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 September 30, 1996

  |_|                  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 Identification No.)
incorporation or organization)

                    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 September 30, 1996,  the  outstanding  common  equity of Concord  Energy
Incorporated comprised 5,958,811 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),
         September 30, 1996 and 1995                                         F-1

Consolidated Statements of Operations and
         Accumulated Deficit (Unaudited)
         Three Months Ended September 30, 1996, and 1995                     F-2


Consolidated Statements of Cash Flows (Unaudited),
         Three Months Ended September 30, 1996, and 1995                     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 into 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 was 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 System 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,  constructing 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 three months ended September 30, 1996 the Company reported total

                                       3
<PAGE>

income from operations of $4,496,758.  Contract revenues during the three months
period were  $3,978,351.  Rental income for the three months period was $37,367.
The  Company's oil sales during the three month period were $241,354 and the gas
sales totaled $178,479.  The Company reported revenue from well operating income
of $10,721 and software  sales of $50,485  during the three months  period ended
September  30,  1996.  By  comparison,  during  the three  months  period  ended
September  30,  1995 the  Company  reported  total  income  from  operations  of
$3,160,628, including contract revenues of $2,781,384, rental income of $34,447,
oil sales of $155,643, gas sales of $94,837,  revenue from syndication sales and
revenue interests of $80,000 and well operating income of $14,317.

     Total  revenues  increased  by  $1,336,130  during the three  months  ended
September 30, 1996 compared to the three months period ended September 30, 1995.
This  increase  is  primarily  due to  the  increase  in  contract  revenues  of
$1,196,967  and  increases  in  oil  and  gas  sales  of  $85,711  and  $84,642,
respectively.

     Total costs and operating  expenses during the three months ended September
30,  1996 were  $4,049,173.  Cost of  contract  revenue  during  the  period was
$2,922,840.  Lease operating  expenses  accounted for $167,939.  Lease operating
expenses as a percentage of total oil and gas sales were  approximately  40%. In
comparison,  during the three months period ended September 30, 1995 total costs
and operating  expenses were  $5,725,108.  During the period ended September 30,
1995 costs of contract  revenue were $1,573,934,  lease operating  expenses were
$218,717 and lease operating  expenses as a percentage of oil and gas sales were
approximately  87%. Total costs and operating  expenses decreased by $1,675,935,
and lease operating expenses decreased by $50,778 during the three months period

                                       4
<PAGE>

ended  September 30, 1996 as compared to the three months period ended September
30, 1995,  and lease  operating  expenses as a  percentage  of total oil and gas
sales decreased by approximately  47%. Included in the costs and expenses in the
three months  period ended  September 30, 1995 was the recording of a $3,043,055
inventory  restatement.  This was a result of a retail market value being booked
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  costs were in error and has chosen to take a one time  adjustment  to
more accurately reflect the operations of the Company. The decrease in costs and
operating  expenses from the September 30, 1995 quarter to that ending September
30, 1996  primarily  relate to the  inclusion  of this  adjustment  in the prior
period.

     During the three  months  period  ended  September  30,  1996,  general and
administrative  expenses  were  $751,281.  During the three months  period ended
September 30, 1995, the Company's total general and administrative expenses were
$748,358, of which $348,000 consisted of payments under the Company's management
agreement with Integrated,  which was terminated on June 30, 1996. Also included
in the three  months  period  ended  September  30,  1996 were costs of $155,740
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.

                                      5
<PAGE>

     Depreciation,  depletion and amortization  expenses during the three months
period ended  September 30, 1996 were  $207,113.  During the three months period
ended  September 30, 1995 these expenses were $141,044.  The increase of $66,069
is primarily due to the addition of $44,220 of amortization for IPS goodwill and
the increase in oil and gas production.

     Interest  expense for the three months period ended  September 30, 1996 was
$243,612.  During the three months  period  ended  September  30, 1995  interest
expense was  $348,096.  The decrease of $104,484 is primarily  the result of the
elimination of bridge financing costs associated with the KEMCO acquisition.

