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

                                    FORM 10-Q

[x]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

         For the quarterly period ended  September 30, 1996

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934

         For the transition period from _____________  to _____________

                         Commission file number 1-10376

                          EDISTO RESOURCES CORPORATION
             (Exact name of registrant as specified in its charter)

              Delaware                                 54-0883077
   (State or other jurisdiction of                (I.R.S. Employer
   incorporation or organization)                Identification No.)

                        10375 Richmond Avenue, Suite 300
                              Houston, Texas 77042
               (Address of principal executive offices) (Zip Code)



Registrant's telephone number, including area code:           713/782-0095



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X        No

     APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
                       THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Sections 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                Yes  X                                   No


         At October  31,  1996,  there were  13,850,552  shares of Common  Stock
outstanding.







                                                                   1

<PAGE>



                          EDISTO RESOURCES CORPORATION

                          Quarterly Report on Form 10-Q
                    for the Quarter Ended September 30, 1996

                                      INDEX

I.       FINANCIAL INFORMATION

         Item 1.  Financial Statements of Edisto Resources Corporation:

                  Consolidated Balance Sheets...............................3-4

                  Consolidated Statements of Operations.......................5

                  Consolidated Statement of Stockholders' Equity..............6

                  Consolidated Statements of Cash Flows.......................7

                  Notes to the Consolidated Financial Statements..............8

         Item 2.  Management's Discussion and Analysis of Financial Condition
                    and Results of Operations................................16

II.      OTHER INFORMATION

         Item 1.  Legal Proceedings..........................................25

         Item 6.  Exhibits and Reports on Form 8-K...........................25

         Signatures .........................................................26

                                           2

<PAGE>



                          EDISTO RESOURCES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (Unaudited)

                                     ASSETS



                                                   September 30,    December 31,
                                                        1996             1995

Current assets:
  Cash and cash equivalents ..................       $  46,538        $  33,364
  Restricted cash ............................           1,217              333
  Assets from risk management
     activities ..............................          13,815           19,076
  Accounts receivable:
    Gas marketing ............................          96,321           71,041
    Oil and gas production ...................           3,262            3,229
    Affiliates ...............................              50             --
    Other ....................................             732              450
  Storage inventory ..........................           4,212            5,437
   Other current assets ......................           2,813            3,114
                                                     ---------        ---------

     Total current assets ....................         168,960          136,044

Property and equipment:
  Oil and gas properties using the
    successful efforts method
    of accounting ............................         116,026          115,250
  Other ......................................           4,467            2,985
                                                     ---------        ---------
                                                       120,493          118,235

  Less - accumulated depreciation
   and depletion .............................         (62,387)         (51,418)
                                                     ---------        ---------
                                                        58,106           66,817


Investments ..................................             213              242
Other assets .................................           3,354            2,890
                                                     ---------        ---------

                                                     $ 230,633        $ 205,993
                                                     =========        =========




    See the accompanying notes to the consolidated financial statements.







                                        3

<PAGE>



                          EDISTO RESOURCES CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                   (Unaudited)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                    September 30,  December 31,
                                                        1996          1995

Current liabilities:
  Current maturities of long-term debt ..........   $     308    $   1,796
  Accounts payable:
    Gas marketing ...............................      99,749       69,067
    Oil and gas production ......................      10,140        9,609
  Accrued liabilities and other .................      12,825       10,568
  Liabilities from risk management activities ...       1,095        4,686
  Deferred revenue ..............................       2,120        2,590
                                                    ---------    ---------

     Total current liabilities ..................     126,237       98,316

Long-term liabilities:
  Long-term debt, net of current maturities .....       8,530       17,635
  Deferred revenue ..............................         573          691
  Minority interest .............................       9,339        9,092
  Other noncurrent liabilities ..................       8,383       12,731
                                                    ---------    ---------
                                                       26,825       40,149

Commitments and contingencies

Stockholders' equity:
  Common stock, $.01 par value, 50,000,000 shares
  authorized,  13,902,766 issued
  at September 30, 1996 and 12,977,960 at
  December 31, 1995 .............................         139          130
  Additional paid-in capital ....................      70,488       61,528
  Retained earnings .............................       7,391        6,154
  Foreign currency translation ..................         (85)         (95)
  Treasury stock, at cost, 52,214 shares at
   September 30, 1996
  and 23,714 shares at December 31, 1995 ........        (362)        (189)
                                                    ---------    ---------
        Total stockholders' equity ..............      77,571       67,528
                                                    ---------    ---------

                                                    $ 230,633    $ 205,993
                                                    =========    =========



        See the accompanying notes to the consolidated financial statements.

                                        4

<PAGE>

<TABLE>


                          EDISTO RESOURCES CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)
<CAPTION>


                                           Nine Months   Nine Months Three Months  Three Months
                                             Ended           Ended       Ended        Ended
                                         September 30,  September 30, September 30, September 30,
<S>                                      <C>            <C>          <C>          <C> 
                                              1996           1995         1996         1995
Revenues:
  Gas marketing ..........................   $ 541,510    $ 271,811    $ 191,919    $  95,770
  Oil and gas production .................      33,634       38,138       11,601       11,670
  Energy trading .........................        --            344         --            559
                                             ---------    ---------    ---------    ---------
                                               575,144      310,293      203,520      107,999
                                             ---------    ---------    ---------    ---------
Costs and expenses:
  Gas purchases ..........................     535,349      270,071      191,264       94,950
  Lease operating and production taxes ...      12,064       14,451        3,578        4,318
  Abandonment and exploration costs ......       1,724        1,274          803          159
  Depreciation, depletion and amortization      12,966       16,680        4,629        5,309
  Impairment of oil and gas properties ...       1,120         --           --           --
  General and administrative .............      11,990       11,105        4,585        3,580
                                             ---------    ---------    ---------    ---------
                                               575,213      313,581      204,859      108,316
                                             ---------    ---------    ---------    ---------
       Operating (loss) ..................         (69)      (3,288)      (1,339)        (317)
                                             ---------    ---------    ---------    ---------

Other income (expense):
  Interest income ........................       1,718        2,743          468          787
  Interest expense .......................        (962)      (1,669)        (246)        (463)
  Equity in earnings of affiliates .......         372          226          108           37
  Gain (loss) on asset sales .............       1,167         (510)        --           (218)
  Minority interest ......................        (679)        (380)        (300)         (34)
  Other, net .............................          71          377         (286)          87
                                             ---------    ---------    ---------    ---------
                                                 1,687          787         (256)         196
                                             ---------    ---------    ---------    ---------

Income (loss) before income taxes ........       1,618       (2,501)      (1,595)        (121)
Preacquisition loss of subsidiary ........        --          1,478         --           --
Income tax (provision) benefit ...........        (381)        (856)        (111)        (334)
                                             ---------    ---------    ---------    ---------

Income (loss) from continuing operations .       1,237       (1,879)      (1,706)        (455)
                                             ---------    ---------    ---------    ---------

Discontinued operations:
  Gain on sale of transmission operations         --          2,557         --           --
  Gain on sale of manufacturing operations        --          3,824         --           --
                                             ---------    ---------    ---------    ---------
    Net income (loss) ....................   $   1,237    $   4,502    $  (1,706)   $    (455)
                                             =========    =========    =========    =========

Net income (loss) per common share:
   Continuing operations .................   $     .09    $    (.14)   $    (.12)   $    (.04)
   Discontinued operations ...............        --            .49         --           --
                                             ---------    ---------    ---------    ---------
   Net income (loss) per common share ....   $     .09    $     .35    $    (.12)   $    (.04)
                                             =========    =========    =========    =========


Weighted average common shares
   outstanding ...........................      13,408       12,954       13,846       12,954
                                             =========    =========    =========    =========
<FN>

        See the  accompanying  notes to the consolidated financial statements.
</FN>
</TABLE>

                                                                 5

<PAGE>


<TABLE>


                          EDISTO RESOURCES CORPORATION
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                 (in thousands)
                                   (Unaudited)

<CAPTION>



                                 Number of        Additional                Foreign
                                 Common    Common   Paid-In     Retained    Currency   Treasury
                                 Shares     Stock   Capital     Earnings   Translation   Stock      Total
<S>                             <C>       <C>        <C>        <C>       <C>         <C>        <C>

Stockholders' equity,
  December 31, 1995 ........     12,978   $    130   $ 61,528   $  6,154   $    (95)   $   (189)   $ 67,528
Net income .................       --         --         --        1,237       --          --         1,237
Repurchase of common
shares .....................       --         --         --         --         --          (173)       (173)
Exercise of warrants .......        918          9      8,932       --         --          --         8,941
Exercise of options ........          7       --           28       --         --          --            28
Foreign currency translation       --         --         --         --           10        --            10
                               --------   --------   --------   --------   --------    --------    --------

Stockholders' equity,
  September 30, 1996 .......     13,903   $    139   $ 70,488   $  7,391   $    (85)   $   (362)   $ 77,571
                               ========   ========   ========   ========   ========    ========    ========




<FN>

        See the  accompanying  notes to the consolidated financial statements.
</FN>
</TABLE>

                                        6

<PAGE>



                          EDISTO RESOURCES CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (Unaudited)


                                                      Nine Months   Nine Months
                                                        Ended          Ended
                                                     September 30, September 30,
                                                          1996          1995
Cash flows from operating activities:
    Net income .........................................   $  1,237    $  4,502
    Adjustments to reconcile net income to net cash
      provided (used) by operating activities:
    Depreciation, depletion and amortization ...........     12,966      13,145
    Abandonments and exploration costs ...... ..........      1,568         993
    Impairment of oil and gas properties ...............      1,120        --
    Gains on sales of assets ...........................     (1,167)     (5,871)
    Equity in income of affiliates .....................       (372)       (225)
    Minority interest expense ..........................        679         379
    Other ..............................................       (186)       --
    Changes in assets and liabilities:
      Accounts receivable and inventory ................    (17,899)    (20,021)
      Accounts payable and accrued liabilities..........     23,845       8,944
      Other ............................................       (225)     (1,843)
                                                            --------    --------
         Net cash provided by operating activities .....     21,566           3
                                                            --------    --------

