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, 1997


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

                        Commission File Number 2-6806-NY

                           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, 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),
   September 30, 1997 and 1996                                           F-1

Consolidated Statements of Operations and
   Accumulated Deficit (Unaudited)
   Three Months Ended September 30, 1997,  and 1996                      F-2

Consolidated Statements of Cash Flows (Unaudited),
   Three Months Ended September 30, 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  &  Manufacturing
Corporation ("KEMCO"),  which locates,  designs,  refurbishes,  and installs gas
processing plants for the natural gas industry.

     In  March,  1996,  the  Company  acquired   Integrated   Petroleum  Systems
Corporation  ("IPS"),  which  developed a unique,  proprietary  software 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 three months ended September 30, 1997 the Company reported total
revenues of  $10,896,886.  Contract  revenues during the three month period were
$10,655,301. Rental income for the three month period was $22,058. The Company's
oil sales during the three month period were  $120,000  while gas sales  totaled


                                       3
<PAGE>

$80,000.  The Company  reported revenue from well operating income of $8,522 and
software  sales of $11,005  during the three month  period ended  September  30,
1997. By comparison,  during the three month period ended September 30, 1996 the
Company reported total revenues of $4,496,759,  including  contract  revenues of
$3,978,351,  rental  income  of  $37,367,  oil sales of  $241,356,  gas sales of
$178,479, well operating income of $10,721 and software sales of $50,485.

     Total  revenues  increased  by  $6,400,127  during the three  months  ended
September 30, 1997 compared to the three month period ended  September 30, 1996.
This  increase  is  primarily  due to  the  increases  in  contract  revenue  of
$6,676,950.

     Total costs and operating  expenses during the three months ended September
30, 1997 were $10,123,045, an increase of $6,073,872 from the three month period
ended September 30, 1996, and is primarily the result of an increase in the cost
of contract  revenue  associated  with the increase in contract  revenues.  This
substantial  increase  is the  result of the  Company's  obtaining  a variety of
larger contracts compared to contracts obtained in prior periods

     Cost of contract revenue during the period was $9,228,571. Cost of contract
revenue  as  a  percentage  of  contract  revenue  was  approximately   87%.  In
comparison,  during the three month period ended  September 30, 1996 total costs
and  operating  expenses  were  $4,049,173,   costs  of  contract  revenue  were
$2,922,840 and cost of contract  revenue as a percentage of contract revenue was
approximately  73%. The increase in cost of contract  revenue of  $6,305,731  is
primarily the result of the increase in contract revenues.

     During  the three  month  period  ended  September  30,  1997  general  and
administrative  expenses  were  $526,060.  During the three month  period  ended
September 30, 1996, the Company's total general and administrative expenses were
$751,281,  which include costs of 


                                       4
<PAGE>

$155,740  associated  with the  winding  down of the  Company's  New  Jersey and
Houston office's and staff.

     Depreciation,  depletion and  amortization  expenses during the three month
period ended  September  30, 1997 were  $168,070.  During the three month period
ended  September 30, 1996 these expenses were $207,113.  The decrease of $39,043
is primarily due to the  elimination of  amortization  of IPS' goodwill which in
the three month period ended September 30, 1996 totaled $33,165.

     Interest  expense for the three month period ended  September  30, 1997 was
$234,566.  During the three month  period  ended  September  30,  1996  interest
expense was $243,612.

     For the three month period ended September 30, 1997 the Company  reported a
net income of $541,995.  For the three month period ended September 30, 1996 the
Company  reported a net income of  $209,144.  The  increase of $332,851  for the
three  months  ended  September  30, 1997 as compared to the three  months ended
September  30,  1996,  primarily  resulted  from the  combination  of the  above
described  increase in contract revenue  partially offset by the above described
increased cost of contract revenue.

