Form 10-QSB -- Quarterly or Transitional Report

(Mark One)
     [X]          QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                  OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1997


     [ ]          TRANSITION REPORT UNDER SECTION 13
                  OR 15(d) OF THE  EXCHANGE ACT 
       
            For the transition period from ___________ to ___________

                         Commission File Number 0-23814

                           CONCORD ENERGY INCORPORATED
        (Exact name of small business issuer as specified in its charter)

         Delaware                                             22-2670198
(State or other jurisdiction of                             (IRS Employer 
incorporation or organization)                            Identification No.)

                    1515 Simmons Street, Jourdanton, TX 78026
                    (Address of principal executive offices)

                                 (210) 769-3955
                           (Issuer's telephone number)

                 (Former name, former address and former fiscal
                      year, if changed since last report)

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

     At March  31,  1997,  the  outstanding  common  equity  of  Concord  Energy
Incorporated comprised 6,045,745 shares of common stock, $.0001 par value.

<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

     The following financial statements are filed as part of this report:

                                                                        Pages
                                                                        -----
Consolidated Balance Sheet (Unaudited),
         March 31, 1997 and 1996                                         F-1

Consolidated Statements of Operations and
         Accumulated Deficit (Unaudited)
         Three and Nine Months Ended March 31, 1997,  and 1996           F-2

Consolidated Statements of Cash Flows (Unaudited),
         Three and Nine Months Ended March 31, 1997,  and 1996           F-3

Notes to Consolidated Financial Statements                            F-4 - F-18


                                       2
<PAGE>

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

     In  May,   1993  the  Company   consummated   an  Agreement   and  Plan  of
Reorganization  ("Agreement")  pursuant  to  which  it  entered  the oil and gas
industry.  Under the Agreement,  the Company  changed its name to Concord Energy
Incorporated  (referred to herein as the  "Company") and became the parent of an
entity which manages and owns  interests in  approximately  75 oil and gas wells
primarily  located in East Texas and the Louisiana Gulf Coast. The Company's oil
and gas  subsidiary  had been  formed  in June  1991 in order  to  effectuate  a
consolidation of 166 oil and gas partnerships.

     In May,  1995,  the Company  acquired  Knight  Equipment and  Manufacturing
Corporation ("KEMCO"),  which locates,  designs,  refurbishes,  and installs gas
processing  plants for the  natural  gas  industry.  The  effective  date of the
acquisition was April 1, 1995.

     In  March,  1996,  the  Company  acquired   Integrated   Petroleum  Systems
Corporation ("IPS"), which has developed a unique, proprietary software which is
used to collect,  process and transmit data relative to petroleum production and
processing operations.

Results of Operations

     The Company's  revenues are primarily  derived through its KEMCO subsidiary
from the engineering, manufacturing,  construction and leasing of gas processing
equipment.  The Company also realizes  revenue  through the sale of oil and gas,
well operations and the sale of oil and gas data gathering software developed by
IPS.  During the nine months  ended March 31,  1997 the Company  reported  total
revenues


                                       3
<PAGE>

of $11,901,677. Contract revenues during the nine month period were $10,395,544.
Rental  income for the nine month period was  $164,664.  The Company's oil sales
during the nine month period were $666,607 while gas sales totaled $489,308. The
Company  reported  revenue  from well  operating  income of $30,380 and software
sales of  $155,174  during  the nine  month  period  ended  March 31,  1997.  By
comparison,  during the nine  month  period  ended  March 31,  1996 the  Company
reported  total  revenues  of  $9,131,747,   including   contract   revenues  of
$8,094,810,  rental  income  of  $88,101,  oil sales of  $417,475,  gas sales of
$348,865,  revenue from the Company's share of the proceeds of syndication sales
made  by  Integrated  Energy  Incorporated  ("Integrated"),   revenue  interests
associated with such sales in the amount of $140,000,  well operating  income of
$39,902 and software sales of $2,594.

     Total revenues  increased by $2,769,930  during the nine months ended March
31, 1997  compared to the nine month period ended March 31, 1996.  This increase
is primarily due to the increases in contract  revenue of  $2,300,734,  software
sales of $152,580 and oil and gas sales of $249,132 and $140,443, respectively.

     Total costs and operating  expenses  during the nine months ended March 31,
1997 were $10,696,000, a decrease of $1,287,703 from the nine month period ended
March 31, 1996.

     Cost of contract revenue during the period was $7,484,171. Cost of contract
revenue  as  a  percentage  of  contract  revenue  was   approximately  72%.  In
comparison,  during the nine month  period  ended March 31, 1996 total costs and
operating  expenses  were  $11,983,703, costs of 


                                       4
<PAGE>

contract revenue were $5,728,799 and cost of contract revenue as a percentage of
contract  revenue  was   approximately  71%.  The  increase  in cost of contract
revenue of  $1,755,372  is  primarily  the result of the  increase  in  contract
revenues.

     Included in the costs and expenses in the nine month period ended March 31,
1996 was the recording of a $3,043,055 inventory restatement.  This was a result
of  inventory  having been  recorded at retail  market  value at the time of the
KEMCO  acquisition  rather than at wholesale value, with the balance of the cost
of  acquisition  being  charged to  goodwill  as it should  have  been.  Current
management  and the Company's new auditors  have  determined  that the allocated
acquisition  costs  were in error,  and chose to take a one time  adjustment  in
fiscal 1996 in order to more accurately reflect the operations of the Company.

     The decrease in total costs and  operating  expenses of  $1,287,703  in the
nine month  period  ended March 31,  1997 as  compared to the nine month  period
ended March 31, 1996  primarily  resulted  from the  inclusion of the  inventory
restatement, partially offset by the increase in cost of contract revenue.