Cash flows from investing activities:
  Net proceeds from sales of assets, including
 discontinued operations                                      2,955      72,037
  Sale (Purchase) of assets from risk management activities   1,022      (2,187)
  Investment in subsidiaries .......................... .      (419)        716
  Acquisition, exploration and development costs ........    (9,000)     (9,273)
  Payments from affiliates .............................        412        --
  Purchase of other noncurrent assets ..................       (760)     (2,735)
                                                            --------    --------
        Net cash provided (used) by investing activities     (5,790)     58,558
                                                            --------    --------
Cash flows from financing activities:
  Borrowings on long-term debt ..........................     3,318       2,075
  Payments on long-term debt and capital leases .........   (13,842)    (57,470)
  Repurchase of common shares ...........................      (173)       --
  Stock issue on exercise of warrants and options .......     8,969        --
  Currency translation ..................................        10          14
                                                           --------    --------
        Net cash (used) by financing activities .........    (1,718)    (55,381)
                                                           --------    --------

Net increase in cash and cash equivalents ...............    14,058       3,180
Cash and cash equivalents, including restricted cash,
  at beginning of period ...............................     33,697      41,083
                                                            --------    --------
Cash and cash equivalents, including restricted cash,
  at end of period .....................................   $ 47,755    $ 44,263
                                                            ========    ========

SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
  Interest .............................................   $  1,333    $    379
                                                           ========    ========
  Taxes ................................................   $    438    $    848
                                                           ========    ========

    See the accompanying notes to the consolidated financial statements.

                                        7

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995

(1)     Organization and Summary of Significant Accounting Policies

Organization and Presentation

        The accompanying  consolidated financial statements include the accounts
of Edisto  Resources  Corporation,  a Delaware  corporation  ( the  "Company" or
"Edisto"), and its wholly and majority owned subsidiaries.  The Company conducts
its  consolidated  activities  through  two lines of  business:  (i) natural gas
marketing,  and (ii) oil and gas exploration  and production  which is conducted
through a 73% interest in Convest Energy Corporation ("Convest"), an independent
oil and gas  exploration  and  production  company  listed on the American Stock
Exchange. Edisto owns 7,598,771 shares of Common Stock of Convest.

     Prior to March 1996,  the  Company  conducted  its  natural  gas  marketing
operations  through  four  wholly  owned  subsidiaries.  In March  1996,  Edisto
consolidated its domestic gas marketing  operations into one subsidiary,  Energy
Source,  Inc.  ("Energy  Source").   Accordingly,   Vesta  Natural  Gas  Company
("Vesta"),  Vesta  Energy  Company  ("Vesta  Energy") and Energy  Trading,  Inc.
("Energy Trading"), subsidiaries of Edisto, have been merged into Energy Source.
In connection with the consolidation,  Energy Source Canada, Inc. (formerly Enex
Gas, Ltd.),  and Energy Source Power,  Inc., also  subsidiaries of Edisto,  have
become  wholly owned  subsidiaries  of Energy  Source.  Prior to  acquiring  its
interest in Convest,  the Company  conducted its oil and gas activities  through
Edisto Exploration & Production Company ("Edisto E&P"). See Note 3 "Acquisitions
- Convest Energy Corporation."

        References to "Energy Source" shall refer to the Company's  wholly owned
gas  marketing  subsidiaries,  without  Convest.  References to the "Company" or
"Edisto" shall refer to Edisto Resources Corporation and all of its consolidated
subsidiaries,  including Convest. References to "Convest" shall refer to Convest
and the oil and gas activities  conducted  through Edisto E&P prior to acquiring
the interest in Convest.

        Edisto conducted gas  transmission  activities  through  subsidiaries of
Vesta from July 1990  through  the first  quarter of 1994 when Vesta  executed a
definitive  agreement to sell its intrastate natural gas pipeline.  The sale was
subject to  regulatory  approval and was closed in January  1995. In March 1994,
Edisto's 80% subsidiary,  Multiflex  International,  Inc., sold all the stock of
its operating subsidiaries to Oceaneering International, Inc., at which time the
corporate  name  was  changed  to MINT  Holding  Company  ("MINT").  See  Note 4
"Discontinued  Operations" for a discussion of both the sale of the pipeline and
the MINT subsidiaries.

        On October 26,  1992,  Edisto and certain of its  affiliates,  including
Edisto E&P, filed voluntary petitions under Chapter 11 of the Bankruptcy Code in
the U. S.  Bankruptcy  Court for the  District of  Delaware.  On June 29,  1993,
Edisto's  plan of  reorganization  became  effective,  and Edisto  substantially
consummated its restructuring. Edisto's financial statements have been presented
in conformity with the AICPA's Statement of Position 90-7,  "Financial Reporting
By Entities In Reorganization  Under the Bankruptcy  Code",  issued November 19,
1990 ("SOP  90-7").  In  accordance  with SOP 90-7,  Edisto  adopted fresh start
reporting  as of  June  30,  1993,  which  provides  for the  allocation  of the
reorganization  value of the entity among the reorganized Edisto's assets on the
basis of the purchase method of accounting.

        The  accompanying  unaudited  interim  financial  statements  have  been
prepared  pursuant to the rules and  regulations  of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial  statements  prepared in accordance with generally accepted accounting
principles  have  been  condensed  or  omitted   pursuant  to  those  rules  and
regulations. In the opinion of management, the accompanying financial statements
include all adjustments, which are of a normal recurring nature, necessary for a
fair statement of the Company's financial position and operating results for the
interim periods  presented.  Interim  results are not necessarily  indicative of
those for a full year.  These  interim  financial  statements  should be read in
conjunction with Edisto's audited financial  statements,  and footnotes thereto,
which are  included  in Edisto's  Annual  Report on Form 10-K for the year ended
December 31, 1995, filed with the Securities and Exchange Commission.

Summary of Significant Accounting Policies

        Cash and Cash Equivalents. Cash equivalents consist of short-term highly
liquid  investments  which are readily  convertible  into cash and have original
maturities of three months or less. At September 30, 1996,  the Company had cash
and cash equivalents, including restricted cash, of approximately $47.8 million.

     Restricted Cash. Restricted cash of $0.9 million at Energy Source consisted
of funds held as collateral for letters of credit.

     Risk  Management.  "Assets from Risk  Management  Activities" are primarily
cash  on  deposit  with  established  brokerage  firms  and  counterparties.  At
September  30, 1996 and  December  31,  1995,  the Company had "Assets from Risk
Management  Activities"  of  $13.8  million  and  $19.1  million,  respectively.
Periodically,  Edisto  enters into  financial  instruments  to hedge against the
volatility  of  natural  gas and oil  prices.  The  hedging  objectives  include
assurance of stable and known minimum cash flows and fixed favorable prices. The
hedges are  effected  through  the sale and  purchase of futures  contracts  and
options on the New York Mercantile Exchange
                                        8

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


and price swap agreements with major financial institutions and companies. Gains
or losses on the hedging  agreements  are deferred and  recognized in either oil
and gas production revenues or gas marketing revenues, as appropriate,  when the
hedged  transaction  occurs, and are recorded as revenue or expense in the month
for which the hedged transaction is completed.

        Net Income Per Share.  Income  (loss) per share is based on the weighted
average  number of  common  shares  outstanding.  The  effect  of  common  share
equivalents was not dilutive for 1996 or 1995.

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

        Concentration of Credit Risk.  Edisto's oil and gas revenues are derived
principally  from  uncollaterallized  sales  to  customers  in the  oil  and gas
industry.  The  concentration  of credit risk in a single  industry  affects the
Company's  overall  exposure to credit risk because  customers  may be similarly
affected by changes in economic and other conditions. Edisto has not experienced
significant credit losses on receivables from such sales.

        Reclassifications and Consolidation. Certain reclassifications have been
made  to  the  1995  consolidated   financial   statements  to  conform  to  the
presentation  for 1996. All significant  intercompany  balances and transactions
have been eliminated.

Convest Energy Corporation

        Restricted Cash. Restricted cash of $0.3 million at Convest consisted of
certificates of deposit held by various financial institutions. The certificates
of deposit are held in escrow as collateral for letters of credit issued for (i)
lease payments on certain  offshore  platforms and (ii)  estimated  plugging and
abandonment  costs  expected  to be  incurred  on  certain  onshore  oil and gas
properties.  Restricted  cash is  included in cash and cash  equivalents  in the
accompanying consolidated statements of cash flows.

        Abandonment Reserve.  Convest records its estimate of future abandonment
costs of offshore properties,  and accrues such costs using a unit-of-production
method based upon estimated proved recoverable  reserves.  Abandonment costs are
estimated  under  current  regulations  using  current  costs  and are  reviewed
periodically  and adjusted as new  information  becomes  available.  Abandonment
costs on onshore  properties  are typically  nominal due to the salvage value of
well  equipment,  and  accordingly,   the  Company  does  not  provide  for  the
abandonment of its onshore properties.

        Upon  emerging from  bankruptcy in July 1993,  Edisto E&P entered into a
settlement  with the United  States  Minerals  Management  Service  relating  to
estimated  plugging  and  abandonment  costs for 14 Gulf of Mexico OCS leases in
which Edisto E&P owned interests.  Pursuant to this settlement,  the operator of
the leases, Edisto E&P and other co-lessees are required to provide security for
payment of such costs through  quarterly  payments to an Abandonment Fund. As of
September  30,  1996  and  December  31,  1995,  Convest  was  subject  to total
Abandonment Fund payments of $4.3 million.