Liquidity and Capital Resources

     As of September 30, 1997 and 1996,  the Company  reported  working  capital
(deficit) of $(115,204) and $2,491,153, respectively, resulting in a decrease of
$2,606,357.  This decrease in 1997 is the result of a decrease in current assets
of $737,851 and an increase in current  liabilities of $1,868,506.  The decrease
in current assets  primarily  resulted from a combination of a decrease in cash,
costs and  estimated  earnings in excess of billings on  uncompleted  contracts,
accounts receivables,  prepaid expenses and other assets of $1,608,007 partially
offset by an  increase  in  


                                       5
<PAGE>

inventories of $870,156.  The increase in current liabilities primarily resulted
from an  increase  in  accounts  payable  and  accrued  expenses  of  $2,711,930
partially offset by a decrease in the current portion of notes and taxes payable
of $843,424.

     During  the three  months  ended  September  30,  1997,  cash  provided  in
operating activities was $308,501, representing an increase of $782,499 from the
three months ended September 30, 1996. This increase primarily resulted from the
combination of the increased  accounts payable and accrued  expenses,  increased
inventories, increased net income and decrease in accounts receivables.

     Management  notes  that the  accompanying  financial  statements  have been
prepared with the assumption  that the Company will continue as a going concern.
As discussed in Note 11 of the  financial  statements,  the Company has suffered
recurring  losses and negative  cash flows from  operations  in the prior fiscal
years,  has a  negative  working  capital  at  September  30,  1997,  as well as
significant debt maturing in the near future.

     The Company has obtained an extension of maturity, to December 31, 1997, of
its  notes  payable  which  were to  mature  on  November  1,  1997 in the total
principal amount of $2,920,000.  The Company believes that it will be successful
in obtaining  refinancing  utilizing  certain portions of the KEMCO inventory as
collateral,   however  there  are  no  current  commitments  to  refinance  this
indebtedness.

Capital Expenditures and Commitments

     During the three months ended  September  30,  1997,  the Company  incurred
capital expenditures of $28,829.  These capital expenditures primarily consisted
of equipment purchases by KEMCO.


                                       6
<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

a) Exhibits

     Exhibits  marked  with an  asterisk  have been  previously  filed  with the
Securities  and Exchange  Commission  by the Company,  and are  incorporated  by
reference, as indicated. Other exhibits, if no so designated are filed with this
Form 10-QSB.

     (3)* - Certificate of Incorporation as amended and by-laws, incorporated
     herein as an exhibit by reference to the Current Report. Exhibit 3 therein
     under the Securities Exchange Act of 1934, filed by Registrant on Form 8-K
     with the Securities and Exchange Commission on May 18, 1993, SEC File No.
     2-6806.

     (4) - Indenture of Trust Amendment No. 2 between Concord Energy
     Incorporated and First Union National Bank, as Successor Trustee dated as
     of October 31, 1997.

     (99) - Certificate for Renewal and Revival of Charter.

b)  Reports on Form 8-K

     No current reports on Form 8-K have been filed during the first quarter of
this fiscal year.

------------
*   Previously filed


                                       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: November 13, 1997             Deral Knight
                                     President, Chief Executive Officer
                                     and Chairman of the Board of Directors

Dated: November 13, 1997             s\Scott Kalish
                                     ------------------------------
                                     Scott Kalish
                                     Treasurer (Principal Accounting Officer)

                                       8
<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Balance Sheets
--------------------------------------------------------------------------------

                                                      (Unaudited)   (Unaudited)
                                                     September 30, September 30,
                                                         1997          1996
                                                     ------------  ------------
Assets

Current assets
   Cash and cash equivalents                         $    254,978  $    761,929
   Costs and estimated earnings in excess
        of billings on uncompleted contracts              634,016     1,515,817
   Accounts receivable, net of allowance for
       doubtful accounts of $178,643 and $132,930       2,191,395     2,190,894
   Receivable due from Integrated, net                     24,754       197,364
   Inventories                                          6,346,055     5,475,899
   Prepaid expenses and other assets                       64,119       111,265
                                                     ------------  ------------
       Total current assets                             9,515,317    10,253,168

Property, plant and equipment, net                      7,901,870     8,433,538
Goodwill, net                                                --       2,550,028
Bond issuance costs, net                                  198,465       293,075
Other assets                                               37,500        50,000
                                                     ------------  ------------
       Total assets                                  $ 17,653,152  $ 21,579,808
                                                     ============  ============