     Lease  operating  expenses  accounted  for  $507,635  during the nine month
period. Lease operating expenses as a percentage of total oil and gas sales were
approximately  44%. Lease  operating  expenses were $507,641 and lease operating
expenses as a  percentage  of oil and gas sales were  approximately  66%.  Lease
operating  expenses  as a  percentage  of total oil and gas sales  decreased  by
approximately 22%.

     During  the  nine  month   period   ended  March  31,   1997   general  and
administrative  expenses  were  $2,041,371.  During the nine month  period ended
March 31, 1996,  the Company's  total general and  administrative  expenses were
$2,363,424,  of which  


                                       5
<PAGE>

     $1,044,000  were incurred  under the Company's  management  agreement  with
Integrated, which terminated on June 30, 1996. Included in the nine month period
ended March 31, 1997 were costs of $354,636  associated with the winding down of
the  Company's  New Jersey  office and staff,  which  costs have  recently  been
reduced  significantly as described in the Company's Form 10-KSB  for the fiscal
year ended June 30, 1996.

     Depreciation,  depletion and  amortization  expenses  during the nine month
period  ended March 31, 1997 were  $662,823.  During the nine month period ended
March 31,  1996 these  expenses  were  $340,784.  The  increase  of  $322,039 is
primarily due to the addition of amortization of IPS' goodwill totaling $132,660
and the increase in oil and gas production.

     Interest  expense  for the nine  month  period  ended  March  31,  1997 was
$729,722. During the nine month period ended March 31, 1996 interest expense was
$704,059.

     For the nine month period  ended March 31, 1997 the Company  reported a net
income of  $507,736.  For the nine month period ended March 31, 1996 the Company
reported a net loss of  $3,532,241.  The  increase  of  $3,024,505  for the nine
months  ended March 31, 1997 as compared to the nine months ended March 31, 1996
primarily  resulted  from  the  combination  of  the  above-described  inventory
restatement  of $3,043,055  and the increased  contract  revenue of  $2,300,734,
partially offset by the increased cost of contract revenue of $1,755,372.


                                       6
<PAGE>

Liquidity and Capital Resources

     As of March 31, 1997 the Company  reported  working  capital of  $3,451,453
compared to working  capital of  $5,113,664  at March 31,  1996.  Total  current
assets  increased by $28,851 which is the  combination of a decrease in cash and
cash  equivalents  of $323,114,  an increase in  receivables of $1,220,545 and a
decrease in  inventories  and other current  assets of $868,580,  as compared to
March 31, 1996. Total current liabilities  increased from $4,967,838 as of March
31, 1996 to $6,658,900 as of March 31, 1997,  for a net increase of  $1,691,062.
The  combination of the foregoing  resulted in a net decrease in working capital
of $1,662,211  from March 31, 1996 to March 31, 1997. This decrease is primarily
related to the  reclassification of $2,920,000 from long term debt to short term
debt and the addition of $160,056 of short term debt acquired  with IPS,  offset
by the increase in receivables of $1,220,545.

Capital Expenditures and Commitments

     During the nine months ended March 31, 1997, the Company  incurred  capital
expenditures  of  $123,507.   These  capital  expenditures  primarily  consisted
of equipment purchases by KEMCO.


                                       7
<PAGE>

                                   SIGNATURES

     In accordance  with the  requirements  of the Exchange Act, the  Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                       CONCORD ENERGY INCORPORATED
                                       (Registrant)


                                       s\Deral Knight
                                       ----------------------------------------
Dated: May 14, 1997                    Deral Knight
                                       President, Chief Executive Officer
                                       and Chairman of the Board of Directors



Dated:May 14, 1997                     s\Scott Kalish
                                       ----------------------------------------
                                       Scott Kalish
                                       Treasurer (Principal Accounting Officer)


                                       8
<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Balance Sheet
--------------------------------------------------------------------------------

                                                    (Unaudited)     (Unaudited)
                                                     March 31         March 31
                                                       1997            1996
Assets

Current assets
   Cash and cash equivalents                        $    109,380   $    432,494
   Costs and estimated earnings in excess
        of billings on uncompleted contracts           2,512,131        363,937
   Accounts receivable, net of allowance for
       doubtful accounts of $132,390 and $67,490       1,524,566      1,555,707
   Receivable from stockholder                              --          106,636
   Receivable due from Integrated, net                      --          789,872
   Inventories                                         5,894,470      6,743,501
   Prepaid expenses and other assets                      69,806         89,355
                                                    ------------   ------------
       Total current assets                           10,110,353     10,081,502

Property, plant and equipment, net                     8,115,893      8,547,141
Goodwill, net                                          2,461,588      2,638,468
Bond issuance costs, net                                 210,070        494,649
Other assets                                              50,000         50,012
                                                    ------------   ------------
       Total assets                                 $ 20,947,904   $ 21,811,772
                                                    ============   ============

Liabilities and Stockholders' Equity

Current liabilities

   Current portion of long-term debt                $  3,842,472   $  1,768,750
   Current portion of capital lease obligations            8,566           --
   Accounts payable                                    1,620,015      1,843,688
   Accrued expenses                                    1,123,626      1,233,118
   Payable due to Integrated, net                         35,099           --
   Federal  income taxes payable                          29,122        122,282
                                                    ------------   ------------
       Total current liabilities                       6,658,900      4,967,838

Long term liabilities
  Notes payable                                        2,557,807      6,193,362
  Capital lease obligations                                 --           46,673
                                                    ------------   ------------
     Total Long term liabilities                       2,557,807      6,240,035
                                                    ------------   ------------
Commitments and Contingencies