        As of  September  30,  1996 and  December  31,  1995,  Convest  had made
payments  totaling  $4.2  million  and $3.7  million  to the  Abandonment  Fund,
respectively. These payments were applied to Convest's total abandonment reserve
of $10.1  million and $10.8  million,  as of September 30, 1996 and December 31,
1995,  respectively,  resulting in a net abandonment reserve of $5.9 million and
$7.1 million as of those dates.  The current portion of the abandonment  reserve
was $2.2 million and  $556,000 as of  September  30, 1996 and December 31, 1995,
respectively.  The  current  portion of the  abandonment  reserve is included in
"Accrued Liabilities and Other" and the noncurrent portion is included in "Other
Noncurrent Liabilities" in the consolidated financial statements.

        Lease  Operating  Expenses.  In  connection  with a 1992 sale of certain
future production  volumes of oil to Enron Reserve  Acquisition  Corp.,  Convest
established  a reserve for the  expenses  associated  with the volumes  sold and
amortizes  this reserve as the volumes are  delivered.  As of September 30, 1996
and December 31, 1995, the current  balance of this reserve was $1.3 million and
$1.8 million,  respectively, and the long-term balance was $4.2 million and $4.6
million,  respectively,  and are included in "Accrued Liabilities and Other" and
"Other Noncurrent Liabilities," in the consolidated financial statements.

        Gas Balancing.  Convest uses the  entitlements  method of accounting for
gas  imbalances.  Receivables  resulting  from  undertakes of gas  production at
September  30, 1996 and December  31, 1995 were $2.3  million and $1.4  million,
respectively.  The current portion of these receivables is included in "Accounts
Receivable - Oil and Gas  Production"  and the long-term  portion is included in
"Other Assets" in the consolidated  financial  statements.  Deferred revenue and
payables resulting from overtakes of gas production at

                                        9

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


September 30, 1996 and December 31, 1995 were $2.7 million,  and are included in
"Deferred Revenue" in the consolidated financial statements.

        Property and Equipment. Convest follows the successful efforts method of
accounting  for  its  oil  and  gas  properties.   Costs  of  productive  wells,
developmental drilling expenditures,  including dry holes, and productive leases
are  capitalized and amortized by lease on a  unit-of-production  basis over the
life of the remaining proved  reserves.  Exploratory  drilling costs,  including
stratigraphic test wells, are initially  capitalized,  but charged to expense if
the well is  determined  to be  unsuccessful.  Gas is  converted  to  equivalent
barrels of oil on an energy  content  basis of six Mcf of gas per barrel of oil.
Oil and gas leasehold costs are capitalized when incurred.  Unproved  properties
are assessed  periodically  on a  property-by-property  basis and impairments in
value are charged to expense.  Exploratory  expenses,  including  geological and
geophysical  expenses  and  annual  delay  rentals,  are  charged  to expense as
incurred.

        In the fourth quarter of 1995,  Convest  adopted  Statement of Financial
Accounting   Standards  No.  121  ("SFAS  121")  regarding  accounting  for  the
impairment  of  long-lived  assets.  SFAS 121  requires  Convest to recognize an
impairment  loss for its proved oil and gas  properties if the carrying value of
such properties (i.e., total capitalized costs less accumulated depreciation and
depletion)  exceeds the undiscounted  expected future cash flows attributable to
such  properties.  Under SFAS 121, Convest must regularly assess the need for an
impairment   of   capitalized   costs   of  oil   and   gas   properties   on  a
property-by-property  basis. If an impairment is indicated based on undiscounted
expected future cash flows,  then an impairment loss is recognized to the extent
that net capitalized costs exceed discounted expected future cash flows.

        The Company's  SFAS 121  evaluation for the second and third quarters of
1996 was prepared using the Company's 1995 year end reserve  estimates  adjusted
for  production  and other known changes  subsequent to the  preparation  of the
Company's  year end  reserve  estimates.  As a result  of this  evaluation,  the
Company  determined that an offshore  property had less reserves than previously
estimated.  Accordingly, the Company recorded an impairment loss on the property
of  approximately  $1.1  million  during  the  second  quarter  of 1996 based on
production  problems  encountered  during the  period.  No  impairment  loss was
recorded during the third quarter of 1996.

        Fixed assets are  depreciated  using the  straight-line  method over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the  straight-line  method  over  the  lesser  of the  term of the  lease or the
estimated useful lives of the improvements.



                                       10

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


(2)     Business Segment Information
     The Company conducts its activities through two lines of business:  natural
gas marketing and oil and gas exploration and production.


                           Consolidating Balance Sheet
                               September 30, 1996
                                 (in thousands)
<TABLE>
<CAPTION>


                                                           Edisto Gas
                                                           Marketing &  Consolidating    Edisto
                                                  Convest   Corporate    Adjustments  (Consolidated)
<S>                                            <C>         <C>           <C>         <C>   
ASSETS:
  Cash and cash equivalents .................   $   4,605   $  43,150    $    --      $  47,755
  Assets from risk management activities ....         817      12,998         --         13,815
  Storage inventory .........................        --         4,212         --          4,212
  Accounts receivable .......................       5,823      97,082       (2,540)     100,365
  Other current assets ......................       1,748       1,065         --          2,813
                                                ---------   ---------    ---------    ---------
    Total current assets ....................      12,993     158,507       (2,540)     168,960
                                                ---------   ---------    ---------    ---------
  Property and equipment, net ...............      56,453       1,653         --         58,106
  Other assets ..............................       2,959         608         --          3,567
                                                ---------   ---------    ---------    ---------
                                                   72,405     160,768       (2,540)     230,633
                                                =========   =========    =========    =========

LIABILITIES AND EQUITY:
  Current portion of long-term debt .........        --           308         --            308
  Accounts payable ..........................      10,140     103,394       (2,540)     110,994
  Accrued liabilities and other .............       7,596       6,244         --         13,840
  Liabilities from risk management activities        --         1,095         --          1,095
                                                ---------   ---------    ---------    ---------
    Total current liabilities ...............      17,736     111,041       (2,540)     126,237
                                                ---------   ---------    ---------    ---------
  Long-term debt ............................       8,503          27         --          8,530
  Minority interest .........................        --         9,339         --          9,339
  Other noncurrent liabilities ..............       8,551         405         --          8,956
                                                ---------   ---------    ---------    ---------
    Total long-term liabilities .............      17,054       9,771         --         26,825
                                                ---------   ---------    ---------    ---------
  Stockholder's equity ......................      37,615      39,956         --         77,571
                                                ---------   ---------    ---------    ---------

                                                $  72,405   $ 160,768    $  (2,540)   $ 230,633
                                                =========   =========    =========    =========



</TABLE>





                                       11

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


(3)     Acquisitions/Dispositions

Convest Energy Corporation

        On June 26, 1995,  Convest acquired all of the capital stock of Edisto's
oil and gas exploration and production  subsidiary,  Edisto E&P, in exchange for
6,185,400 newly issued shares of Convest Common Stock and $10,000 in cash. These
newly issued shares increased Edisto's interest in Convest from 31% to 72%. Upon
the closing of the  transaction  with Convest (the "Convest  Transaction"),  the
Convest  Board of  Directors  was  restructured  so that  affiliates  of  Edisto
constituted a majority of the Convest Board.

        Since Edisto acquired control of Convest in the Convest Transaction, the
Convest  Transaction has been accounted for as a reverse acquisition with Edisto
E&P being considered the acquiring entity. As a result,  Edisto E&P's historical
financial  statements became the historical  financial statements of Convest and
the purchase price was allocated to the assets and  liabilities of Convest based
on their respective fair values at the acquisition date.

        Edisto accounted for the Convest  Transaction  using the purchase method
of  accounting.  Edisto's  Consolidated  Statements  of  Operations  include the
results of  operations  for  Convest as if Convest  was  consolidated  beginning
January 1, 1995.  However,  the share of the Convest  loss  attributable  to the
interest  not owned by Edisto prior to the date of the Convest  Transaction  has
been  added  back  as a  preacquisition  loss in the  accompanying  Consolidated
Statement of Operations for such period.

        In March 1996,  the Board of  Directors  of Edisto  authorized  the open
market  purchase of up to 1,160,000  shares of Common Stock of Convest from time
to time.  The timing and amounts of purchases will be governed by applicable SEC
rules and market  conditions.  The purpose of the stock  purchase is to increase
Edisto's ownership percentage of Convest to over 80% to allow Edisto and Convest
to  consolidate  for  federal  income  tax  purposes.  Edisto has  existing  net
operating  loss  carryforwards  that may be  beneficial  to  Convest  if the two
companies are consolidated for tax purposes. On a primary basis, Edisto needs to
acquire an  additional  875,000  shares to allow it to reach 80.5% of  Convest's
outstanding shares. On a fully diluted basis,  however,  Edisto needs to acquire
approximately  1,160,000  shares to reach  80.5%  because of  outstanding  stock
options.  As of October 31,  1996,  Edisto had  purchased an  additional  92,000
shares of Convest Common Stock. Edisto presently owns 7,598,771 shares of Common
Stock of Convest which is 73% of the outstanding Common Stock.

Edisto Resources Corporation

        In April 1996, Edisto sold its 11% interest in the Zarat Permit offshore
of Tunisia for $1.4  million in cash which  resulted in a gain of  approximately
$0.3  million.  This  was  Edisto's  last  remaining  international  oil and gas
property.