     For the three months period ended  September 30, 1996 the Company  reported
net income of $209,143. For the three months period ended September 30, 1995 the
Company  reported  a net  loss  of  $2,906,268.  The  increased  net  income  of
$3,043,055  for the three months ended  September  30, 1996,  as compared to the
three months ended  September  30, 1995,  primarily  resulted from the inventory
restatement  of $3,043,055  recorded in the three months period ended  September
30, 1995 previously discussed.

Liquidity and Capital Resources 
 
     As of September 30, 1996 the Company reported working capital of $2,491,153
compared to working  capital of $3,843,101 at September 30, 1995.  Total current
assets  increased by $1,748,136  which is the  combination of a decrease in cash
and cash equivalents of $29,098,  an increase in receivables of $2,188,596 and a
decrease in  inventories  and other current  assets of $411,362,  as compared to
September 30, 1995.  Total current  liabilities  increased from $4,661,931 as of


                                       6
<PAGE>

September 30, 1995 to $7,762,015 as of September 30, 1996, for a net increase of
$3,100,084.  The  combination  of the  foregoing  resulted in a net  decrease in
working  capital of  $1,351,948  from  September 30, 1995 to September 30, 1996.
 
This decrease is primarily  related to the  reclassification  of $2,920,000 from
long term debt to short term debt,  and the  addition  of $148,140 of short term
debt acquired with IPS,  partially offset by a net increase in cash and accounts
receivable of $2,159,498. 

Capital Expenditures and Commitments

     During the three months ended  September  30,  1996,  the Company  incurred
capital  expenditures of $73,881.  These capital expenditures were primarily for
equipment purchases by KEMCO.

                                     7
<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the Company caused
this  Report to be signed on it's  behalf  by the  undersigned,  thereunto  duly
authorized.

                                         CONCORD ENERGY INCORPORATED
                                         (Company)
                                            
Dated: December 11, 1996              /s/ Deral Knight
                                      -----------------------------------------
                                          Deral Knight
                                          President, Chief Executive Officer
                                          and Chairman of the Board of Directors

Dated: December 11, 1996              /s/ Scott Kalish
                                      -----------------------------------------
                                          Scott Kalish
                                          Treasurer 
                                          (Principal Accounting Officer)

                                        8
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                     (Unaudited)    (Unaudited)
                                                    September 30,  September 30,
                                                         1996           1995
Assets

Current assets
  Cash and cash equivalents                         $    761,929    $   791,027
  Costs and estimated earnings in excess                
    of billings on uncompleted contracts               1,515,817        787,979
  Accounts receivable, net of allowance for
    doubtful accounts of $132,390 and $67,490          2,190,894        811,898
  Receivable from stockholder                               --          115,602
  Receivable due from Integrated, net                    197,364           --
  Inventories                                          5,475,899      5,842,350
  Prepaid expenses and other assets                      111,265        156,176
                                                    ------------    -----------

    Total current assets                              10,253,168      8,505,032

Property, plant and equipment, net                     8,433,538      9,029,312
Goodwill, net                                          2,550,028           --
Bond issuance costs, net                                 293,075        494,649
    Other assets                                          50,000         50,000
                                                    ------------    -----------

    Total assets                                    $ 21,579,808   $ 18,078,993
                                                    ============    ===========

Liabilities and Stockholders' Equity

Current liabilities
  Current portion of notes payble to stockholders   $    250,000    $   325,000
  Current portion of long-term debt                    4,126,344      1,200,000
  Current portion of capital lease obligations            15,161           --
  Accounts payable                                     1,772,613      1,196,106
  Accrued expenses                                     1,499,979      1,375,882
  Payable due to Integrated, net                            --          428,107
  Federal income taxes payable                            97,918        136,836
                                                    ------------    -----------
    Total current liabilities                          7,762,015      4,661,931

Long term liabilities
    Notes payable                                      2,539,549      5,641,174
    Capital lease obligations                             52,368         46,673
                                                    ------------    -----------
Total Long term liabilities                            2,591,917      5,687,847
                                                    ------------    -----------