Stockholders' equity
   Preferred Stock, $.01 par value, 1,000  shares
      authorized, 0 shares issued and outstanding           --             --
   Common stock, $.0001 par value, 20,000,000
      shares authorized, 6,045,745 and 4,444,350
      (post-split) shares issued and outstanding             605            444
   Paid-In capital                                    22,812,110     18,437,091
   Accumulated deficit                               (10,600,952)    (7,833,636)
                                                    ------------   ------------
                                                      12,211,763     10,603,899
Treasury Stock                                          (480,566)          --
                                                    ------------   ------------
       Total stockholders' equity                     11,731,197     10,603,899
                                                    ------------   ------------
       Total liabilities and stockholders' equity   $ 20,947,904   $ 21,811,772
                                                    ============   ============

                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                      F - 1



<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Statement of Operations
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                (Unaudited)     (Unaudited)     (Unaudited)    (Unaudited)
                                               Quarter Ended    Nine-Months    Quarter Ended   Nine-Months
                                                  March 31       March 31        March 31,      March 31,
                                                    1997           1997            1996           1996
<S>                                            <C>             <C>             <C>             <C>         
Revenue:
  Oil sales                                    $    223,302    $    666,607    $    140,397    $    417,475
  Gas sales                                         163,177         489,308         168,565         348,865
                                               ------------    ------------    ------------    ------------
     Total oil and gas sales                        386,479       1,155,915         308,962         766,340

  Contract revenue                                3,539,842      10,395,544       2,340,260       8,094,810
  Syndication sales and revenue interests              --              --              --           140,000
  Well operating income                               9,945          30,380          13,916          39,902
  Rental income                                      87,294         164,664          37,367          88,101
  Software Sales                                     59,638         155,174           2,594           2,594
                                               ------------    ------------    ------------    ------------
     Total revenue                                4,083,198      11,901,677       2,703,099       9,131,747
                                               ------------    ------------    ------------    ------------
Costs and Operating Expenses:
  Lease operating                                   207,169         507,635         138,359         507,641
  Cost of contract revenue                        2,802,221       7,484,171       1,524,131       5,728,799
   Inventory - adjustment to lower 
      of cost or market                                --              --              --         3,043,055
  General and administrative:
      Management agreement                             --              --           348,000       1,044,000
      Other expenses                                502,473       2,041,371         579,084       1,319,424
  Depreciation, depletion and amortization          264,829         662,823          69,740         340,784
                                               ------------    ------------    ------------    ------------
      Total costs and operating expenses          3,776,692      10,696,000       2,659,314      11,983,703
                                               ------------    ------------    ------------    ------------
     Income (Loss) from Operations                  306,506       1,205,677          43,785      (2,851,956)
                                               ------------    ------------    ------------    ------------
Other income (expense)
  Other  income                                      10,519          30,485           1,778          23,774
  Interest expense                                 (257,026)       (728,426)        (43,916)       (704,059)
                                               ------------    ------------    ------------    ------------
                                                   (246,507)       (697,941)        (42,138)       (680,285)
                                               ------------    ------------    ------------    ------------
     Income (Loss) before income taxes               59,999         507,736           1,647      (3,532,241)
                                               ------------    ------------    ------------    ------------
          Income tax expense                           --              --              --              --
                                               ------------    ------------    ------------    ------------
     Net Income (Loss)                         $     59,999    $    507,736    $      1,647    $ (3,532,241)
                                               ============    ============    ============    ============
Accumulated deficit, beginning of period        (10,660,951)    (11,108,688)     (7,835,283)     (4,301,395)
                                               ============    ============    ============    ============
Accumulated deficit, end of period             $(10,600,952)   $(10,600,952)     (7,833,636)     (7,833,636)
                                               ============    ============    ============    ============
     Income (Loss) per share                   $       0.01    $        0.0    $       0.00    $      (0.79)
                                               ============    ============    ============    ============
</TABLE>
                   The accompanying notes are an integral part
                   of these consolidated financial statements.


                                      F - 2

<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                               (Unaudited)                    (Unaudited)  
                                                               (Unaudited)      Nine-Months   (Unaudited)      Nine-Months  
                                                              Quarter Ended       Ended       Quarter Ended      Ended      
                                                                 March 31        March 31        March 31       March 31    
                                                                   1997            1997           1996            1996      
                                                                                                             