(4)     Discontinued Operations

        Gas Transmission  Operations/Sale of Pipeline.  Edisto conducted its gas
transmission  activities  through wholly owned  subsidiaries of Vesta during the
period  from July 1990  through  the  execution  of a  definitive  agreement  in
February 1994 for the sale of Vesta's 218-mile Missouri  intrastate  natural gas
pipeline to UtiliCorp  United Inc. The sale was subject to  regulatory  approval
and was closed in January 1995. Vesta continued to operate the pipeline from the
date of the  definitive  agreement  until the close of the  sale,  and  reported
assets, liabilities and results of operations as discontinued operations.

        The gross sales price, including adjustments for net working capital and
capital  expenditures,  was $78.1 million in cash. $45.6 million of the proceeds
was used to pay outstanding debt,  including interest and prepayment  penalties,
to three lenders of Vesta. Edisto recorded a gain on the sale of the pipeline of
approximately $2.6 million in the first quarter of 1995.

        Manufacturing  Operations/Sale of MINT Subsidiaries. In March 1994, MINT
sold the stock of its operating subsidiaries to Oceaneering International,  Inc.
for  a  purchase  price  of  $12.6  million  in  cash.   After  the  payment  of
approximately  $3.6  million to third  party  lenders to retire debt of MINT and
certain expenses  associated with the sale, the net proceeds were  approximately
$9 million.  Under the terms of the  indemnification in the purchase  agreement,
MINT  retained  $9  million in cash for the one year  indemnification  period to
settle  any  possible   indemnification   claims  after  the  sale.   After  the
indemnification  period  ended in March  1995 with no claims  being  made,  MINT
repaid  $8.8  million  of its  outstanding  debt owed to  Edisto.  Approximately
$450,000  was left in MINT to cover  potential  remaining  liabilities  of MINT.
Edisto recognized a gain on the MINT sale of $3.8 million in March 1995.





                                       12

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


(5)     Related Party Transactions

        In the Convest Transaction,  Edisto retained the tax benefits of the net
operating loss carryforwards  ("NOLs") of Edisto E&P. The tax benefits include a
$3.3 million NOL usable for regular taxable income and a $3.6 million NOL usable
for  alternative  minimum  taxable  income.  Based  on  current  projections  of
Convest's future taxable income,  Convest  determined that the remaining NOLs of
Edisto E&P would be a valuable  asset that could be  utilized  by Convest in the
near-term  future.  Accordingly,  Edisto allowed  Convest to utilize the NOLs of
Edisto E&P in consideration for $550,000.

        During January 1995,  Convest  entered into a gas marketing  arrangement
with Energy  Source,  whereby  Energy Source  markets a  substantial  portion of
Convest's gas production and assumes certain related  administrative  functions.
Effective  November 1, 1995,  Convest and Energy Source extended the term of the
agreement to December 31, 1996 with Convest having the right to renegotiate  the
pricing  structure at each six month  interval of the extended term. In exchange
for its services,  Energy  Source  receives a fee of no more than 2% of the spot
market price. The Company and Convest are currently  reviewing the gas marketing
agreement to determine  under what terms and conditions the agreement  should be
extended.

        Energy  Source  executes  trades of  futures  contracts  on the New York
Mercantile  Exchange on behalf of Convest.  These trades are made in  connection
with  Convest's  risk  management  program to hedge  against the  volatility  of
natural gas and crude oil prices. In this regard, Energy Source acts solely in a
ministerial  capacity to purchase or sell the futures  contracts at price levels
directed by Convest's  management.  Energy Source charges a commission of $.0025
per Mcf of gas or barrel of crude oil for each trade  executed  to cover  Energy
Source's administrative costs to perform such service.

        In July 1996,  Edisto and Convest  obtained a directors'  and  officers'
fiduciary  insurance  policy that covers both  companies.  The annual  insurance
premium  was  allocated  68% to  Edisto,  for a cost of  $204,000,  based on the
relative  percentage that the total assets of Edisto bear to the total assets of
both Edisto and Convest.

        Effective  July 1, 1995, the Company and Convest agreed to share certain
administrative costs to reduce the overall cost that would otherwise be incurred
by each of them in the absence of such an  arrangement.  Under the  arrangement,
certain costs  associated  with  shareholder  communication  services,  costs of
computer  hardware and  software  systems and certain  administrative  staff who
perform duties on behalf of both entities are shared by Edisto and Convest based
on their respective utilization. In addition, the salary of Michael Y. McGovern,
who serves as the Chairman and Chief Executive Officer of Edisto and Convest, is
shared equally between the two companies.  Effective July 1, 1995, Convest began
reimbursing  Edisto for one-half of Mr.  McGovern's base salary  ($275,000) plus
one-half of his payroll taxes and benefits (such as health,  disability and life
insurance and 401(k) plan contributions).

        Each of the affiliated party  transactions  described above was approved
by either a special  committee  of the  Convest  Board,  which was  composed  of
outside directors with no affiliation to Edisto, or the unanimous consent of the
Convest Board.

(6)     Long-Term Debt

        Long-term debt consisted of the following (in thousands):


                                     September 30, December 31,
                                         1996         1995
Convest Credit Agreement ............   $  8,503    $ 19,175
Energy Source Canada Credit Agreement        219          73
Capital leases ......................         88         175
Other ...............................         28           8
                                        --------    --------
Total debt ..........................      8,838      19,431
Less current maturities .............       (308)     (1,796)
                                        --------    --------
    Total long-term debt ............   $  8,530    $ 17,635
                                        ========    ========







                                       13

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995


Convest

         Convest Energy Corporation Credit Agreement

         On  June  26,  1995,  simultaneous  with  the  closing  of the  Convest
Transaction, Convest and Edisto E&P entered into an Amended and Restated Secured
Revolving  Credit  Agreement  (the "Convest  Credit  Agreement")  with Bank One,
Texas, N.A. ("Bank One"), and Compass  Bank-Houston,  N.A. This facility,  which
terminates  January 1, 1998,  combined the existing credit facilities of Convest
and Edisto E&P. Bank One serves as agent bank of the Convest  Credit  Agreement.
The  facility is secured by a first lien on all of Convest's  assets,  including
the oil and gas  properties  and gas plant.  Interest  on  borrowings  under the
Convest Credit  Agreement is computed at (i) the agent bank's prime lending rate
(the  "Base  Rate")  plus  3/4% or (ii) the  London  Inter  Bank  Offering  Rate
("LIBOR") plus 2-3/4%. In addition,  Convest pays a commitment fee equal to 1/2%
on any commitment amount in excess of outstanding borrowings.

         The borrowing base is  redetermined  semi-annually  on or before May 31
and November 30 of each year by the lending banks based on engineering  criteria
established  by the banks.  As of September 30, 1996 and December 31, 1995,  the
borrowing base available under the facility was $21.5 million and $29.8 million,
respectively, and reduces by $1.0 million per month. During January 1996, Edisto
E&P sold its interest in an offshore oil and gas property, and accordingly,  the
borrowing  base was reduced by $1.8  million  simultaneous  with the sale of the
property.

         As  of  September   30,  1996  and   December  31,  1995,   outstanding
indebtedness  under the  Convest  Credit  Agreement  was $8.5  million and $19.2
million,  respectively,  with  an  additional  $200,000  of  letters  of  credit
outstanding as of those dates, primarily related to performance bonds issued for
oil  and  gas  operations.  At  September  30,  1996,  substantially  all of the
outstanding borrowings were subject to an interest rate of prime plus 3/4% at an
effective rate of approximately 9% per annum.

Energy Source

         Energy Source, Inc. Credit Facility

         During 1994,  Energy Source entered into a loan agreement with Bank One
establishing a revolving credit facility (the "Energy Source Credit  Facility").
On March 31, 1996, the Energy Source Credit Facility was amended to, among other
things, increase the available borrowings from $8.0 million to $20.0 million and
extend the  maturity  date from June 1, 1996 to December  31,  1997.  Borrowings
under the  facility  are limited to the lesser of (i) $20.0  million or (ii) the
sum of 80% of Energy Source's eligible  accounts  receivable plus certain liquid
collateral. Availability under the Energy Source Credit Facility may be used for
direct  borrowings  up to a sublimit  of $5.0  million,  or for the  issuance of
letters of credit. Interest accrues at Bank One's Base Rate (8-1/4% at September
30, 1996) plus 1% and is payable  monthly.  At September  30, 1996,  no debt was
outstanding  under this  facility and letters of credit of $3.5 million had been
issued.

         Borrowings  under the Energy  Source  Credit  Facility are secured by a
pledge of all of Energy Source's accounts receivable,  inventory and intangibles
and cash  collateral  equal to 25% of the  outstanding  letters of credit and/or
advances under the facility.  The facility  requires Energy Source to maintain a
minimum  current ratio of 1.2 to 1.0 and a tangible net worth of $20.0  million.
Loan covenants prohibit dividends and place limits on general and administrative
expenses and certain open unhedged  positions on fixed price commitments for the
purchase and sale of natural gas and natural gas products.

         Energy Source Canada Credit Agreement

         In March 1995,  Energy  Source Canada  entered into a revolving  credit
facility  with  the  National  Bank  of  Canada  (the  "ESC  Credit  Facility").
Borrowings  under the  facility  are  limited to the lesser of (i) $5.0  million
(CDN),  (ii)  the  sum  of 75%  of  Energy  Source  Canada's  eligible  accounts
receivable plus 50% of certain  inventories or (iii) 200% of the equity position
of Energy Source Canada.  Availability under the ESC Credit Facility may be used
for direct  borrowings or for the issuance of letters of credit up to a sublimit
of $1.25 million (CDN). Interest accrues at National Bank of Canada's Prime Rate
(5-3/4% at September 30, 1996) plus 1% and is payable monthly.  At September 30,
1996,  $0.3 million (CDN) in borrowings  were  outstanding and letters of credit
for $3.6 million (CDN) had been issued.

