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 December 31, 1996

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

                          Commission File Number 2-6806

                           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 December 31,  1996,  the  outstanding  common  equity of Concord  Energy
Incorporated comprised 5,965,061 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),
     December 31, 1996 and 1995                                         F-1

Consolidated Statements of Operations and
     Accumulated Deficit (Unaudited)
     Three and Six Months Ended December 31, 1996,  and 1995            F-2

Consolidated Statements of Cash Flows (Unaudited),
     Three and Six Months Ended December 31, 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,  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 six months ended  December 31, 1996 the Company  reported total


                                       3
<PAGE>

revenues  of  $7,818,478.  Contract  revenues  during the six month  period were
$6,855,702.  Rental  income for the six month period was $77,370.  The Company's
oil sales  during the six month  period were  $443,306  while gas sales  totaled
$326,131. The Company reported revenue from well operating income of $20,432 and
software  sales of $95,537  during the six month period ended December 31, 1996.
By comparison,  during the six months period ended December 31, 1995 the Company
reported  total  revenues  of  $6,428,647,   including   contract   revenues  of
$5,754,550,  rental  income  of  $50,734,  oil sales of  $277,078,  gas sales of
$180,300,  revenue from the Company's share of the proceeds of syndication sales
made  by  Integrated  Energy  Incorporated   ("Integrated"),  revenue  interests
associated  with such sales in the amount of $140,000 and well operating  income
of $25,985.

     Total revenues increased by $1,389,831 during the six months ended December
31, 1996 compared to the six month period ended December 31, 1995. This increase
is  primarily  due to the  increase  in  contract  revenues  of  $1,101,152  and
increases in oil and gas sales of $166,228 and $145,831, respectively.

Total costs and operating expenses during the six months ended December 31, 1996
were  $6,919,308.  Cost of contract  revenue  during the period was  $4,681,950.
Lease  operating  expenses  accounted for $300,466  during the six month period.
Lease  operating  expenses  as a  percentage  of total  oil and gas  sales  were
approximately 39%. In comparison, during the six month period ended December 31,
1995 total costs and operating expenses were $9,324,389. During the period ended
December 31, 1995 costs of contract  revenue were  $4,204,668,  lease  operating
expenses were $369,282 and lease  operating  expenses as a percentage of oil and
gas sales were  approximately  81%. Total costs and operating expenses decreased
by $2,405,081 and lease operating expenses decreased by $68,816 during the six


                                       4
<PAGE>

month period  ended  December 31, 1996 as compared to the six month period ended
December 31, 1995, and lease operating expenses as a percentage of total oil and
gas sales decreased by approximately 42% . 

     Included in the costs and expenses in the six month  period ended  December
31, 1995 was the  recording of a $3,043,055  inventory  restatement.  This was a
result of inventory having been valued at retail market value at the time of the
KEMCO acquisition rather than at wholesale value with the balance of the cost of
acquisition  having been  charged to  goodwill  as it should have been.  Current
management and the Company's new auditors have determined that the allocation of
costs  was in error  and  chose to take a one time  adjustment  in order to more
accurately  reflect the  operations  of the  Company.  The decrease in costs and
operating  expenses in the six month period ended  December 31, 1996 compared to
the six month period ended December 31, 1995  primarily  relate to the inclusion
of this inventory adjustment in the prior period.

     During  the  six  month  period   ended   December  31,  1996  general  and
administrative  expenses  were  $1,538,898.  During the six month  period  ended
December 31, 1995, the Company's total general and administrative  expenses were
$1,436,340,  of which  $696,000  were incurred  under the  Company's  management
agreement with Integrated,  which  terminated on June 30, 1996.  Included in the
six month period ended December 31, 1996 were costs of $329,574  associated with
the winding down of the Company's New Jersey office and staff,  which costs have
recently been reduced  significantly  as described in the Company's Form 10-KSB,
for the fiscal year ended June 30, 1996.

     Depreciation,  depletion  and  amortization  expenses  during the six month
period ended December 31, 1996 were $397,994.  During the six month period ended


                                       5
<PAGE>

December  31, 1995 these expenses were $271,044.  The increase of $126,950
is  primarily  due to the  addition of  amortization  of IPS  goodwill  totaling
$88,440 and the increase in oil and gas production.