<S>                                                                 <C>            <C>            <C>            <C>         
Cash flows from operating activities
   Net Income (loss)                                           $    59,999    $   507,736    $     1,647    $(3,532,241)
   Adjustments to reconcile net income/loss to net cash
     (used in) provided by operating activities:
     Depreciation, depletion and amortization                      264,829        662,823         69,740        340,784
     Other noncash transactions                                    186,654        422,217            519      3,043,055
     Decrease (Increase)  in assets:
        Accounts receivable                                        303,832       (264,781)      (415,071)      (859,150)
        Costs and estimated earning in excess
             of billings on uncompleted contracts               (1,048,650)    (2,395,036)       369,092        194,924
        Receivable due from Stockholder                               --             --            8,441         (3,017)
        Receivable due from affiliated company                       7,853        236,415       (789,872)      (773,935)
        Inventories                                                 (5,563)       187,503        320,830     (1,333,931)
        Deferred income taxes                                         --             --
        Other assets and liabilities                                29,622        (49,542)        37,940        (17,648)
     (Decrease)  Increase  in liabilities
        Accounts payable                                           270,502        287,624        141,725      1,030,154
        Accrued expenses                                           (11,618)       (63,608)      (432,836)       686,875
        Federal income tax payable                                 (77,129)       (68,796)         8,333          2,184
        Receivable due from/payable due to Integrated, net          35,099         35,099       (259,052)      (594,685)
        Interest payable to stockholders                              --             --
                                                               -----------    -----------    -----------    -----------
         Net cash provided by (used in) operating activities        15,430       (502,346)      (938,564)    (1,816,631)
                                                               -----------    -----------    -----------    -----------
Cash flows from investing activities
     Purchase of propery, plant ,  oil and gas equipment,
       well workovers  and recompletions                           (19,674)      (123,507)      (111,568)      (162,762)
     Acquisition of business, net of cash acquired                    --             --         (897,280)      (897,280)
     Sale of oil and gas interests                                    --             --             --          477,332
                                                               -----------    -----------    -----------    -----------
         Net cash (used in) provided by investing activities       (19,674)      (123,507)    (1,008,848)      (582,710)
                                                               -----------    -----------    -----------    -----------
Cash flows from financing activities
      Net proceeds from note payable                                  --             --        1,054,000      1,879,000
      Net proceeds from issuance of common stock                      --          856,665           --             --
      Net proceeds from sale of common stock                          --             --        1,189,730      1,689,730
      Principal payments on notes payable
          and capital lease obligations                           (192,779)    (1,019,515)       (93,938)      (994,683)
                                                               -----------    -----------    -----------    -----------
        Net cash flows provided by (used in)
           financing activities                                   (192,779)      (162,850)     2,149,792      2,574,047
                                                               -----------    -----------    -----------    -----------
Net increase (decrease) in cash and cash equivalents              (197,023)      (788,703)       202,380        174,706
                                                               -----------    -----------    -----------    -----------
Cash and cash equivalents at beginning of period                   306,403        898,083        230,114        257,788
                                                               -----------    -----------    -----------    -----------
Cash and cash equivalents at end of period                     $   109,380    $   109,380    $   432,494    $   432,494
                                                               ===========    ===========    ===========    ===========
</TABLE>

                  The accompanying notes are an integral part
                  of these consolidated financial statements.

                                      F - 3
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1. Organization, Recapitalization, and Operations

Concord Energy  Incorporated  (the  "Company") is an oil and gas exploration and
production  company which also locates,  designs,  refurbishes  and installs gas
plants and gas  processing  equipment for customers in the natural gas industry.
The Company also provides rentals of gas plants and gas processing equipment and
provides services such as engineering, procurement,  dismantling,  reapplication
and relocation of complete gas processing  facilities.  In addition, the Company
has developed unique,  proprietary  software which is used to collect,  process,
and transmit data relative to petroleum  production and  processing  operations.
The Company is headquartered in Jourdanton,  Texas with substantially all of its
oil and gas operations in East Texas and the Louisiana Gulf Coast. The Company's
wholly-owned subsidiaries, Concord Operating, Inc. ("COI"), and Knight Equipment
and Manufacturing  Corporation  ("KEMCO") are located in Jourdanton,  Texas, and
Integrated Petroleum Systems Corporation ("IPS") is located in Denver, Colorado.

Concord  Energy,  Inc.,  (the  Company's  name  prior  to  the  recapitalization
described  below) was formed in June 1991 for the purpose of  combining  the net
assets and operations of 166  previously  independent  oil and gas  partnerships
(the  "Partnerships")  and the net  assets  and  operations  of COI  through  an
exchange of Partnership  and COI net assets for common stock in Concord  Energy,
Inc. The exchange was accounted for at historical cost. Certain limited partners
in the  Partnerships  who did not participate in the exchange were allocated net
working  interests  in  the  properties  previously  held  by  their  respective
Partnerships.

Prior to the exchange,  the Partnerships were managed by Integrated Energy, Inc.
("Integrated") and Tucker Financial,  Inc. ("Tucker") which were in the business
of establishing and managing oil and gas limited partnerships. Subsequent to the
exchange  through  June  30,  1996,  Integrated  continued  to  provide  certain
management and  administrative  services to the Company pursuant to a management
agreement between the Company and Integrated, which terminated on June 30, 1996.
COI manages the production of Company-owned oil and gas properties.

     On  May  19,  1993,  Monoclonal  International  Technology,  Inc.  ("MITI")
acquired all of the outstanding common stock of Concord Energy,  Inc., with MITI
as  the  acquirer  (i.e.  a  reverse   acquisition).   In  connection  with  the
acquisition,  MITI later changed its name to Concord  Energy  Incorporated,  had
previously  approved  a 1 for 230  reverse  split of its  127,784,100  shares of
common  stock and issued  10,556,077  shares of its common stock in exchange for
all the outstanding common stock of Concord Energy, Inc.


                                      F-4
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

In  December  1995,  the  company  effectuated  a 1 for 5 reverse  split of  its
outstanding  stock.   Historical  stockholders  equity  has  been  retroactively
restated for all periods  presented in the accompanying  consolidated  financial
statements to reflect this reverse split.

2. Summary of Significant Accounting Policies

Principles of consolidation

The  consolidated  financial  statements  are  comprised  of the Company and its
wholly-owned subsidiaries, Concord Energy, Inc., Concord Operating, Inc., Knight
Equipment & Manufacturing  Corporation and its  wholly-owned  subsidiary,  K & S
Engineering, Inc. and Integrated Petroleum Systems. All significant intercompany
accounts and transactions are eliminated in consolidation.

Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
effect  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.

Cash equivalents

Cash and cash  equivalents  include all cash and highly liquid  investments with
original maturities of three months or less.