Liabilities and Stockholders' Equity

Current liabilities
   Current portion of notes payble to stockholders   $       --    $    250,000
   Current portion of long-term debt                    3,602,553     4,126,344
   Current portion of capital lease obligations             2,566        15,161
   Accounts payable                                     3,424,652     1,772,613
   Accrued expenses                                     2,559,870     1,499,979
   Federal income taxes payable                            40,880        97,918
                                                     ------------  ------------
       Total current liabilities                        9,630,521     7,762,015

Long term liabilities
  Notes payable                                         2,501,115     2,539,549
  Capital lease obligations                                  --          52,368
                                                     ------------  ------------
     Total long term liabilities                        2,501,115     2,591,917
                                                     ------------  ------------
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, 6,045,717 and 5,958,811
    (post-split) shares issued and outstanding                605           594
   Paid-In capital                                     22,812,110    22,605,392
   Accumulated deficit                                (16,810,633)  (10,899,544)
                                                     ------------  ------------
                                                        6,002,082    11,706,442
Cost of Treasury Stock                                   (480,566)     (480,566)
                                                     ------------  ------------
       Total stockholders' equity                       5,521,516    11,225,876
                                                     ------------  ------------
       Total liabilities and stockholders' equity    $ 17,653,152  $ 21,579,808
                                                     ============  ============

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


                                      F - 1

<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Statements of Operations
--------------------------------------------------------------------------------

                                                   (Unaudited)      (Unaudited)
                                                  Quarter Ended    Quarter Ended
                                                  September 30,    September 30,
                                                      1997             1996
                                                  ------------     ------------
Revenue:
  Oil sales                                       $    120,000     $    241,356
  Gas sales                                             80,000          178,479
                                                  ------------     ------------
     Total oil and gas sales                           200,000          419,835

  Contract revenue                                  10,655,301        3,978,351
  Well operating income                                  8,522           10,721
  Rental income                                         22,058           37,367
  Software Sales                                        11,005           50,485
                                                  ------------     ------------
     Total revenue                                  10,896,886        4,496,759
                                                  ------------     ------------
Costs and Operating Expenses:
  Lease operating                                      200,344          167,939
  Cost of contract revenue                           9,228,571        2,922,840
  General and administrative:                          526,060          751,281
  Depreciation, depletion and amortization             168,070          207,113
                                                  ------------     ------------
      Total costs and operating expenses            10,123,045        4,049,173
                                                  ------------     ------------
     Income from Operations                            773,841          447,586
                                                  ------------     ------------
Other income (expense):
  Other  income                                          2,720            5,170
  Interest expense                                    (234,566)        (243,612)
                                                  ------------     ------------
     Total other income (expense)                     (231,846)        (238,442)
                                                  ------------     ------------
     Income before income taxes                        541,995          209,144
                                                  ------------     ------------
          Income tax benefit                              --               --
                                                  ------------     ------------
     Net Income                                   $    541,995     $    209,144
                                                  ============     ============
Accumulated deficit, beginning of period           (17,352,628)     (11,108,688)
                                                  ============     ============
Accumulated deficit, end of period                $(16,810,633)    $(10,899,544)
                                                  ============     ============
     Net Income per share                         $       0.09     $       0.04
                                                  ============     ============