     Interest  expense  for the six month  period  ended  December 31 , 1996 was
$471,400.  During the six month period ended December 31, 1995 interest  expense
was  $660,143.  The  decrease  of  $188,743  is  primarily  the  result  of  the
elimination of bridge financing costs associated with the KEMCO acquisition.

     For the six month period ended  December 31, 1996 the Company  reported net
income of $447,736. For the six month period ended December 31, 1995 the Company
reported a net loss of  $3,533,888.  The increased net income of $3,981,624  for
the six months  ended  December  31, 1996 as  compared  to the six months  ended
December  31,  1995,  primarily  resulted  from  the  inventory  restatement  of
$3,043,055 previously discussed.

Liquidity and Capital Resources

     As of December 31 , 1996 the Company reported working capital of $3,003,272
compared to working  capital of $4,501,346  at December 31, 1995.  Total current
assets increased by $183,454 which is the combination of an increase in cash and
cash  equivalents  of $76,289,  an increase in  receivables  of $1,310,989 and a
decrease in inventories  and other current assets of $1,203,824,  as compared to
December 31, 1995.  Total current  liabilities  increased from  $4,909,668 as of
December 31, 1995 to $6,591,196  as of December 31, 1996,  for a net increase of
$1,681,528.  The  combination  of the  foregoing  resulted in a net  decrease in


                                       6
<PAGE>

working  capital of $1,498,074 from December 31, 1995 to December 31, 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  $160,056  of short term debt
assumed as part of the acquisition of IPS, partially offset by a net increase in
cash and accounts receivable of $1,387,278.

Capital Expenditures and Commitments

     During the six months ended  December  31,  1996,  the Company made capital
expenditures of $103,833 consisting primarily of equipment purchases by KEMCO.


                                       7
<PAGE>

                                   SIGNATURES

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


                                        CONCORD ENERGY INCORPORATED
                                        (Registrant)


                                        s\Deral Knight
                                        ---------------------------------------
Dated: February 7, 1997                 Deral Knight
                                        President, Chief Executive Officer
                                        and Chairman of the Board of Directors


Dated: February 7, 1997                 s\Scott Kalish
                                        ---------------------------------------
                                        Scott Kalish
                                        Treasurer (Principal Accounting Officer)



                                       8
<PAGE>



Concord Energy Incorporated and Subsidiaries

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

<TABLE>
<CAPTION>
                                                      (Unaudited)         (Unaudited)  
                                                      December 31         December 31
                                                         1996                1995
                                                     ------------        ------------
<S>                                                  <C>                 <C>         
Assets                                                                   
Current assets                                                           
   Cash and cash equivalents                         $    306,403        $    230,114
   Costs and estimated earnings in excess                                
        of billings on uncompleted contracts            1,463,481             733,029
   Accounts receivable, net of allowance for                             
       doubtful accounts of $132,390 and $67,490        1,828,397           1,140,636
   Receivable from stockholder                               --               115,077
   Receivable due from Integrated, net                      7,853                --
   Inventories                                          5,888,907           7,064,331
   Prepaid expenses and other assets                       99,427             127,827
                                                     ------------        ------------
       Total current assets                             9,594,468           9,411,014
                                                                         
Property, plant and equipment, net                      8,316,827           8,435,573
Goodwill, net                                           2,505,808                --
Bond issuance costs, net                                  251,572             494,649
Other assets                                               50,000              50,000
                                                     ------------        ------------
       Total assets                                  $ 20,718,675        $ 18,391,236
                                                     ============        ============
                                                                         
Liabilities and Stockholders' Equity                                     
                                                                         
Current liabilities                                                      
   Current portion of notes payble to stockholders   $       --          $    273,000
   Current portion of long-term debt                    3,985,028             895,750
   Current portion of capital lease obligations            15,160                --
   Accounts payable                                     1,349,513           1,711,963
   Accrued expenses                                     1,135,244           1,655,954
   Payable due to Integrated, net                            --               259,052
   Federal  income taxes payable                          106,251             113,949
                                                     ------------        ------------
       Total current liabilities                        6,591,196           4,909,668
                                                                         