Inventories

Inventories  are  stated  at the  lower of cost or  market  using  the  first-in
first-out method.  Inventory  consists  principally of gas plants,  compressors,
separators,  supplies  and repair parts  utilized by the Company in  conjunction
with its design and refurbishing of gas plants and gas processing equipment.

Property, plant and equipment

Property,  plant and equipment is stated at cost less accumulated  depreciation,
depletion and amortization.


                                      F-5
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

The Company  accounts for its oil and gas properties  under the full cost method
of  accounting.  Under the full cost method,  all costs  incurred in  acquiring,
exploring and developing  oil and gas reserves are  capitalized to the full cost
pool.  When oil and gas properties are sold,  retired or otherwise  disposed of,
any applicable proceeds are credited to the full cost pool, with no gain or loss
recognized,  unless the sale would have a significant impact on the relationship
between  capitalized  costs and  proved  reserves.  Since all of its oil and gas
operations are within the United States,  the Company  utilizes one cost pool to
account for its oil and gas properties. Depreciation, depletion and amortization
of oil and gas properties is computed based on the unit-of-production method for
the cost  pool,  based on  estimates  of proved  reserves  as  determined  by an
independent reserve engineer.

Other  property,  plant and  equipment  is  recorded  at cost  less  accumulated
depreciation. Repairs and maintenance costs which do not extend the useful lives
of the assets are  expenses as  incurred.  Depreciation  is provided  for on the
straight-line  method over the estimated  useful lives of the assets which range
from three to seven  years,  except for  buildings  and  improvements  which are
depreciated over estimated useful lives ranging from 20 to 30 years.

Goodwill

Goodwill is amortized  straight-line over its  estimated useful life of 15 years
in accordance with Generally Accepted Accounting Principles.

Leases

Leases  which meet  certain  criteria  evidencing  substantive  ownership by the
Company are capitalized  and the related capital lease  obligations are included
in  liabilities.  Amortization  and interest  are charges to expense,  with rent
payments  being treated as payments of the capital lease  obligation.  All other
leases are accounted for as operating  leases,  with rent payments being charges
to expense as incurred.

Deferred financing and bond issuance costs

Costs  incurred  in  conjunction  with  obtaining  financing   (including  costs
associated  with the issuance of bonds) are  amortized  using the  straight-line
method over the term of the related  financing  agreement or bond. Bond issuance
costs at March 31, 1997 and 1996 are stated net of  accumulated  amortization of
$310,691 and $31,445, respectively.


                                      F-6
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Revenue recognition

Oil and gas sales

Revenues from oil and gas sales are accrued as earned based on production volume
statements and joint interest billings obtained from the well operator.

Contract revenue

Revenues from  construction  contracts are recognized based on the percentage of
completion method,  measured on the basis of costs incurred to date to estimated
total  budgeted  costs for each  contract.  Contract  costs  include  all direct
material  and labor  costs,  including  those  indirect  labor and repair  costs
related to contract performance.  Selling,  general and administrative costs are
charged to expense as incurred.  Provisions for estimated  losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job  performance,  job conditions,  estimated  profitability  and final contract
settlements are monitored on a periodic basis in order to determine if revisions
to the income and cost  estimates  are  necessary  as a result of such  changes.
Revisions to the income and cost estimates, if any, are recognized in the period
in which such  revisions are  determined to be necessary.  Costs and earnings in
excess of billings on uncompleted contracts represent an asset based on revenues
recognized in excess of amounts billed to customers. Billings in excess of costs
and earnings on uncompleted  contracts are recorded as a liability and represent
contracts for which billings to date exceed cumulative revenues recognized based
on the percentage of completion method.

Share of Syndication sales

Under an agreement  between the Company and  Integrated  (see Note 10) which was
terminated on June 30, 1996, the Company was entitled to receive a percentage of
the proceeds of all sales made by Integrated of syndicated retail  partnerships.
This revenue was recognized when earned.

Well operating income

The  Company,  through its wholly  owned  subsidiary  COI,  manages and operates
wells. The revenue generated from these services is recognized when earned.

Rental revenue

The Company leases  certain gas plants and  separators to customers  under short
term leases which are accounted for as operating  leases.  At March 31, 1997 and
1996, there are no significant future minimum rentals to be received under these
noncancelable operating leases.


                                      F-7
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Software sales

The  Company,  through its wholly  owned  subsidiary  IPS,  sells,  installs and
maintains its proprietary software. The revenue generated from these services is
recognized when earned.

Income taxes

The Company  accounts  for income  taxes under the asset and  liability  method.
Under the asset and liability  method,  deferred tax assets and  liabilities are
recognized  based upon  differences  arising from the carrying of amounts of the
Company's assets and liabilities for tax and financial  reporting purposes using
enacted tax rates in effect for the year in which the  differences  are expected
to reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is  recognized  in income in the  period  when the  change in tax rates is
enacted.

Net income (loss) per share

Net income  (loss) per share of common stock is based upon the weighted  average
number of shares of common stock  outstanding  (5,960,366  at March 31, 1997 and
4,444,350 at March 31, 1996).  The  Company's  common stock  equivalents,  which
consist of outstanding  warrants to purchase the Company's common stock, are not
considered in the net income (loss) per share  calculation since their effect is
anti-dilutive.