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


                                      F - 2
<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                           (Unaudited)    (Unaudited)
                                                                          Quarter Ended  Quarter Ended
                                                                          September 30,  September 30,
                                                                              1997           1996
                                                                          -----------    -----------
<S>                                                                       <C>            <C>        
Cash flows from operating activities
   Net Income (loss)                                                      $   541,995    $   209,144
   Adjustments to reconcile net income/loss to net cash
     (used in) provided by operating activities:
     Depreciation, depletion and amortization                                 168,070        207,113
     Other noncash transactions                                                 7,053        132,485
     Decrease (Increase)  in assets:
        Accounts receivable                                                (1,479,540)      (931,109)
        Costs and estimated earning in excess
           of billings on uncompleted contracts                              (173,021)    (1,398,722)
        Inventories                                                          (620,213)       606,074
        Other assets and liabilities                                             (969)       (91,001)
     (Decrease)  Increase  in liabilities
        Accounts payable                                                    1,285,528        440,222
        Accrued expenses                                                      657,720        312,745
        Federal income tax payable                                              8,333           --
        Receivable due from/payable due to Integrated, net                    (31,697)        39,051
        Billings in excess of costs and estimated earnings on
           uncompleted contracts                                              (54,758)          --
                                                                          -----------    -----------
         Net cash provided by (used in) operating activities                  308,501       (473,998)
                                                                          -----------    -----------
Cash flows from investing activities
    Purchases of equipment, well workovers and recompletions                  (28,829)       (73,882)
                                                                          -----------    -----------
         Net cash (used in) provided by investing activities                  (28,829)       (73,882)
                                                                          -----------    -----------
Cash flows from financing activities
      Net proceeds from note payable                                           14,414           --
      Net proceeds from issuance of common stock                                 --          856,665
      Principal payments on notes payable and capital lease obligations       (81,047)      (444,939)
                                                                          -----------    -----------
        Net cash flows provided by (used in)
           financing activities                                               (66,633)       411,726
                                                                          -----------    -----------
Net increase (decrease) in cash and cash equivalents                          213,039       (136,154)
                                                                          -----------    -----------
Cash and cash equivalents at beginning of period                               41,939        898,083
                                                                          -----------    -----------
Cash and cash equivalents at end of period                                $   254,978    $   761,929
                                                                          ===========    ===========
</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  Energy,  Inc.,  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  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  and 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..  For  accounting
purposes,  the acquisition was treated as a  recapitalization  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.

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


                                      F-4
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

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.

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.


                                      F-5
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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  recorded as a result of the  acquisition  of IPS was being  amortized,
straight-line  over  it's  originally  estimated  useful  life  of 15  years  in
accordance  with  Generally  Accepted  Accounting  Principles.  At June 30, 1997
management  determined  that the  remaining  unamortized  goodwill had no future
benefit  and the  balance  was  written-off  as a  charge  against  income  from
operations.

Other Assets

Other assets of the Company, which include the drawings and blue prints of amine
units  manufactured  and  serviced  by  Perry  Gas  Processors,  Inc.,  is being
amortized,  straight-line  over  it's  estimated  useful  life  of  5  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 charged
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 September 30, 1997 and 1996 are stated net of accumulated  amortization
of $372,296 and $227,686, respectively.

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.


                                      F-6
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 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 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 September 30, 1997
and 1996,  there are no significant  future minimum rentals to be received under
these noncancelable operating leases.

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. 


                                      F-7
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

Net loss per share

Net loss per share of common stock is based upon the weighted  average number of
shares of common stock  outstanding  (5,904,086  and  5,958,811 at September 30,
1997 and 1996,  respectively).  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  per  share  calculation  since  their  effect is
anti-dilutive.

3.   Business Combinations

KEMCO - 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.

IPS - 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, valued at $1,800,000,  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 its 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.  Based on
the  results  of  operations  for IPS  since  its  acquisition,  management  has
determined that the  unamortized  goodwill at June 30, 1997 of $2,417,368 had no
future  benefit.  Accordingly,  at June 30, 1997 the balance of the  unamortized
goodwill  was   written-off  as  a  charge   against  income  from   operations.
Amortization of goodwill 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  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.

The  Company  maintains  account  balances  at several  financial  institutions.
Accounts  are  insured  by  the  Federal  Deposit  Insurance  Corporation  up to
$100,000. In the course of business,  the Company may maintain account balances,
which are  generally  transient in nature,  in excess of the  federally  insured
limits. 


                                      F-8
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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  wholesale  market
value,  an adjustment  of  $3,043,055  was charged to expense for the year ended
June 30, 1996.