         Borrowings   under  this  facility  are  secured  by  certain  accounts
receivable  and  inventories.  The facility  contains  covenants  which prohibit
dividends and place limits on certain  expenditures  and open  positions for the
purchase and sale of natural gas and natural gas products.


                                       14

<PAGE>


                          EDISTO RESOURCES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

              For the Nine Months Ended September 30, 1996 and 1995







(7)     Commitments and Contingencies

         Litigation

         MINT  Lawsuit.  In  January  1993,  Bruce  W.  McConkey  and two  other
shareholders of MINT, who  collectively  hold 20% of the outstanding MINT common
stock,  filed a lawsuit  against  the  Company,  MINT and  certain of its former
directors  who were former  officers of the Company.  The  lawsuit,  among other
things,  (i)  alleges  that  MINT   constructively   terminated  Mr.  McConkey's
employment as the President and CEO of MINT,  thereby  breaching his  employment
agreement;  (ii) alleges that certain directors of MINT breached their fiduciary
duties to the plaintiffs, in their capacity as minority shareholders,  and (iii)
asserts  derivative  claims on  behalf of MINT  against  certain  directors  for
alleged  mismanagement  of  MINT.  The  plaintiffs  seek  actual  damages  in an
unspecified amount,  punitive damages and attorney's fees. The Company has filed
a counterclaim  against Mr. McConkey seeking payment of a $250,000 guarantee and
a $12,500  promissory  note plus interest.  On October 16, 1996, the trial court
granted an  interlocutory  summary  judgment  in favor of  Edisto,  MINT and the
individual  defendants  on all claims  against them other than the claim against
MINT that it  constructively  terminated  Mr.  McConkey's  employment.  Based on
developments of this case to date, the Company's management does not believe the
outcome of this lawsuit  will have a material  adverse  effect on the  Company's
consolidated financial position or results of operations.


                                       15

<PAGE>



ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

          The following  discussion  and analysis  should be read in conjunction
with the Company's consolidated financial statements and the notes thereto.

                      OVERVIEW AND SIGNIFICANT DEVELOPMENTS


Financial Results

          The Company had net income of $1.2 million for the nine months ended
September 30, 1996 and a net loss of $1.7  million for the three  months  ended
September 30, 1996. Set forth below is a table  summarizing the Company's income
by business segment and subsidiary (in thousands):

                           Nine Months  Three Months
                             Ended         Ended
                        September 30,  September 30,
                              1996          1996
Operating Income (Loss):

Energy Source, Inc. ......
     U.S .................   $  (935)   $(2,212)
     Canada ..............      (749)      (130)
                             -------    -------
                              (1,684)    (2,342)
Convest Energy Corporation     2,860      1,542
Corporate and other ......    (1,245)      (541)
                             -------    -------

    Total Operating Loss .       (69)    (1,341)
                             -------    -------
Interest and other .......     1,306       (365)
                             -------    -------

     NET INCOME (LOSS) ...   $ 1,237    $(1,706)
                             =======    =======


Edisto Resources Corporation

Gas Sales Volume Increases and Gross Margin Decreases

          In accordance  with the  Company's  business  plan,  the Company's gas
marketing sales volumes have increased significantly in 1996. The volumes of gas
sold for the nine and three months ended  September 30, 1996 have  increased 67%
and 90%,  respectively,  from the  comparable  periods in 1995,  as shown by the
table set forth below:

                     Nine Months   Nine Months
                        Ended        Ended
                    September 30,  September 30, Percentage
                        1996         1995         Increase
                        -------     -------       -------
Volume sold (MMcf)
     Domestic .......   201,614     147,242           37%
     Canadian .......    88,273      26,702          231%
                        -------     -------       -------
        Total .......   289,887     173,944           67%
Average Daily Volumes     1,058         637           67%
(MMcf)






                                       16

<PAGE>




                           Three Months         Three Months
                              Ended                Ended
                           September 30,        September 30,        Percentage
                               1996                 1995              Increase
                              ------               ------            ---------
Volume sold (MMcf)
     Domestic                 71,557               56,568                26%
     Canadian                 52,840                8,788               501%
                             -------               ------               ----
        Total                124,397               65,356                90%

Average Daily Volumes          1,352                  710                90%
(MMcf)

          The Company's volumes have continued to increase in the fourth quarter
of 1996.  The average  daily  volumes in October 1996 were  approximately  1,974
MMcf/day and are expected to remain at this level or higher for the remainder of
the quarter.  A large  proportion of this growth has been due to volumes sold in
Canada.

          The Company's gross margins  remained  constant at $.01 per Mcf in the
second  and third  quarters  of 1996.  The gross  margins of $.05 per Mcf in the
first quarter of 1996 were unusually large due to the volatile market conditions
caused by the harsh winter conditions in many areas of the United States. In the
third quarter of 1996, the Company  increased its total volumes sold from 85,123
MMcf to 124,397 MMcf, while maintaining a $.01 per Mcf margin.

           The larger  volumes  also have  required  the Company to increase its
general and  administrative  expenses  (for both  additional  personnel  and new
computer  systems) to support the Company's  increased  volumes in the third and
fourth  quarters of 1996 and  anticipated  volume growth in 1997.  The Company's
strategic plan is to seek increased volumes with higher margins in the Northeast
United  States as gas  utilities  begin to  deregulate.  This plan has increased
overhead as additional  staff has been hired for the  Company's new  Pittsburgh,
New York and New Jersey sales  offices,  but the results from the expansion will
not materialize until future periods.  The increased overhead contributed to the
lower operating results during the second and third quarters of 1996.

          The increased volumes were achieved during a period when the Company's
gas  marketing   operations  were   consolidated   under  Energy  Source.   This
consolidation,  which  included  the  physical  consolidation  of the  Tulsa and
Houston offices, employee relocations and staff reorganizations,  had a negative
impact on operations  during the second and third  quarters of 1996.  Also,  the
third quarter  operating  results  include  $580,000 of  non-recurring  expenses
associated with the consolidation.

          The Company's third quarter results include the Company's equity share
in the  earnings  of its  unconsolidated  affiliate,  CEG Energy  Options,  Inc.
("CEG"),  a gas marketing  company which operates in Saskatchewan,  Canada.  CEG
contributed $0.1 million of income during the third quarter of 1996.

Exercise of Warrants

          Warrants  for the  purchase of 918,070  shares of Edisto  Common Stock
were exercised prior to the June 28, 1996 expiration  date.  These Warrants were
issued in connection with the  consummation  of Edisto's  bankruptcy on June 29,
1993 and  entitled  the holder to  purchase  Edisto  Common  Stock for $9.74 per
share.  After the exercise of the Warrants  and Options,  Edisto has  13,850,552
outstanding  shares of Common  Stock.  Edisto  received  $8.9  million  from the
exercise of the Warrants, which adds to its existing working capital.

Sale of Offshore Tunisian Property

          In April  1996,  Edisto  sold its 11%  interest  in the  Zarat  Permit
offshore of Tunisia for $1.4 million which  resulted in a gain of  approximately
$0.3  million.  This  was  Edisto's  last  remaining  international  oil and gas
property.

Engagement of Investment Banking Firm

          On March 8,  1996,  the  Company  announced  that it has  engaged  the
investment  banking firm of Petrie  Parkman & Co., Inc. to identify and evaluate
strategic partners for the Company's gas marketing operations. At this time, the
Company  is  still  in the  process  of  identifying  and  evaluating  potential
strategic  partners and does not expect this process to be concluded until later
in 1996.

Edisto Common Stock Repurchase

          In December  1995,  the Company's  Board of Directors  authorized  the
Company to repurchase up to 1,000,000  shares of Edisto's  Common Stock.  In the
first quarter of 1996, the Company repurchased 28,500 shares.



                                       17

<PAGE>



Convest Energy Corporation

Management Changes

          In September  1996,  Richard T. Howell  resigned from his positions as
the  President  and Chief  Operating  Officer  of  Convest,  and as a  director.
Effective  November 15, 1996, Gary L. Pittman is resigning from his positions as
an Executive Vice President and Chief Financial  Officer of Convest.  Michael Y.
McGovern,  the Chairman and Chief Executive Officer of Convest and Edisto,  will
assume the responsibilities of Mr. Howell and Mr. Pittman for the near future.

Impairment of Oil and Gas Properties under SFAS No. 121

          As a result of Convest's SFAS No. 121 evaluation of its proved oil and
gas  properties  for the second  quarter  of 1996,  Convest  determined  that an
offshore property had less reserves than as previously  estimated.  Accordingly,
the Company  recorded an impairment loss on the property of  approximately  $1.1
million  during  the  second  quarter  of  1996  based  on  production  problems
encountered  during the period. No impairment loss was recorded during the third
quarter of 1996.  This  impairment loss is described in more detail in Note 2 to
the Consolidated Financial Statements and "Results of Operations - Impairment of
Oil and Gas Properties Under SFAS No. 121" below.

Convest Drilling Operations

          During 1996,  Convest has invested a  substantial  portion of its cash
flow in drilling operations on its offshore properties. As described below under
"Liquidity  and Capital  Resources - Capital  Expenditures,"  Convest's  capital
expenditure  budget for 1996 has increased  from  approximately  $8.0 million to
$15.0  million.  This drilling  activity will continue in the fourth  quarter of
1996  with  three  wells to be  drilled  and  three  workovers  scheduled  to be
completed during the period.  The most significant  drilling  operations  during
1996 are described below.

          Eugene  Island 281.  During early 1996,  Convest  participated  in the
drilling  of a  development  well in Block 281 of the Eugene  Island area in the
Gulf of Mexico.  The well was drilled from an existing platform  structure at an
estimated  completed well cost of approximately  $1.0 million,  net to Convest's
37%  working  interest,  and tested at a daily rate of 1,276  barrels of oil and
1,699 Mcf of gas. The well was  connected to existing  production  facilities on
the platform and was flowing at approximately 600 barrels of oil per day and 300
Mcf of gas per day, but subsequently, the production rates have declined.