Long term liabilities                                                    
  Notes payable                                         2,552,068           5,833,300
  Capital lease obligations                                49,368              46,673
                                                     ------------        ------------
     Total Long term liabilities                        2,601,436           5,879,973
                                                     ------------        ------------
Commitments and Contingencies (see Note 8)                               
                                                                         
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,  5,965,061 and 3,346,071                         
    (post-split) shares issued and outstanding                596               1,552
   Paid-In capital                                     22,666,965          15,435,326
   Accumulated deficit                                (10,660,952)         (7,835,283)
                                                     ------------        ------------
                                                       12,006,609           7,601,595
Treasury Stock                                           (480,566)               --
                                                     ------------        ------------
       Total stockholders' equity                      11,526,043           7,601,595
                                                     ------------        ------------
       Total liabilities and stockholders' equity    $ 20,718,675        $ 18,391,236
                                                     ============        ============
</TABLE>

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

                                       F-1
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

<TABLE>
<CAPTION>
                                                        (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                                       Quarter Ended    Six-Months     Quarter Ended    Six-Months
                                                        December 31     December 31     December 31     December 31
                                                           1996            1996            1995            1995
                                                       ------------    ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>             <C>         
Revenue:
  Oil sales                                            $    201,952    $    443,306    $    121,434    $    277,078
  Gas sales                                                 147,652         326,131          85,463         180,300
                                                       ------------    ------------    ------------    ------------
     Total oil and gas sales                                349,604         769,437         206,897         457,378

  Contract revenue                                        2,877,350       6,855,702       2,973,166       5,754,550
  Share of syndication sales and revenue interests             --              --            60,000         140,000
  Well operating income                                       9,712          20,432          11,668          25,985
  Rental income                                              40,003          77,370          16,287          50,734
  Software Sales                                             45,051          95,537
                                                       ------------    ------------    ------------    ------------
     Total revenue                                        3,321,720       7,818,478       3,268,018       6,428,647
                                                       ------------    ------------    ------------    ------------

Costs and Operating Expenses:
  Lease operating                                           132,528         300,466         150,564         369,282
  Cost of contract revenue                                1,759,110       4,681,950       2,630,734       4,204,668
   Inventory - adjustment to lower of cost or market           --              --              --         3,043,055
  General and administrative:
      Management agreement                                     --              --           348,000         696,000
      Other expenses                                        787,617       1,538,898         339,982         740,340
  Depreciation, depletion and amortization                  190,881         397,994         130,000         271,044
                                                       ------------    ------------    ------------    ------------
      Total costs and operating expenses                  2,870,136       6,919,308       3,599,280       9,324,389
                                                       ------------    ------------    ------------    ------------

     Income (Loss) from Operations                          451,584         899,170        (331,262)     (2,895,742)
                                                       ------------    ------------    ------------    ------------
Other income (expense)
  Other  income                                              14,796          19,966          15,688          21,997
  Interest expense                                         (227,788)       (471,400)       (312,046)       (660,143)
                                                       ------------    ------------    ------------    ------------
                                                           (212,992)       (451,434)       (296,358)       (638,146)
                                                       ------------    ------------    ------------    ------------
     Income (Loss) before income taxes                      238,592         447,736        (627,620)     (3,533,888)
                                                       ------------    ------------    ------------    ------------
          Income tax expense                                   --              --              --              --
                                                       ------------    ------------    ------------    ------------
     Net Income (Loss)                                 $    238,592    $    447,736    $   (627,620)   $ (3,533,888)
                                                       ============    ============    ============    ============
Accumulated deficit, beginning of period                (10,899,544)    (11,108,688)     (7,207,663)     (4,301,395)
                                                       ============    ============    ============    ============
Accumulated deficit, end of period                     $(10,660,952)   $(10,660,952)     (7,835,283)     (7,835,283)
                                                       ============    ============    ============    ============
     Income (Loss) per share                           $       0.04    $       0.08    $      (0.19)   $      (1.06)
                                                       ============    ============    ============    ============