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, 5,958,811 and 3,104,224
(pre-split) shares issued and outstanding                    594            310
Paid-In capital                                       22,605,392     14,936,568
Accumulated deficit                                  (10,899,544)
                                                    ------------    -----------
                                                      11,706,442      7,729,215
Treasury Stock                                          (480,566)          --
                                                    ------------    -----------
Total stockholders' equity                            11,225,876      7,729,215
                                                    ------------    -----------

Total liabilities and stockholders' equity          $ 21,579,808   $ 18,078,993
                                                    ============    ===========

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

                                      F-1
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                    (Unaudited)      (Unaudited)
                                                   Quarter Ended   Quarter Ended
                                                   September 30,   September 30,
                                                        1996            1995
Revenue:
  Oil sales                                         $    241,354    $   155,643
  Gas sales                                              178,479         94,837
                                                    ------------    -----------

    Total oil and gas sales                              419,833        250,480

  Contract revenue                                     3,978,351      2,781,384
  Syndication sales and revenue interests                   --           80,000
  Well operating income                                   10,721         14,317
  Rental income                                           37,367         34,447
  Software Sales                                          50,485           --
                                                    ------------    -----------

    Total revenue                                      4,496,758      3,160,628
                                                    ------------    -----------

Costs and Operating Expenses:
  Lease operating                                        167,939        218,717
  Cost of contract revenue                             2,922,840      1,573,934
  Inventory - adjustment to lower of cost or market         --        3,043,055
  General and administrative:
    Management agreement                                    --          348,000
    Other expenses                                       751,281        400,358
  Depreciation, depletion and amortization               207,113        141,044
                                                    ------------    -----------

    Total costs and operating expenses                 4,049,173      5,725,108
                                                    ------------    -----------

    Income (Loss) from Operations                        447,585     (2,564,480)
                                                    ------------    -----------

Other income (expense)
  Other income                                             5,170          6,308
  Interest expense                                      (243,612)      (348,096)
                                                    ------------    -----------

                                                        (238,442)      (341,788)
                                                    ------------    -----------

    Income (Loss) before income taxes                    209,143     (2,906,268)
                                                    ------------    -----------
Income tax expense                                          --             --
                                                    ------------    -----------

Net Income (Loss)                                   $    209,143    $(2,906,268)
                                                    ============    ===========

Accumulated deficit, beginning of period             (11,108,688)   $(4,301,395)
                                                    ============    ===========

Accumulated deficit, end of period                  $(10,899,545)   $(7,207,663)
                                                    ============    ===========

Income (Loss) per share                             $       0.04    $     (0.94)
                                                    ============    ===========


                   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)
                                                                    Quarter Ended     Quarter Ended
                                                                    September 30,     September 30,

                                                                        1996              1995       
<S>                                                                 <C>                <C>         
Cash flows from operating activities                                                 
Net Income (loss)                                                   $   209,143        $(2,906,268)
Adjustments to reconcile net income/loss to net cash                                 
(used in) provided by operating activities:                                          
Depreciation, depletion and amortization                                207,113            141,044
Other noncash transactions                                              132,485          3,043,055
Decrease (Increase) in assets:                                                       
 Accounts receivable                                                   (931,109)          (115,340)
 Costs and estimated earning in excess                                                
   of billings on uncompleted contracts                              (1,398,722)          (326,327)
 Receivable due from Stockholder                                           --              (11,983)
 Receivable due from affiliated company                                    --               15,937
 Inventories                                                            606,074           (432,780)
 Deferred income taxes                                                     --               22,006
 Other assets and liabilities                                           (91,001)           (77,327)
(Decrease) Increase in liabilities                                                   
 Accounts payable                                                       440,223            337,571
 Accrued expenses                                                       312,745            871,264
 Federal income tax payable                                                --               16,738
 Receivable due from/payable due to Integrated, net                      39,051           (166,578)
 Interest payable to stockholders                                          --                3,375
                                                                    -----------        -----------
                                                                                     
   Net cash provided by (used in) operating activities                 (473,998)           414,388
                                                                    -----------        -----------
                                                                                     