6.   Property, Plant and Equipment, Net

Significant components comprising property,  plant and equipment at September 30
include the following:

                                                      1997              1996
Oil & gas properties:
    Leasehold costs                              $  7,495,916      $  7,495,916
    Lease well & equipment                          1,845,508         1,845.508
    Intangibles                                     1,904,925         1,904,925
    Property, plant & equipment                       484,181           484,181
    Other                                              80,632            80,632
                                                 ------------      ------------
                                                   11,811,162        11,811,162
                                                 ------------      ------------

Other property, plant & equipment
    Land                                              185,413           185,413
    Buildings & improvements                          361,525           359,535
    Machinery & equipment                             335,428           305,999
    Vehicles                                          149,727           237,896
    Furniture, fixtures & software                    197,305           191,679
                                                 ------------      ------------
                                                    1,229,398         1,280,522
                                                 ------------      ------------

Accumulated depreciation,
depletion and amortization                         (5,138,690)       (4,658,146)
                                                 ------------      ------------

Property, plant and equipment, net               $  7,901,870      $  8,433,538
                                                 ============      ============


                                      F-9
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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:

                                                           1997           1996

Oil and gas properties                                   $375,068       $130,498
Other property, plant and equipment                       152,620         32,395
                                                         --------       --------
                                                         $527,688       $162,893
                                                         ========       ========

7.   Debt and Capital Lease Obligations

Debt

Notes payable and long-term debt includes the following at September 30:

                                                        1997           1996

Bond payable, dated May 1995, with
interest at 10% per annum, requiring
semi-annual interest payments through
maturity on December 31, 1997. The bond
is secured by the assets of KEMCO. As
incentive to the note holders for
extending the original maturity date of
the note from May 1, 1997, interest was
increased by 4% per annum from May 1,
1997 through maturity.                               $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.                           1,798,976       1,779,476


                                      F-10
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                        1997           1996
Secured notes payable, dated September
1994, with a face value of $1,400,000
issued at a $699,500 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.                          746,792         728,088

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 25, 1996. The
notes were secured by a personal
guarantee from Jerry Swon, former
Chairman of the Company's board of
directors, who was also a shareholder of
the Company.                                               --            60,000

12% convertible notes, dated October
1994, convertible at maturity into
shares of the Company's common stock at
$5.00 per share. During 1995, $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 and accrued interest totaling
$20,542 were converted into 80,656
shares of common stock in March 1997.
The notes were secured by certain oil
and gas property owned by the Company.                     --           125,000

Secured note payable dated 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.                                             31,986          43,774


                                      F-11
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                        1997           1996
Unsecured non-interest bearing note
payable dated March 1996 payable in
monthly installments of $43,599 through
maturity on December 15, 1996.
Subsequent to its maturity the note
bears interest at 10% per annum.                        174,000         217,500

Secured note payable dated February
1996, with interest at 12% per annum
from inception through February 1, 1997.
From February 2, 1997 through August 31,
1997, interest charged increased to 18%
per annum. Interest from September 1,
1997 to maturity is at 12% per annum
Principal and interest are due at
maturity on February 1, 1998. The note
is secured by a certain gas plant owned
by the Company.                                         275,000         600,000

Secured note payable dated September
1997, with interest at 8.5% per annum.
Interest and principal of $356 are due
monthly through September 2001. The note
is secured with certain equipment owned
by the Company.                                          14,414            --

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
(see Note 8).                                           142,500         192,055
                                                    -----------     -----------
Total debt outstanding                                6,103,668       6,665,893

Less: current portion                                 3,602,553       4,126,344
                                                    -----------     -----------
Long-term debt                                      $ 2,501,115     $ 2,539,549
                                                    ===========     ===========

As of September 30, 1997,  maturities  and scheduled  payments for the next five
years and thereafter are:  $3,602,553 in 1998,  $17,541 in 1999, $8,732 in 2000,
$4,074 in 2001, and the remainder after year 2001.


                                      F-12
<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,  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%. The leases
for two vehicles were  terminated  during 1997 without  exercising the option to
purchase the vehicles.

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

                                                            1997          1996

Total future minimum lease payments                       $  3,000      $ 79,106
Less:  amounts representing interest                           434        11,577
                                                          --------      --------

Present value of minimum lease payments                   $  2,566      $ 67,529
                                                          ========      ========

The obligations under capital lease mature as follows: $2,566 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.

Legal Matters

As of September 30, 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.