          South  Timbalier.  During  April  1996,  Convest  participated  in the
drilling of a development  well on Block 221 of the South  Timbalier area of the
Gulf of Mexico. The well was drilled from an existing well bore to approximately
12,000 feet. The well  encountered  productive sands and was tested at a rate of
approximately  7,000 Mcf of gas per day. The cost of this well was approximately
$1.4  million,  net to  Convest's  40%  interest.  This  well  is  producing  at
approximately 6,500 Mcf of gas and 115 barrels of oil per day.

          During June 1996,  Convest  participated  in the  drilling of an 8,000
foot  exploratory test well on a prospect located across Block 144 and Block 109
of the South  Timbalier  area.  During early July 1996, the well  encountered no
commercial production and was subsequently  abandoned.  The cost of the well was
approximately $600,000, net to Convest's 50% working interest.  Convest also has
written off the approximate $350,000 leasehold cost of this property.

          During early July 1996,  Convest  participated in a second exploratory
well in the South  Timbalier area. The 5,700 foot well was drilled on a prospect
situated   across  Block  109  and  Block  102  and  encountered  no  commercial
production.  This  well  cost  approximately  $550,000,  net  to  Convest's  50%
interest.

          Grand Isle. During June 1996, Convest  participated in the drilling of
an 8,000 foot development well on Block 82 of the Grand Isle area of the Gulf of
Mexico.  The well encountered  productive sands and test flowed at approximately
4,200 Mcf of gas per day. Total cost of the well was approximately $1.0 million,
net to Convest's 39% working interest.

          High  Island.  During  September  1996,  Convest  participated  in the
drilling of a 12,000 foot  development well on Block 195 of the High Island area
of the Gulf of Mexico.  The well encountered the objective  formation and tested
in excess of 5,000 Mcf of gas per day.  Convest is currently laying the flowline
to the existing  facilities and expects it to be in production by  mid-November.
Total cost of the well was  approximately  $1.0  million,  net to Convest's  24%
interest.  Convest  plans to drill a second well in this area late in the fourth
quarter of 1996 or early in the first quarter of 1997.

Expense for Unsuccessful Wells

          Since Convest follows the successful efforts method of accounting, the
drilling costs and the leasehold writeoffs of approximately $1.5 million for the
two unsuccessful  South Timbalier  exploratory  wells were expensed based on the
costs incurred  during the second and third  quarters of 1996.  Although the two
wells were completed in July 1996, the leasehold  writeoffs and a portion of the
exploration costs were incurred prior to that time. Therefore,  $750,000 of this
cost was expensed  during the second  quarter of 1996 and $790,000 of additional
cost was expensed during the third quarter of 1996.

                                       18

<PAGE>



Convest Property Sales

          During January 1996, Convest sold its interest in Vermillion Block 284
for approximately $2.0 million. Convest also sold other nonstrategic oil and gas
properties   during  the  first   quarter  for  aggregate   sales   proceeds  of
approximately  $400,000.  As a result of these sales, Convest recorded a gain of
approximately $820,000 during 1996.

Convest Common Stock Purchase

          In March 1996,  the Board of Directors of Edisto  authorized  the open
market  purchase of up to 1,160,000  shares of Common Stock of Convest from time
to time.  The timing and amounts of purchases will be governed by applicable SEC
rules and market  conditions.  The purpose of the stock  purchase is to increase
Edisto's ownership percentage of Convest to over 80% to allow Edisto and Convest
to  consolidate  for  federal  income  tax  purposes.  Edisto has  existing  net
operating  loss  carryforwards  that may be  beneficial  to  Convest  if the two
companies are consolidated for tax purposes.  In April 1996, Edisto purchased an
additional  92,000  shares  of  Convest  Common  Stock.  Edisto  presently  owns
7,598,771  shares of Common  Stock of  Convest  which is 73% of the  outstanding
Common Stock.


                                       19

<PAGE>

<TABLE>


                              RESULTS OF OPERATIONS

          The  following  discussion  and  analysis  is based on the  historical
results of  operations of the Company for the periods  indicated.  The financial
information set forth below should be reviewed in conjunction with the unaudited
consolidated financial statements of the Company and the notes thereto set forth
elsewhere in this Report.
<CAPTION>

                                    Nine Months   Nine Months    Three Months  Three Months
                                      Ended          Ended          Ended         Ended
                                   September 30,  September 30, September 30,  September 30,
                                      1996             1995        1996           1995
<S>                                <C>           <C>           <C>           <C>  
Edisto Gas Marketing:
Domestic:
  Gross margin (in thousands) ...   $     5,742   $       498   $       334   $       38
                                    ===========   ===========   ===========   ==========
  Volume sold (MMcf) ............       201,614       147,242        71,557       56,568
  Average prices ($ per Mcf):
     Sales price ................   $      2.25$         1.67  $       1.99$        1.54
     Purchase price .............          2.22          1.67          1.99         1.54
                                    -----------   -----------   -----------   ----------
     Gross margin ...............   $       .03$      --       $         --   $     --
                                    ===========   ===========   ===========   ==========

Canadian:
  Gross margin (in thousands) ...   $       419   $     1,242   $       321   $      782
                                    ===========   ===========   ===========   ==========
  Volume sold (MMcf): ...........        88,273        26,702        52,840        8,788
  Average prices ($ per Mcf):
     Sales price ................   $       .99$          .97  $        .93   $      .96
     Purchase price .............           .98           .92           .92          .87
                                    -----------   -----------   -----------   ----------
     Margin .....................   $       .01$          .05  $        .01   $      .09
                                    ===========   ===========   ===========   ==========
Total:
  Gross margin (in thousands) ...   $     6,161   $     1,740   $       655   $      820
                                    ===========   ===========   ===========   ==========

  Volume sold (MMcf) ............       289,887       173,944       124,397       65,356
  Average prices ($ per Mcf):
     Sales price ................   $      1.87$         1.56  $       1.54   $     1.47
     Purchase price .............          1.85          1.55          1.53         1.45
                                    -----------   -----------   -----------   ----------
     Margin .....................   $       .02$          .01  $        .01   $      .02
                                    ===========   ===========   ===========   ==========

Convest Energy Corporation:
  Revenue (in thousands):
     Oil ........................   $    12,746   $    15,492   $     4,901   $    5,482
     Gas ........................        19,828        21,716         6,344        5,881
     Gas Plant ..................         1,060           930           356          307
                                    -----------   -----------   -----------   ----------
                                    $    33,634   $    38,138   $    11,601   $   11,670
                                    ===========   ===========   ===========   ==========
  Production:
     Oil (Mbbls) ................           715           903           255          309
     Gas (MMcf) .................        10,494        14,562         3,488        4,416
  Average sales price:
     Oil (per Bbl)) .............   $     17.83   $     17.16   $     19.22   $    17.74
     Gas  (per Mcf) .............   $      1.89   $      1.49   $      1.82   $     1.33
  Average expenses per equivalent
   barrel:(1)
     Production Costs ...........   $      4.75    $     4.22   $      4.12   $     4.24
     Depreciation and depletion .   $      4.98    $     4.79   $      5.28   $     4.87

<FN>
(1) Natural gas is converted into oil equivalents at a rate of six Mcf of gas
     per barrel of oil.
</FN>
</TABLE>

                                       20

<PAGE>



Results of Operations for the Nine Months Ended September 30, 1996
     compared to 1995

Energy Source, Inc.

     Energy Source's operating loss for the nine months ended September 30, 1996
was $1.7  million.  Gross  margin was $6.2  million  compared to $1.7 million in
1995. Total volumes sold increased 67 % over 1995.

        The  domestic  gross  margin of $.03 per Mcf for the nine  months  ended
September 30, 1996 was a substantial  improvement  over the breakeven margin for
the  corresponding  period in 1995.  Volumes  increased  37% over  1995.  Energy
Source's  first quarter of 1996  performance  was caused by the volatile  market
conditions  experienced  because of the harsh winter conditions in many areas of
the United States and Energy Source's strong supply  positions.  The improvement
in the first nine months of 1996 over the corresponding  period of 1995 also was
due to the termination of any further expense in 1996 under the price protection
provision of a gas sales  agreement  with Laclede Gas Company for 55 MMcf of gas
per day. In 1995,  the Company  incurred  $3.5  million of expense for the price
protection requirement under this agreement,  $1.4 million of which was incurred
in the first  nine  months of 1995.  There is no  expense  under  this  contract
provision for 1996.

        The  Canadian  gross  margin of $.01 per Mcf for the nine  months  ended
September 30, 1996 was a decrease of $.04 per Mcf compared to the same period in
1995.  This decrease was caused by a market  anomaly during the first quarter of
1996 in the correlation between prices used for the Company's purchase and sales
transactions  and the  NYMEX  prices  used to  hedge  these  transactions.  This
correlation anomaly was caused by the unexpectedly high demand during the winter
months.

Convest Energy Corporation

        Oil and gas  revenue  decreased  by  approximately  $4.6  million or 12%
between the nine month  periods ended  September 30, 1996 and 1995.  The average
price  Convest  received  for its oil and gas  sales  increased  by 4% and  27%,
respectively,   between  the  corresponding  periods.  Oil  and  gas  production
decreased by 21% and 28%,  respectively.  The decrease in production volumes was
due primarily to the sale of producing oil and gas  properties  coupled with the
steep  production  decline  associated  with  Convest's  offshore Gulf of Mexico
properties. The effects of these production declines was partially offset by the
additional drilling on Convest's South Timbalier Block 144 property completed in
late 1995 and the addition of the Sensor  properties  purchased in mid 1995.  As
previously stated,  Convest's offshore  properties are subject to inherent steep
production  declines.  In order to minimize the future effects of such declines,
Convest  must  replace its  reserves  through its  exploratory  and  development
drilling and acquisition activities.