Cash flows from investing activities                                                 
  Purchase of propery, plant , oil and gas equipment,                                  
   well workovers and recompletions                                     (73,882)            37,601
                                                                    -----------        -----------
                                                                                     
   Net cash (used in) provided by investing activities                  (73,882)            37,601
                                                                    -----------        -----------
Cash flows from financing activities                                                 
  Net proceeds from note payable                                           --              775,000
  Net proceeds from issuance of common stock                            856,665               --
  Principal payments on notes payable and 
    capital lease obligations                                          (444,939)          (693,750)
                                                                    -----------        -----------
                                                                                     
     Net cash flows provided by (used in)                                                 
      financing activities                                              411,726             81,250
                                                                    -----------        -----------
                                                                                     
Net increase (decrease) in cash and cash equivalents                   (136,154)           533,238
                                                                    -----------        -----------
                                                                                     
Cash and cash equivalents at beginning of period                        898,083            257,788
                                                                    -----------        -----------
                                                                                     
Cash and cash equivalents at end of period                          $   761,929        $   791,027
                                                                    ===========        ===========
</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 production and
service company which also locates, designs, refurbishes and installs gas plants
and gas  processing  equipment  for  customers in the natural gas  industry.  In
addition,  the  Company  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  &  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 which did not participate in the exchange were allocated net
working   interests  in  the  properties   previously  held  by  the  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 was 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,  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 it's
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 it's 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 June 30,  1996 and 1995 is stated net of  accumulated  amortization  of
$227,686 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 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.

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 20% 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 September 30, 1996
and 1995,  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 loss per share of common  stock is based upon the number of shares of common
stock outstanding  (5,958,811 in fiscal 1996 and 3,104,224 in fiscal 1995) . 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  through
400,000 shares of the Company's  common stock and $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  issuance 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  exceed 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 $103,180 is recorded as of September 30, 1996.

4.   Accounts Receivable and Concentration of Credit Risk

Accounts receivable  represent amounts due from customers who are in the oil and
gas business throughout North 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 price of the plants rather than a wholesale
market  value that would allow a  reasonable  profit  margin on the sales of the
plants.

To adjust the carrying cost of the plants to their  estimated  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 September 30
include the following:

                                      F-9
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                           1996            1995


Oil & gas properties:

     Leasehold costs                               $  7,495,916    $  7,368,416
     Lease well & equipment                           1,845,508       1,944,882
     Intangibles                                      1,904,925       1,904,925
     Property, plant & equipment                        484,181         945,431
         Other                                           80,632          58,551
                                                   ------------    ------------
                                                     11,811,162      12,222,205
                                                   ------------    ------------


Other property, plant & equipment

         Land                                           185,413         159,913
         Buildings & improvements                       359,535         239,675
         Machinery & equipment                          305,999         186,820
         Vehicles                                       237,896         218,769
         Furniture, fixtures & software                 191,679          81,710
                                                   ------------    ------------
                                                      1,280,522         886,887
                                                   ------------    ------------

Accumulated depreciation,

depletion and amortization                           (4,658,146)     (4,079,780)
                                                   ------------    ------------

Property, plant and equipment, net                 $  8,433,53 8   $  9,029,312
                                                   ------------    ------------


Depreciation,  depletion  and  amortization  of  oil  and  gas  properties,  and
depreciation  of other  property,  plant and  equipment  for the  periods  ended
September 30, is as follows:

                                                            1996           1995

Oil and gas properties                                   $130,498       $111,044
Other property, plant and equipment                        32,395         30,000
                                                         --------       --------

                                                         $162,893       $141,044
                                                         ========       ========



                                      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 September 30:

                                                    1996                1995

Bond payable, dated May 1995, with
interest at 10% per annum, requiring
semi-annual interest payments through
maturity on May 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                              $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.                    1,779,476           1,762,387


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.                       728,088             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.                                       60,000             500,000


Unsecured notes payable, bearing
interest at 7% per annum. Interest and
Principal were due at various
dates through August 1995.                              --                50,000

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             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.                                          43,774                --

Unsecured non-interest bearing note
payable dated March 1996 payable in
monthly installments of $43,599 through
maturity on December 15, 1996.                       217,500                --