</TABLE>

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

                                      F - 2
<PAGE>

Concord Energy Incorporated and Subsidiaries

Consolidated Statement of Cash Flows
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
                                                               Quarter Ended    Six-Months Ended   Quarter Ended    Six-Months Ended
                                                                December 31       December 31       December 31       December 31
                                                                    1996              1996              1995              1995
                                                                -----------       -----------       -----------       -----------
<S>                                                             <C>               <C>               <C>               <C>         
Cash flows from operating activities                                                                                 
   Net Income (loss)                                            $   238,592       $   447,736       $  (627,620)      $(3,533,888)
   Adjustments to reconcile net income/loss to net cash                                                              
     (used in) provided by operating activities:                                                                     
     Depreciation, depletion and amortization                       190,881           397,994           130,000           271,044
     Other noncash transactions                                     103,080           235,563              --           3,043,055
     Decrease (Increase)  in assets:                                                                                 
        Accounts receivable                                         362,496          (568,613)         (328,738)         (444,079)
        Costs and estimated earnings in excess                                                                       
             of billings on uncompleted contracts                    52,336        (1,346,386)           54,950          (174,169)
        Receivable due from stockholder                                --                --                 525           (11,458)
        Receivable due from affiliated company                      189,512           228,562              --              15,937
        Inventories                                                (413,008)          193,066        (1,221,981)       (1,654,761)
        Deferred income taxes                                          --                --                          
        Other assets and liabilities                                 11,837           (79,163)           28,350           (56,107)
     (Decrease)  Increase  in liabilities                                                                            
        Accounts payable                                           (423,100)           17,122           515,856           853,428
        Accrued expenses                                           (364,735)          (51,990)          311,073         1,189,468
        Federal income tax payable                                    8,333             8,333           (22,887)           (6,149)
        Payable due to Integrated, net                                 --                --            (169,055)         (335,633)
        Interest payable to stockholders                               --                --               3,375             6,750
                                                                -----------       -----------       -----------       -----------
         Net cash provided by (used in) operating activities        (43,776)         (517,776)       (1,326,152)         (836,562)
                                                                -----------       -----------       -----------       -----------
Cash flows from investing activities                                                                                 
     Purchase of property, plant,  oil and gas equipment,                                                           
       well workovers  and recompletions                            (29,951)         (103,833)            2,489           (51,194)
     Sale of oil and gas interests                                     --                --             461,250           477,332
                                                                -----------       -----------       -----------       -----------
         Net cash (used in) provided by investing activities        (29,951)         (103,833)          463,739           426,138
                                                                -----------       -----------       -----------       -----------
Cash flows from financing activities                                                                                 
      Net proceeds from note payable                                   --                --              50,000           825,000
      Net proceeds from issuance of common stock                       --             856,665                        
      Net proceeds from sale of common stock                           --                --             500,000           500,000
      Principal payments on notes payable                                                                            
       and capital lease obligations                               (381,799)         (826,736)         (248,500)         (942,250)
                                                                -----------       -----------       -----------       -----------
        Net cash flows provided by (used in)                                                                         
           financing activities                                    (381,799)           29,929           301,500           382,750
                                                                -----------       -----------       -----------       -----------
Net increase (decrease) in cash and cash equivalents               (455,526)         (591,680)         (560,913)          (27,674)
                                                                -----------       -----------       -----------       -----------
Cash and cash equivalents at beginning of period                    761,929           898,083           791,027           257,788
                                                                -----------       -----------       -----------       -----------
Cash and cash equivalents at end of period                      $   306,403       $   306,403       $   230,114       $   230,114
                                                                ===========       ===========       ===========       ===========
</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 primarily 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,  analyze  and  transmit  data  relative  to  petroleum  production  and
processing  operations.  The Company is headquartered in Jourdanton,  Texas with
substantially  all of its oil and gas operations in East Texas and the Louisiana
Gulf Coast. The Company's  wholly-owned  subsidiaries,  Concord Operating,  Inc.
("COI"),  and Knight  Equipment  and  Manufacturing  Corporation  ("KEMCO")  are
located in Jourdanton,  Texas,  and  Integrated  Petroleum  Systems  Corporation
("IPS") is located in Denver, Colorado.