3. Business Combinations

On May 7, 1995, the Company acquired all of the issued and outstanding shares of
the common stock of KEMCO for $7,000,000 in a business combination accounted for
under the purchase  method of accounting.  The  acquisition  was financed by the
issuance  of  400,000  shares  of the  Company's  common  stock and  payment  of
$4,500,000  in cash.  Financing  for the cash portion of the purchase  price was
obtained  primarily  through  the net  proceeds  from  debt  financing  totaling
approximately $3,700,000 and the net proceeds from the sale of 260,000 shares of
the  Company's  common stock  totaling  approximately  $800,000.  The results of
operations of KEMCO and its wholly-owned  subsidiary,  K & S Engineering,  Inc.,
subsequent to April 1, 1995, the date effective  control of KEMCO transferred to
the Company for financial reporting purposes, are included in these consolidated
financial statements.


                                      F-8
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

On March 1, 1996 the Company  acquired all of the issued and outstanding  shares
of the common stock of IPS for 600,000 shares of the Company's common stock in a
business combination accounted for under the purchase method of accounting.  The
results of operations of IPS  subsequent to March 1, 1996, are included in these
consolidated financial statements.

At the time of purchase,  IPS' liabilities  exceeded the value of it's assets by
$853,208,  which when added to the  $1,800,000  value  assigned to the shares of
common  stock  issued,  resulted  in  goodwill  of  $2,653,208  being  recorded.
Amortization of $191,620 and $ 14,740 is recorded as of March 31, 1997 and 1996,
respectively.

4. Accounts Receivable and Concentration of Credit Risk

Accounts receivable represents amounts due from customers who are in the oil and
gas  business  throughout  North  and  South  America.  Fluctuations  in  market
conditions impact the credit worthiness of these customers.  The Company reviews
the financial  condition of purchasers and joint interest  participants prior to
signing sales or joint  interest  agreements.  Payment terms are on a short-term
basis and in accordance with industry standards.

5. Inventory - Lower of Cost or Market Adjustment

Based on a comparison  of the estimated  potential  sales prices to the recorded
carrying  costs of the  inventory of plants  acquired in the KEMCO  acquisition,
management has determined that the recorded cost of the inventory of such plants
was in excess of the market  value of the plants  which would allow a reasonable
profit  margin on the sale of the plants.  The recorded cost of the inventory of
such plants had been determined  based on an appraisal  obtained and relied upon
to establish the value of the plants at the time KEMCO was acquired.  Management
subsequently  determined  that  the  values  assigned  to the  plants  were  the
appraiser's  estimated  retail sales prices of the plants rather than  wholesale
market value that would result in a reasonable profit margin on the sales of the
plants.

To adjust the carrying cost of the plants to their  estimated  wholesale  market
value,  an adjustment of $3,043,055 was charged to expense for the quarter ended
September 30, 1995.

6. Property, Plant and Equipment, Net

Significant  components  comprising  property,  plant and  equipment at March 31
include the following:


                                      F-9
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

                                                   1997           1996
     Oil & gas properties:
              Leasehold costs                  $  7,495,916    $  6,806,177
              Lease well & equipment              1,845,508       1,944,882
              Intangibles                         1,904,925       1,904,925
              Property, plant & equipment           484,181         945,431
              Other                                  81,131          58,551
                                               ------------    ------------
                                                 11,811,661      11,659,966
                                               ------------    ------------
     Other property, plant & equipment
              Land                                  185,413         159,913
              Buildings & improvements              361,925         374,719
              Machinery & equipment                 338,136         234,921
              Vehicles                              237,896         218,769
              Furniture, fixtures & software        206,278         163,633
                                               ------------    ------------
                                                  1,329,648       1,151,955
                                               ------------    ------------
     Accumulated depreciation,
     depletion and amortization                  (5,025,416)     (4,264,780)
                                               ------------    ------------
     Property, plant and equipment, net        $  8,115,893    $  8,547,141
                                               ============    ============

Depreciation,  depletion  and  amortization  of  oil  and  gas  properties,  and
depreciation of other property,  plant and equipment for the periods ended March
31, is as follows:

                                                        1997         1996

     Oil and gas properties                           $414,446     $236,044
     Other property, plant and equipment               115,697       90,000
                                                      --------     --------
                                                      $530,163     $326,044
                                                      ========     ========


                                      F-10
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

7. Debt and Capital Lease Obligations

Debt

Long-term debt includes the following at March 31:

                                                       1997           1996

Bond payable, dated May 1995, with
interest at 10% per annum, requiring
semi-annual interest payments through
maturity on November 1, 1997. The bond
is secured by the assets of KEMCO. As
additional consideration, the Company
issued 90,000 shares of common shares to
the lender. (See Note 12)                          $2,920,000      $2,920,000

Secured notes payable, dated December
1994, with a face value of $2,500,000
issued at $750,000 discount. The notes
bear interest at 9% per annum with an
effective interest rate of 15% per
annum. Semi-annual interest payments of
$112,500 are required through maturity
in January 2010. The notes are secured
by certain gas plants and equipment and
a guarantee of the Company.                        1,789,226         1,760,263

Secured notes payable, dated September
1994, with a face value of $1,400,000
issued at a $604,500 discount. The notes
bear interest at 6% per annum payable
semi-annually with an effective interest
rate of 14.02% per annum. Annual
principal payments of $140,000 are
required beginning in August 2005
through maturity in August 2009. The
notes are secured by certain oil and gas
property owned by the Company.                      737,440           708,787


                                      F-11
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Acquisition bridge financing evidenced
by notes payable which bear interest at
12% per annum. The interest and related
principal are due at various maturity
dates through November 1996.
Approximately $180,000 and $500,000 of
the notes at June 30, 1996 and 1995,
respectively are secured by a personal
guarantee from Jerry Swon former 
Chairman of the Company's Board of
Directors, who is also a shareholder of
the Company.                                           --             270,000