                                      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                --

In July, 1995 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 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.                     192,055                --
                                                  ----------          ----------

Total debt outstanding                             6,665,893           6,841,174

Less: current portion                              4,126,344           1,200,000
                                                  ----------          ----------

Long-term debt                                    $2,539,549          $5,641,174
                                                  ----------          ----------


As of September 30, 1996,  maturities  and scheduled  payments for the next five
fiscal years and thereafter  are:  $4,126,344 in fiscal 1997,  $12,608 in fiscal
1998,  58,790 in fiscal 1999,  $8,635 in fiscal 2000,  and the  remainder  after
fiscal year 2001.

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




                                      F-13
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 September 30 consist of the following:

                                                             1996          1995

Total future minimum lease payments                        $79,106       $67,106
Less:  amounts representing interest                        11,577        20,433
                                                           -------       -------

Present value of  minimum lease payments                   $67,529       $46,673
                                                           =======       =======

The  obligations  under capital lease mature as follows:  $15,161 in fiscal 1997
and $52,368 in fiscal 1998.

Capital lease obligations as of June 30 consist of the following:

                                                             1996          1995

Total future minimum lease payments                        $85,106       $67,106
Less: amounts representing interest                         14,013        20,433
                                                           -------       -------

Present value of minimum lease payments                    $71,093       $46,673
                                                           -------       -------

The obligations  under capital leases mature as follows;  $23,100 in fiscal 1997
and $47,993 in fiscal 1998.

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.

                                      F-14
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

Legal Matters

As of September 30, 1996, 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.

9.   Outstanding Warrants

Warrants  outstanding  as of  September  30,  1996  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
August 1995            27,500                   7.50               August 1996
November 1995          20,000                   5.00              November 1998
February 1996          25,000                   4.00               January 1999
February 1996         103,800                   4.50               October 1996
February 1996         100,000                   5.00               October 1996
May 1996               25,000                   3.00              November 1996 
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.



                                      F-15
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 2.58% of the
Company's common stock as of September 30, 1996. Additionally,  certain officers
and directors of the Company, together with present chairman of the board own or
control 6.69% of the Company's common stock as of September 30, 1996.

Receivables from Related Parties/Affiliated Company

Integrated and the Company had an agreement by which the associated  receivables
and  payables  may be netted.  At  September  30,  1996,  the  Company had a net
receivable due from  Integrated of $197,364.  At September 30, 1995, the Company
had a net Payable due to Integrated of $428,107.

As part of its ongoing  operations,  the Company conducts business with Atascosa
Electric Services ("AES"), an entity which is owned and controlled by the family
of Deral Knight,  the president of KEMCO, who is also CEO, chairman of the board
of directors and a stockholder of the Company.  At September 30, 1996, there was
no receivable due from stockholder (Deral Knight) or due from affiliated company
(AES). At September 30, 1995, the receivable due from stockholder (Deral Knight)
and due from affiliated company (AES) were $115,602 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 September 30, 1996,  $267,968 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.


                                      F-16
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 was  terminated  on June 30,  1996.  The services
provided by Integrated include 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
is 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  syndication's.  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  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  September 30, 1996
and 1995 the Company recorded income from Integrated for as follows:

                                                         1996            1995  
                                                                     
Syndication income                                     $    --          $80,000
                                                       ---------        -------
                                                                     
                                                       $    --          $80,000
                                                       ---------        -------
                                                                
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
if $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.



                                      F-17
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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
annual gross revenue,  and 5% of annual gross revenue thereafter.  The agreement
expires December 31, 2015.

Other Related Party Transactions

The two automobiles held under capital lease are to be transferred to an officer
and an employee of KEMCO,  respectively upon the execution of the lease purchase
options at the expiration of the lease terms.

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.  This stock is included in the
accompanying consolidated financial statement as Treasury stock in stockholders'
equity.  The purchase  price of this stock was netted against the Receivable due
from Integrated.

11.  Events Subsequent to Date of Balance Sheet

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 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 current salary totaling $75,000.