Concord  Energy,  Inc.,  (the  Company's  name  prior  to  the  recapitalization
described  below) was formed in June 1991 for the purpose of  combining  the net
assets and operations of 166  previously  independent  oil and gas  partnerships
(the  "Partnerships")  and the net  assets  and  operations  of COI  through  an
exchange of Partnership  and COI net assets for common stock in Concord  Energy,
Inc. The exchange was accounted for at historical cost. Certain limited partners
in  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,
Incorporated  ("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, the Company, then knwon as Monoclonal International Technology,
Inc.  ("MITI")  acquired all of the outstanding  common stock of Concord Energy,
Inc., which would  thereafter be the surviving  operating entity (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  outstanding shares of common stock and issued 10,556,077 new shares
of its common stock in exchange for all the outstanding  common stock of Concord
Energy, Inc.

                                      F-4
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

In December  1995,  the Company  effectuated a 1 for 5 reverse split of its then
outstanding common stock. Historical stockholders' equity has been retroactively
restated for all periods  presented in the accompanying  consolidated  financial
statements to reflect this reverse split. The words  "post-split"  refer to that
stock split.

2.   Summary of Significant Accounting Policies

Principles of consolidation

The consolidated  financial statements are comprised of those 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  Corporation.  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 treated as 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 on the straight-line method over its estimated useful life
of 15 years in accordance with generally accepted accounting principles.

Leases

Leases  which meet  certain  criteria  evidencing  substantive  ownership by the
Company are capitalized  and the related capital lease  obligations are included
in  liabilities.  Amortization  and interest  are charged 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 December 31, 1996 and 1995 are stated net of  accumulated  amortization
of $269,189 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.

Share of syndication sales

Under a management  agreement  between the Company and Integrated  (see Note 10)
which  terminated on June 30, 1996,  during fiscal 1996 the Company was entitled
to receive 20% 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 December 31, 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  (5,965,061 in fiscal 1996 and 3,346,071 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 by means
of 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   from  the  net  proceeds  of  debt   financing   totaling
approximately $3,700,000 and the net proceeds from the sale of 260,000 shares of
the  Company's  common stock  yielding  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 in  exchange  for  600,000  shares of the  Company's
common stock in a business  combination  accounted for under the purchase method
of accounting. The results of operations of IPS subsequent to March 1, 1996, are
included in these consolidated financial statements.

At the time of  purchase,  IPS' liabilities  exceeded the value of 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.
Amortization of $147,400 is recorded as of December 31, 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 upon the  creditworthiness  of these  customers.  The Company
reviews the financial  condition of  prospective  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  wholesale  market  value of the plants which would allow a
reasonable profit margin at the time of 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  had been 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 carried cost of the plants to their  estimated  market  value,  an
adjustment of $3,043,055  was charged to expense in the quarter ended  September
30, 1995.

6.   Property, Plant and Equipment, Net

Significant  components comprising property,  plant and equipment at December 31
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      $  6,799,166
    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        11,652,955
                                                 ------------      ------------
Other property, plant & equipment
    Land                                              185,413           159,913
    Buildings & improvements                          306,019           345,186
    Machinery & equipment                             327,135           186,820
    Vehicles                                          237,896           218,769
    Furniture, fixtures & software                    200,010            81,710
                                                 ------------      ------------
                                                    1,310,473           992,398
                                                 ------------      ------------
Accumulated depreciation,
depletion and amortization                         (4,804,807)       (4,209,780)
                                                 ------------      ------------

Property, plant and equipment, net               $  8,316,827      $  8,435,573
                                                 ------------      ------------


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


                                                        1996           1995

Oil and gas properties                                $232,416       $211,044
Other property, plant and equipment                     77,138         60,000
                                                      --------       --------

                                                      $309,554       $271,044
                                                      ========       ========


                                      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 December 31:

                                                           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.                1,784,351     1,760,263