        Convest uses a combination of futures  contracts traded on the NYMEX and
price swaps with major financial institutions to hedge against the volatility of
natural gas and oil  prices.  Gains and losses  recognized  upon  settlement  of
Convest's  hedge  positions  are  deferred and  recognized  as oil and gas sales
revenue in the month of the underlying  physical  production being hedged.  As a
result of Convest's  hedging  activities,  Convest  recorded  hedging  losses of
approximately  $6.3 million for the nine month period ended  September 30, 1996,
and hedging income of  approximately  $785,000 for the  corresponding  period of
1995.  Such  amounts  were  recorded  as  oil  and  gas  sales  revenue  in  the
accompanying  statements  of  operations,  and  accordingly,  such  amounts  are
reflected in the per unit price Convest received for its oil and gas sales.

        The hedges affecting 1996 were  implemented  early in the fourth quarter
of 1995 when oil and gas prices were substantially lower. These hedges were made
as a  defensive  measure to assure  stable  cash  flows in 1996.  The past harsh
winter,  however,  drove  prices up  substantially  and these high  prices  have
continued through most of 1996, which caused the hedging losses in 1996. Convest
has substantially decreased its hedging activities for the remainder of 1996 and
1997.

        Production  expenses  decreased  by  approximately  $2.4  million or 17%
between  the  corresponding  periods.  The  decrease in  production  expenses is
primarily  due to a decrease in workover  activity  during the nine months ended
September 30, 1996, and the sale of producing oil and gas properties during 1995
and early 1996. The decline in production expenses was offset by the incremental
operating expenses  associated with the Sensor properties.  Production  expenses
per barrel of oil  equivalent  ("BOE")  was $4.75 and $4.22 for the nine  months
ended  September  30, 1996 and 1995,  respectively.  The increase in  production
expense  per BOE is  caused  by the  decreased  offshore  production  without  a
corresponding decrease in production expense.

        Abandonment  and  exploration  costs  increased  by  approximately  $1.0
million  between the  corresponding  periods.  The increase in  abandonment  and
exploration costs is primarily due to two unsuccessful  South Timbalier wells of
costs of approximately  $1,540,000.  Also, Convest accrues its estimated cost of
abandonment of its offshore  properties.  Based upon a review of the reserve for
abandonment,  it was determined that Convest had substantially  provided for its
future  abandonment  liability,  and  accordingly,  no  additional  accrual  was
provided for in 1996.

        Depreciation,  depletion  and  amortization  ("DD&A")  on  oil  and  gas
properties   decreased  by  approximately   $3.7  million  or  23%  between  the
corresponding  periods. The decrease in DD&A was due primarily to the production
declines discussed above. DD&A per BOE was $4.98 for the nine month period ended
September 30, 1996, compared to $4.79 for the corresponding period of 1995.

                                       21

<PAGE>



        In mid-January  1996,  Convest completed the sale of an offshore oil and
gas property for sale proceeds of approximately $2.0 million,  which resulted in
a gain of  approximately  $620,000.  In addition,  Convest  sold  several  other
nonstrategic  oil and gas properties  during 1996 for aggregate sale proceeds of
approximately $400,000, which resulted in a gain of approximately $200,000.

        Prior to 1995, Convest provided an impairment reserve for proved oil and
gas  properties  to the extent  that total  capitalized  costs less  accumulated
depreciation and depletion, exceed undiscounted future net revenues attributable
to proved oil and gas  reserves on an overall  basis.  During  March  1995,  the
Financial  Accounting  Standards Board issued Statement of Financial  Accounting
Standard No. 121  "Accounting  for the  Impairment of Long-Lived  Assets and for
Long-Lived  Assets to be Disposed  Of" ("SFAS No.  121").  SFAS No. 121 requires
Convest to provide an  impairment  reserve for proved oil and gas  properties to
the extent that total  capitalized  costs,  less  accumulated  depreciation  and
depletion, exceed undiscounted expected future cash flows attributable to proved
oil and gas  reserves  on a  property-by-property  basis.  Convest  adopted  the
provisions of SFAS No. 121 during the fourth quarter of 1995.

        Convest regularly assesses the need for an impairment of its oil and gas
properties.  Convest's SFAS No. 121 evaluation for the second and third quarters
of 1996 was  prepared  using  the  Convest's  1995  year end  reserve  estimates
adjusted for production and other known changes subsequent to the preparation of
Convest's year end reserve  estimates.  As a result of this evaluation,  Convest
determined  that an  offshore  property  had less  reserves  than as  previously
estimated.  Accordingly,  Convest recorded an impairment loss on the property of
approximately  $1.1  million  during  the  second  quarter  based on  production
problems  encountered  during the period. No impairment loss was recorded during
the third quarter of 1996.

Other Consolidated Income and Expenses

        General and  administrative  expense  increased  by $0.9 million for the
nine months ended  September 30, 1996 compared to the same period in 1995.  This
increase is due to $1.2 million of  non-recurring  expenses  associated with the
consolidation of the gas marketing subsidiaries.

        Interest  expense  decreased by  approximately  42% partially due to the
repayment of a short-term  promissory note issued upon Convest's purchase of the
oil and gas assets of an affiliate.  The short-term  promissory  note was repaid
simultaneous with the closing of the Convest Transaction.  In addition,  Convest
repaid a substantial  portion of its outstanding  borrowings under its long-term
credit facility during 1996.

        The  preacquisition  loss of subsidiary is the loss  attributable to the
shares  of  Convest  owned by the  Company  prior to the  effective  date of the
Convest Transaction on June 26, 1995.

        Edisto  recognized gains on sales of assets of $1.2 million for the nine
months ended  September 30, 1996 compared to a loss of $0.5 million for the same
period in 1995.  The increase is due  primarily to Edisto's sale of its Tunisian
property  for a gain of $0.3 million and a gain of $0.8 million from the sale of
certain Convest properties.

Results of Operations for the Three Months Ended September 30, 1996
   compared to 1995

Energy Source, Inc.

        Energy  Source  experienced  an  operating  loss of $2.3 million for the
three  months ended  September  30, 1996  compared to an operating  loss of $0.4
million for the same period in 1995.  Gross  margin  during this period was $0.7
million compared to $0.8 million during the same period in 1995. The combination
of lower  demand for natural  gas and the  continued  volatility  of natural gas
prices  in the third  quarter  contributed  to the  downward  pressure  on gross
margins.  Volumes  sold  increased  90% over 1995.  These  larger  volumes  have
required the Company to increase its general and  administrative  expenses  (for
both  additional  personnel  and new computer  systems) to support the increased
volumes in the third quarter and  anticipated  volume growth in the coming year.
The  operating  loss for the three  months  ended  September  30, 1996  includes
$580,000 in  non-recurring  general and  administrative  expenses related to the
consolidation of the gas marketing subsidiaries.

        The domestic  gross margin was breakeven for the third  quarters of 1996
and  1995.  The gross  margin  for the  third  quarter  of 1996 did not have any
expenses related to the price protection  requirement in the gas sales agreement
with  Laclede Gas  Company  whereas  the  corresponding  period in 1995 had $0.2
million of expense for this contract provision.  Volumes increased 26% over 1995
during the third quarter of 1996.

        The  Canadian  gross  margin  decreased  to $.01  per Mcf for the  third
quarter  of 1996  from  $.09 per Mcf for the  third  quarter  of  1995.  Volumes
increased 501% over 1995 during the third quarter of 1996. Increased competition
in the maturing Canadian market exerted  significant  downward pressure on gross
margins during the third quarter of 1996.





                                       22

<PAGE>

Convest Energy

        Oil and gas revenue  decreased by  approximately  $118,000 or 1% between
the three month  periods ended  September  30, 1996 and 1995.  The average price
Convest  received  for its oil and gas  sales  decreased  by 8% while  the price
received  for  natural  gas  sales  increased  by 37%.  Oil  and gas  production
decreased by 17% and 21%,  respectively.  As previously  discussed,  the primary
reason  for the  decrease  in oil and gas sales  volumes  was due to the sale of
several  properties  during  1995 and 1996  coupled  with the  steep  production
declines on Convest's offshore properties.

        As previously stated, Convest uses futures contracts and swap agreements
to hedge its oil and gas  production  thereby  assuring  stable cash flow.  As a
result of the sharp  increase  in oil and gas  prices  during  the past  winter,
Convest has  experienced  losses  associated  with the contracts.  For the three
months  ended  September  30,  1996,  Convest  has  recorded  hedging  losses of
approximately  $1.8  million  compared  to hedging  income of  $385,000  for the
corresponding  period of 1995. As previously  stated,  Convest records gains and
losses  realized  on its  hedging  activities  as oil  and  gas  sales  revenue,
accordingly,  such amounts are reflected in the per unit price Convest  received
for its oil and gas sales.

        Production  expenses decreased by approximately  $980,000 or 22% between
the three months ended  September 30, 1996 and 1995.  The decrease in production
expenses was primarily due to the  aforementioned  decrease in workover expense.
Production expenses per BOE were $4.12 and $4.24 for the corresponding periods.

        Abandonment  and  exploration  costs  increased by $622,000  between the
corresponding periods.  Convest accrues its estimated cost of abandonment of its
offshore  properties.  The  increase in  abandonment  and  exploration  costs is
primarily due to two unsuccessful South Timbalier  exploratory wells of costs of
approximately $790,000.  Based upon a review of the reserve for abandonment,  it
was  determined  that  Convest  had   substantially   provided  for  its  future
abandonment liability,  and accordingly,  no additional accrual was provided for
1996.