Unsecured notes payable, bearing
interest at 7% to 7.5% per annum.
Interest and principal were due at
various dates through fiscal 1996.                     --             450,000

12% convertible notes, dated October
1994, convertible at maturity into
shares of the Company's common stock.
$125,000 of these notes matured and were
converted into 25,000 shares of the
Company's common stock. Upon the
conversion, an additional 3,000 shares
of the Company's common stock was issued
as consideration for accrued interest
expense through the date of conversion
totaling $15,000. The remainder of the
notes mature in October 1996. The notes
are secured by certain oil and gas
property owned by the Company.                         --             125,000

Secured note payable date January 1996,
with interest at 9% per annum. Interest
and principal of $1,271 are due monthly
through January 2000. The note is
secured with certain equipment owned by
the Company.                                         37,113              --

Unsecured non-interest bearing note
payable dated March 1996 payable in
monthly installments of $43,599 through
maturity on December 15, 1996.                      174,000              --


                                      F-12
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Secured note payable dated February
1996, with interest at 12% per annum.
Principal and interest are due at
maturity on February 28, 1997. The note
is secured by a certain gas plant owned
by the Company.                                     600,000           600,000

In July, 1995 the Company issued $500,000 
of 12% convertible notes. Upon maturity, or 
any time prior thereto, each $250,000
portion of the obligation is convertible
into additional shares of common stock.
The notes mature, one half each July 7,
1996 and August 7, 1996, respectively.                  --            500,000

On August 21, 1995, the Company issued
$275,000 of 12% convertible notes. Upon
maturity, or any time prior thereto, the
obligation is convertible into
additional shares of common stock at
$5.00 per share. The note matures on
August 21, 1996.                                        --            275,000

Various convertible notes payable,
bearing interest of 10% to 12%.                         --            123,062

Various unsecured notes payable, bearing
interest of 4.5% to 12% per annum. The
interest and principal are due at
various maturity dates through May 1997.             142,500          230,000
                                                  ----------       ----------
Total debt outstanding                             6,400,279        7,962,112

Less: current portion                              3,842,472        1,768,750
                                                  ----------       ----------
Long-term debt                                    $2,557,807       $6,193,362
                                                  ==========       ==========

As of March 31, 1997,  maturities and scheduled payments for the next five years
and thereafter are:  $3,842,472 in 1998,  $13,276 in 1999,  $14,522 in 2000, and
the remainder after year 2001.


                                      F-13
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Capital Lease Obligations

In conjunction  with its  acquisition  of KEMCO,  the Company  acquired  certain
leased  equipment  which  is  accounted  for as  capital  leases.  Prior  to the
acquisition,  certain of the leases were  prepaid at  inception.  Capital  lease
obligations  recorded  in the  accompanying  consolidated  financial  statements
represent the present value of the lease purchase  options which are exercisable
at the end of the lease term in December 1997, discounted at an interest rate of
16% and the future payments due on a lease of a yard facility discounted at 12%.

Capital lease obligations as of March 31 consist of the following:

                                                          1997        1996

     Total future minimum lease payments                $ 9,000     $67,106
     Less:  amounts representing interest                   434      20,433
                                                        -------     -------

     Present value of minimum lease payments            $ 8,566     $46,673
                                                        =======     =======

The obligations under capital lease mature as follows: $8,566 in 1997.

8. Commitments and Contingencies

Minimum Rental Commitments

The Company has several noncancelable  operating leases,  primarily for yard and
office equipment,  that expire over the next five years.  These leases generally
are for periods  ranging from three to five years and require the Company to pay
all executory costs such as maintenance and insurance.

Legal Matters

As of March 31,  1997,  the Company was involved in various  litigation  matters
which it  considers to be in the normal  course of  business.  In the opinion of
management,  based upon consultation with legal counsel,  the claims either lack
merit,  or the potential  liability,  if any, upon the ultimate  disposition  of
these  lawsuits  will not have a  material  effect  on the  Company's  financial
position  or  results of  operations.  Additional  details  may be  obtained  by
examining the Company's Form 10-KSB in the fiscal year ended June 30, 1996.


                                      F-14
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

9. Outstanding Warrants

Warrants  outstanding  as of March 31,  1997  entitling  the holders to purchase
shares of the Company's common stock are summarized as follows:

Date of Issuance   Number of Shares     Exercise Price/Share     Expiration Date

November 1994          1,500                   $7.50              November 1997 
June 1995             50,000                    2.90              February 1998
June 1995            100,000                    7.50                July 1997
November 1995         20,000                    5.00               November 1998
February 1996         25,000                    4.00               January 1999
May 1996              20,000                    3.75                June 1998
May 1996             100,000                    3.75                June 1999
May 1996              15,000                    4.00               January 1998
May 1996             100,000                    4.50                March 2001
May 1996             200,000                   2.625                 July 1999
                                                              
The Company has sufficient shares authorized but not issued for use in the event
these warrants are exercised.

10. Transactions with Related Parties

Related Party Ownership Interests

The former chairman of the Company's board of directors,  personally and through
Integrated  and  Tucker,  which  are  companies  that he owns,  own 2.48% of the
Company's common stock as of March 31, 1997. Additionally,  certain officers and
directors of the Company, together with its present chairman of the board own or
control 6.57% of the Company's common stock as of March 31, 1997.

Receivables from Related Parties/Affiliated Company

Integrated  and the Company  previously had an agreement by which the associated
receivables  and payables were  permitted to be netted.  At March 31, 1997,  the
Company has a net payable due to Integrated of $35,099.  At March 31, 1996,  the
Company had a net receivable due from Integrated of $789,872.


