Anthony J. Tarricone                                   January 14, 1997

/s/ Joseph A. Tarricone             Director
Joseph A. Tarricone                                    January 14, 1997

/s/ Edwin Goldwasser                Director
Edwin Goldwasser                                       January 14, 1997



                                      F-31
<PAGE>






                                                       EXHIBIT 24.1

                   CONSENT OF INDEPENDENT ACCOUNTANTS




      The Board of Directors
      Halstead Energy Corp.

      We consent to the use of our report  included  herein and to the reference
      to our firm under the heading "Experts" in the annual form 10KSB.

      GOLDMAN & MURPHY, L.L.P.
         /s/ Goldman & Murphy, LLP

      Valley Stream, New York
      October 10, 1997


                                      F-32