The Company, together with Integrated, Jerry Swon and Bruce Deichl, was named as
a  defendant  in a  lawsuit  commenced  by  three  investors  in two oil and gas
partnerships  sponsored by Integrated.  Management has determined that the costs
of defending this suit combined with the potential cost if the plaintiff's  were
successful,  dictated that a settlement be  negotiated.  A verbal  agreement has
been reached to settle this cause of action for 350,000  shares of the Company's
common  stock and a warrant to  purchase  an  additional  350,000  shares of the
Company's common


                                      F-13
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

stock at $1.00 per  share.  At  September  30,  1997 the  Company  has a reserve
recorded in the amount of $175,000 for the cost of this settlement.

On August 8, 1997,  the Company filed suit against Mark T.  Shipley,  Richard D.
Barden, June Barden, Jerry Swon and Fallon and Fallon. The litigation relates to
the  Company's  acquisition  of IPS.  The  petition  alleges that members of the
Company's former management,  former IPS management and other interested persons
committed  fraudulent acts and/or  omissions in connection with the acquisition.
The specific  damages sought are monetary damages in an unspecified  amount,  as
well as relief from certain  related  debt,  wages and  agreements.  Some of the
defendants  have filed suit against the Company seeking payment of debts related
to IPS.

9.   Outstanding Warrants

Warrants  outstanding as of September 30, 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
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

A director of the Company,  together with its present  chairman of the board own
or control 6.07% of the Company's common stock as of September 30, 1997.


                                      F-14
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 September 30, 1997 and
1996,  the  Company  has a net  receivable  due from  Integrated  of $24,754 and
$197,364, respectively.

As part  of its  ongoing  operations,  KEMCO  conducts  business  with  Atascosa
Electric Services ("AES"), an entity which is owned and controlled by the family
of Deral  Knight,  CEO,  who is also  Chairman of the Board of  Directors  and a
stockholder of the Company.  At September 30, 1997 and 1996 the Company owed AES
$31,734 and $43,463, respectively, which is included in accounts payable.

At  September  30,  1997 and 1996,  respectively,  there was $43,967 and $43,161
payable due to Deral Knight.  These amounts  represent  unreimbursed  travel and
other  business  expenses  incurred in the normal course of business and include
$13,193 and $12,823 of accrued interest payable at September 30, 1997 and 1996.

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 share to the extent
that Deral  Knight owed money to the Company at June 30, 1995.  Accordingly,  in
liquidation  of the  receivable  balance,  17,130 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, 1997 and 1996.

Other Payables to Related Parties

At  September  30,  1997 and  1996,  $269,733  and  $267,968,  respectively,  is
reflected  as owed to Richard D.  Barden,  the former  president of IPS, and his
wife June  Barden  (see Note 8).  The  balance  generally  consists  of  accrued
compensation and expense  reimbursements  due to them and is included in accrued
expenses in the accompanying balance sheet.

Notes Payable to Stockholders

At September 30, 1996, Notes Payable to stockholders,  which bear interest of 6%
per annum,  were payable to Deral  Knight.  Interest  expense  incurred on these
notes for the three months ended  September 30, 1996 totaled  $3,750.  The notes
matured and were subsequently paid in October 1996.

Additionally,  the $142,500  recorded as various unsecured notes at Note 7 as of
September  30,  1997 and the  $192,500  recorded as various  unsecured  notes at
September 30, 1996  represent  notes payable to former  stockholders  of IPS who
became stockholders of the Company when the Company acquired IPS.


                                      F-15
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

In August 1996 various  notes which  totaled  $87,696  were  converted to 14,616
shares of the Company's common stock. Upon conversion,  an additional 560 shares
of the Company's common stock was issued as  consideration  for accrued interest
expense  through  the date of the  conversion  totaling  $3,362.  This stock was
converted  under  agreements  that  require  the  Company to pay the  difference
between  the  price  the of the  Company's  stock on July 1,  1997 and $6.00 per
share.  The value of the  Company's  common stock at the time of  conversion  of
$3.00 per share or $45,528 was recorded as paid in capital,  and $3.00 per share
or  $45,528  as an accrued  liability  in the  accompanying  balance  sheet.  An
additional  accrued  liability  of $22,764  is  recorded  as an expense  for the
difference in the price of the Company's  common stock at the time of conversion
of $3.00 per share  and the  price at July 1,  1997 of $1.50 per  share,  in the
accompanying  statement of operations  for fiscal 1997. The total amount of this
accrued   liability  of  $68,292,   is  included  in  accrued  expenses  in  the
accompanying balance sheet.