        Depreciation,  Depletion  and  Amortization  ("DD&A")  on  oil  and  gas
properties decreased by approximately  $672,000 or 13% between the corresponding
periods.  As previously stated, the decrease in DD&A was directly related to the
previously mentioned production declines.

        Convest's  SFAS No.  121  evaluation  for the third  quarter of 1996 was
prepared  using the  Company's  1995 year end  reserve  estimates  adjusted  for
production  and  other  known  changes  subsequent  to  the  preparation  of the
Company's year end reserve estimates.
As a result of this evaluation, no impairment was required for the third quarter
of 1996.

Other Consolidated Income and Expenses

        General and  administrative  expense  increased  by $1.0 million for the
three months ended  September 30, 1996 compared to the same period in 1995. This
increase is primarily due to $580,000 of non-recurring  expenses associated with
the consolidation of the gas marketing subsidiaries.

                         CAPITAL RESOURCES AND LIQUIDITY

Credit Facilities and Long-Term Debt

Energy Source, Inc.

        Energy  Source,  Inc.  During 1994,  Energy  Source  entered into a loan
agreement with Bank One  establishing a revolving  credit  facility (the "Energy
Source Credit  Facility").  On March 31, 1996, the Energy Source Credit Facility
was amended to, among other things,  increase the available borrowings from $8.0
million  to $20.0  million  and extend  the  maturity  date from June 1, 1996 to
December  31, 1997.  Borrowings  under the facility are limited to the lesser of
(i) $20.0 million or (ii) the sum of 80% of Energy  Source's  eligible  accounts
receivable plus certain liquid collateral.  Availability under the Energy Source
Credit  Facility  may be used for direct  borrowings  up to a  sublimit  of $5.0
million,  or for the  issuance  of letters of credit.  Interest  accrues at Bank
One's Base Rate (8-1/4% at September  30, 1996) plus 1% and is payable  monthly.
At September 30, 1996, no debt was  outstanding  under this facility and letters
of credit of $3.5 million had been issued.

        Borrowings  under the Energy  Source  Credit  Facility  are secured by a
pledge of all of Energy Source's accounts receivable,  inventory and intangibles
and cash  collateral  equal to 25% of the  outstanding  letters of credit and/or
advances under the facility.  The facility requires the maintenance of a minimum
current  ratio of 1.2 to 1.0 and a  tangible  net worth of $20.0  million.  Loan
covenants  prohibit  dividends  and place  limits on general and  administrative
expenses and certain open unhedged  positions on fixed price commitments for the
purchase and sale of natural gas and natural gas products.

        Energy Source Canada. In March 1995, Energy Source Canada entered into a
revolving  credit  facility  with the  National  Bank of Canada (the "ESC Credit
Facility").  Borrowings under the facility are limited to the lesser of (i) $5.0
million (CDN),  (ii) the sum of 75% of Energy Source Canada's  eligible accounts
receivable plus 50% of certain  inventories or (iii) 200% of the equity position
of Energy Source Canada.  Availability under the ESC Credit Facility may be used
for direct  borrowings or for the issuance of letters of credit up to a sublimit
of $1.25 million (CDN). Interest accrues at National Bank of Canada's Prime Rate
(5-3/4% at September 30,

                                       23

<PAGE>



1996) plus 1% and is payable monthly.  At September 30, 1996, $0.3 million (CDN)
in borrowings were  outstanding and letters of credit for $3.6 million (CDN) had
been issued.

        Borrowings   under  this  facility  are  secured  by  certain   accounts
receivable  and  inventories.  The facility  contains  covenants  which prohibit
dividends and place limits on certain  expenditures  and open  positions for the
purchase and sale of natural gas and natural gas products.

Convest Energy Corporation

        On  June  26,  1995,  simultaneous  with  the  closing  of  the  Convest
Transaction, Convest and Edisto E&P entered into an Amended and Restated Secured
Revolving  Credit  Agreement  (the "Convest  Credit  Agreement")  with Bank One,
Texas, N.A. ("Bank One"), and Compass  Bank-Houston,  N.A. This facility,  which
terminates  January 1, 1998,  combines the existing credit facilities of Convest
and Edisto E&P. Bank One serves as agent bank of the Convest  Credit  Agreement.
The  facility is secured by a first lien on all of Convest's  assets,  including
the oil and gas  properties  and gas plant.  Interest  on  borrowings  under the
Convest Credit  Agreement is computed at (i) the agent bank's prime lending rate
(the  "Base  Rate")  plus  3/4% or (ii) the  London  Inter  Bank  Offering  Rate
("LIBOR") plus 2-3/4%. In addition,  Convest and Edisto E&P pay a commitment fee
equal to 1/2% on any commitment amount in excess of outstanding borrowings.

        The borrowing base is redetermined semi-annually on or before May 31 and
November 30 of each year by the  lending  banks  based on  engineering  criteria
established by the banks. In May 1996, Convest was notified by the lending banks
that the new borrowing base under the facility was $25.5 million,  which reduces
by $1.0 million per month  beginning  June 1, 1996. As of September 30, 1996 the
outstanding  indebtedness  under the Convest  Credit  Agreement was $8.5 million
with an additional $200,000 of letters of credit outstanding.

Convest Capital Expenditures

        Convest has devoted a substantial  portion of its available cash flow to
drilling  opportunities  on its  offshore  properties  and the  reduction of its
outstanding  borrowings under its long-term credit facility.  In addition to the
drilling activity  discussed,  the Company has been notified by the operators of
several of its offshore  properties of their  intentions  to propose  additional
exploratory  and  development  drilling  activity  during the remainder of 1996.
Therefore,  Convest has increased its original capital  expenditure  budget from
approximately $8.0 million to approximately $15.0 million.

        If Convest does not participate in a drilling  operation proposed on one
of its properties,  under the terms of the pertinent Joint Operating  Agreement,
Convest could be subject to a substantial  penalty being imposed on its interest
in a specific  well.  Accordingly,  management  plans to carefully  evaluate all
proposed  projects which represent a substantial draw on corporate  resources or
which reduce near term  liquidity.  In addition,  Convest  continues to evaluate
possible  acquisition  and  divestiture  opportunities  in an effort to  upgrade
Convest's  reserve base,  primarily in geographic areas where Convest  possesses
operating expertise and where the property profiles have a longer reserve life.

        It is  anticipated  that  Convest's  1996  exploratory  and  development
drilling  operations  will be funded with cash flow from  Convest's  oil and gas
properties.  However,  significant  changes in oil and gas prices or significant
revisions  in the  reserve  volumes  securing  the  Company's  long-term  credit
facility  could require  management to dedicate all or a substantial  portion of
the  Company's  cash flow to meet  working  capital  needs and debt  maturities,
thereby   precluding   Convest   from   participating   in   proposed   drilling
opportunities.

Working Capital

          At September 30, 1996, Edisto had cash and cash equivalents  including
restricted cash of $47.8 million and Assets from Risk  Management  Activities of
$13.8  million  which are primarily  cash on deposit with  brokerage  houses and
counterparties.   When  combined  with  future  cash  from  operations  and  the
flexibility  provided by the various credit facilities,  management believes its
cash  resources  will be  sufficient to execute its business  plan,  satisfy its
liabilities and maintain current operations.

        During the nine months ended  September  30, 1996,  the  Company's  cash
inflows  totalled   approximately  $38.2  million.  This  cash  inflow  resulted
primarily from (i) $21.6 million  provided by  operations,  (ii) $3.0 million in
proceeds  from the sale of certain  assets,  (iii) $9.0 million  provided by the
exercise of warrants issued in connection  with Edisto's  bankruptcy in June 29,
1993, (iv) $3.3 million  provided by borrowings and (v) $1.0 million provided by
the sale of risk management assets.

        The Company's cash outflows totalled approximately $24.1 million for the
nine months ended September 30, 1996. This net cash outflow  resulted  primarily
from (i) repayment of debt of $13.8 million,  (ii)  development  and acquisition
expenditures  of $9.0  million,  (iii)  repurchase of common shares of Edisto of
$0.1 million, and (iv) the purchase of other noncurrent assets of $0.8 million.


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        During the nine months ended  September 30, 1995,  Edisto's cash inflows
totalled  approximately  $74.8 million.  This net cash inflow resulted primarily
from  proceeds  from the sale of the  Missouri  pipeline  of $71.8  million  and
included borrowings of $2.1 million.

        Edisto's cash outflows totalled approximately $71.7 million for the nine
months ended September 30, 1995. This net cash outflow  resulted  primarily from
(i)  repayment  of debt of  $57.5  million,  (ii)  development  and  acquisition
expenditures  of $9.3  million,  (iii)  the  purchase  of  natural  gas  hedging
contracts of $1.7 million and (iv) the purchase of other current and  noncurrent
assets of $2.7 million. Edisto funded these cash outflows through available cash
and sales of assets.


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                          PART II -- OTHER INFORMATION

Item 1.   Legal Proceedings.

        The  section   entitled   "Litigation"   in  Note  7  "Commitments   and
Contingencies"   of  the  "Notes  to  Consolidated   Financial   Statements"  is
incorporated herein by reference.

Item 6.   Exhibits and Reports on Form 8-K.

        None.

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                                   SIGNATURES


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


                                                    EDISTO RESOURCES CORPORATION



                                                     By: /s/ Michael Y. McGovern
                                                             Michael Y. McGovern
                                                       Chairman of the Board and
                                                         Chief Executive Officer


                                                        By: /s/ Jerry L. McNeill
                                                                Jerry L. McNeill
                                                                  Controller and
                                                        Chief Accounting Officer



Dated:    November 13, 1996



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