                                      F-15
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

As part of its ongoing  operations,  the Company conducts business with Atascosa
Electric Services ("AES"), an entity which is owned and controlled the family of
Deral Knight,  CEO,  chairman of the board of directors and a stockholder of the
Company.  At March 31, 1997, there was no receivable due from stockholder (Deral
Knight) or due from affiliated  company (AES). At March 31, 1996, the receivable
due from stockholder  (Deral Knight) and due from affiliated  company (AES) were
$106,636 and $0, respectively.

Under the  provisions  of the  agreement  whereby  the  Company  acquired  Deral
Knight's  stock in KEMCO,  Deral  Knight  has  agreed to return to the  Company,
Concord  Energy  Incorporated  common  stock  valued at $6.25 per  shares to the
extent  that  Deral  Knight  owed  money  to  the  Company  at  June  30,  1995.
Accordingly,  in  liquidation of the receivable  balance,  approximately  17,000
shares of Company  common  stock  issued to Deral Knight as part of the purchase
price of his KEMCO stock are  reflected  as having been  returned to the Company
and are recorded as treasury stock at September 30, 1996.

Other Payables to Related Parties

At March 31, 1997,  $263,659 is owed to Richard D. Barden, the president of IPS,
and his wife June Barden. The balance generally consists of accrued compensation
and expense  reimbursements  due to them and is included in accrued  expenses in
the accompanying balance sheet.

Management Agreement

The Company  and  Integrated  had entered  into an  agreement  (the  "Management
Agreement")   that   required   Integrated   to  provide   certain   management,
administrative and accounting  services to the Company and certain  subsidiaries
for  $116,000  per month,  which  agreement  terminated  on June 30,  1996.  The
Management  Agreement had been provided for under the terms of the consolidation
of  Partnerships,  the assets of which were exchanged for Concord  Energy,  Inc.
stock (see Note 1 above).  The  services  provided by  Integrated  included  the
receipt of cash for oil and gas sales and the payment of  operating  and capital
expenditures  on  behalf  of  the  Company.  In  accordance  with  the  original
provisions of the Management Agreement,  the Company was also entitled to 10% of
all syndicated retail partnership gross sales made by Integrated.  As additional
consideration for the Management Agreement,  Integrated assigned to the Company,
effective  June 1, 1991 through  March 31, 1994,  its revenue  sharing in future
program  syndications.  Effective  March 31, 1994, the Management  Agreement was
modified to provide the Company with 20% of all  syndicated  retail  partnership
gross  sales  made by  Integrated.  During  fiscal  1994,  the  Company  sold to
Integrated all of its revenue sharing interests which were earned under the


                                      F-16
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Management Agreement,  aggregating $363,266.  Revenue interest income earned was
also remitted to Integrated in connection  with the sale.  The proceeds from the
sale  were  recorded  as  reduction  of the  Company's  full-cost  oil  and  gas
properties  pool.  In the  period  ended  March  31,  1997 and 1996 the  Company
recorded income from Integrated for as follows:

                                                   1997              1996

Share of Syndication Income                       $   --           $140,000
                                                  --------         --------

                                                  $   --           $140,000
                                                  ========         ========

Employment Agreements

On November 1, 1991 IPS entered into an employment agreement with its president,
Richard D. Barden. The agreement as modified on October 4, 1994 provides for him
to receive  an annual  base  salary of  $96,200  per year.  The  agreement  also
provides for certain fringe benefits and bonuses and expires December 31, 2000.

On  November  9,  1994  KEMCO  entered  into an  employment  agreement  with its
president, Deral Knight. The agreement provides for him to receive a base salary
of $125,000 per annum plus a bonus  consisting of ten percent of KEMCO's pre-tax
net profits from  $1,500,000  to $2,000,000  and fifteen  percent of pre-tax net
profits which exceed $2,000,000.  The agreement also provides for certain fringe
benefits and expires May 7, 2000.

Royalty Agreement

In March, 1992 IPS entered into a royalty agreement with its president,  Richard
D. Barden, for any related oil and gas industry applications  developed from the
original idea of developing a set of proprietary  software  programs.  Royalties
under this  agreement are calculated as follows:  1% of the first  $1,500,000 of
gross  revenue,  and 5% of  gross  revenue  thereafter.  The  agreement  expires
December 31, 2015.


                                      F-17
<PAGE>

Concord Energy Incorporated and Subsidiaries

Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

Other Related Party Transactions

In June 1996 the Company  accepted  124,500 shares of the Company's common stock
from  Integrated,  at a value  of $3.00  per  share  as a  reduction  of the net
receivable  balance  due from  Integrated  as of June 30,  1996.  This  stock is
included in the accompanying  consolidated financial statement as Treasury stock
in stockholders' equity.

On November 22, 1996 the Company  repurchased from Integrated plants and related
equipment for $361,415. The purchase price was netted against the net receivable
due from Integrated at June 30, 1996 of $236,415 which resulted in a net payment
to Integrated of $125,000.

On November  22, 1996 Jerry Swon  resigned as chairman  and board  member of the
Company's board of directors. In conjunction with his resignation,  the board of
directors  approved a severance payment of six months of his then current salary
totaling $75,000.

12. Events Subsequent to Date of Balance Sheet

In April 1997 the Company  completed the obtaining of extensions from holders of
a $2,920,000  bond payable which  originally  was to mature on May 1, 1997.  The
bond payable maturity date was extended to November 1, 1997, and the Company has
agreed  to pay  the  holders  an  additional  2%  interest  in  return  for  the
extensions.


                                      F-18