Acquisition of IPS

In March  1996,  the  Company  acquired  IPS.  Included  among  the  individuals
acquiring  Company  shares,  in connection  with the acquisition of IPS, are ten
individuals  who received 45% of the Concord stock issued as  consideration  for
IPS.  Of these  individuals,  eight have made  investments  in the past in other
ventures in which Mr. Swon, Tucker, Integrated and/or KEMCO had an interest, and
eight of which had owned stock in the Company.  Included with the acquisition of
IPS was a $300,000 liability from IPS to Tucker,  for funds previously  advanced
to IPS from  Tucker.  This  $300,000  was applied to, and is included in the net
receivable balance due from Integrated to the Company at September 30, 1996 (see
Note 8).

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). 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 provisions of the Management  Agreement,  the Company was
also entitled to a percentage of all syndicated  retail  partnership gross sales
made by  Integrated.  for the  Quarter  ended  September  30,  1996 the  Company
recorded $0 of syndication income from Integrated.


                                      F-16
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

Employment Agreements

On November 1, 1991 IPS entered  into an  employment  agreement  with its former
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. The agreement terminated upon the resignation of Mr.
Barden in July 1997.

On November 9, 1994 KEMCO entered into an employment  agreement  with its former
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 former 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. Royalty expense
under the terms of this  agreement  were  $111 and $505 for the  Quarters  ended
September 30, 1997 and 1996,  respectively.  The agreement  expires December 31,
2015.

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 December 5, 1996 KEMCO entered into a lease agreement with Deral Knight, CEO,
and Chairman of the board of directors  and a  stockholder  of the Company.  The
lease is for 2.42 acres of land located  adjacent to property  which KEMCO owns,
and includes a 3,200 square ft. shop building and office  trailer.  The lease is
for a term of five years at a cost of $975 per month.


11.  Going Concern

For the fiscal  years ended June 30, 1997 and 1996,  the  Company  incurred  net
losses  and  negative  cash flow from  operations.  At  September  30,  1997 the
Company's  current  liabilities   exceeded  current  assets  by  $115,204,   and
subsequent  to September  30, 1997 the Company has become  involved in a dispute
over the completion of a significant  contract which has delayed collection of a
significant  account  receivable (see Note 12). As a result of these conditions,
the Company has


                                      F-17
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

had difficulties meeting its current obligations as they come due. Additionally,
the Company has notes payable of $2,920,000  maturing on December 31, 1997,  for
which it must either  negotiate an extension or secure other  long-term  debt or
equity  financing.  These  factors  create an  uncertainty  about the  Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments  that might be necessary if the Company is unable to continue as
a going concern.

Management is currently  attempting to secure long-term  financing  secured by a
portion of the Company's inventory of plants to replace the notes that mature on
December  31,  1997.  During the quarter  ended  September  30, 1997 the Company
reported  net income of  $541,995  and  positive  cash flow from  operations  of
$308,501.  Additionally,  subsequent  to  September  30,  1997 the  Company  has
obtained   additional   contracts  which  management   estimates  will  generate
sufficient  profit to relieve  its current  liquidity  problems.  The  Company's
ability to continue as a going concern is dependent on its  obtaining  financing
to replace its maturing  debt,  meeting its profit  estimates  on contracts  and
achieving   profitable   operations  and  sufficient  positive  cash  flow  from
operations to meet its obligations.

12.  Events Subsequent to Date of Balance Sheet

     a. In October 1997 the Company  filed suit against one of its customers for
the collection of outstanding  receivables due to the Company. As of November 8,
1997 the uncollected balance was $870,079.  The customer has filed a countersuit
on this matter.

     b. In October  1997 the Company  obtained an extension to December 31, 1997
for the notes payable which were to mature on November 1, 1997.


                                      F-18