Secured notes payable, dated September 1994, with
a face value of $1,400,000 issued at a $604,500
discount. The notes bear interest at 6% per annum
payable semi-annually with an effective interest
rate of 14.02% per annum. Annual principal
payments of $140,000 are required beginning in
August 2005 through maturity in August 2009. The
notes are secured by certain oil and gas property
owned by the Company.                                      732,764       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.                                                      --         390,000

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 were issued as
consideration for accrued interest expense through
the date of conversion totaling $15,000. The
remainder of the notes matured in October 1996.
The notes are secured by certain oil and gas
property owned by the Company.                             125,000       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 by certain equipment owned by
the Company.                                                40,925          --

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


                                      F-12
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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

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

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

Various 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.                                          160,056          --
                                                        ----------    ----------
                                                                               
Total debt outstanding                                   6,537,096     6,729,050
                                                
Less: current portion                                    3,985,028       895,750
                                                        ----------    ----------
                                                
Long-term debt                                          $2,552,068    $5,833,300
                                                        ----------    ----------
                                         
As of December 31, 1996,  maturities  and  scheduled  payments for the next five
years and thereafter are:  $3,985,028 in 1997, $13,186 in 1998, $14,423 in 1999,
and the remainder after 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



                                      F-13
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

lease  purchase  options which are  exercisable  at the end of the lease term in
December 1997, discounted at an interest rate of 16% and the future payments due
on a lease of a yard facility discounted at 12%.

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

                                                            1996          1995

Total future minimum lease payments                        $73,352       $67,106
Less:  amounts representing interest                         8,824        20,433
                                                           -------       -------

Present value of minimum lease payments                    $64,528       $46,673
                                                           =======       =======

The  obligations  under  capital  lease  mature as follows:  $15,161 in 1997 and
$49,367 in 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 December 31, 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.  Additional  information  concerning  pending
litigation  may be found in the Company's  Form 10-KSB for the fiscal year ended
June 30, 1996.


                                      F-14
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

9.   Outstanding Warrants

Warrants  outstanding  as of December 31, 1996 for the purchase of shares of the
Company's common stock are summarized as follows:

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

November 1994               1,500                $7.50            November 1997
June 1995                  50,000                 2.90            February 1998
June 1995                 100,000                 7.50              July 1997
November 1995              20,000                 5.00            November 1998
February 1996              25,000                 4.00             January 1999
May 1996                   20,000                 3.75               June 1998
May 1996                  100,000                 3.75               June 1999
May 1996                   15,000                 4.00             January 1998
May 1996                  100,000                 4.50              March 2001
May 1996                  200,000                2.625               July 1999

The Company has sufficient shares authorized but not issued for use in the event
these warrants are exercised.

10.  Transactions with Related Parties

Related Party Ownership Interests

The former chairman of the Company's board of directors,  personally and through
Integrated and Tucker,  which are companies that he owns, owns or controls 2.58%
of the  Company's  common stock as of December 31, 1996.  Additionally,  certain
officers and directors of the Company, together with the present chairman of the
board own or control  6.69% of the  Company's  common  stock as of December  31,
1996.

Receivables from Related Parties/Affiliated Company

Integrated and the Company have an agreement by which the associated receivables
and  payables  may be netted.  At  December  31,  1996,  the  Company  has a net
receivable due from Integrated of $7,853.  At December 31, 1995, the Company had
a net payable due to Integrated of $259,052.

                                      F-15
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

As part of its ongoing  operations,  the Company conducts business with Atascosa
Electric Services ("AES"), an entity which is owned and controlled 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 December 31, 1996,  there was
no receivable balance due from stockholder (Deral Knight) or due from affiliated
company (AES). At December 31, 1995, the receivable due from stockholder  (Deral
Knight)  and  due  from   affiliated   company   (AES)  were  $115,077  and  $0,
respectively.

Under the  provisions  of the  agreement  whereby  the  Company  acquired  Deral
Knight's stock in KEMCO, Mr. Knight has agreed to return to the Company, Concord
Energy Incorporated common stock valued at $6.25 per share to the extent that he
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 so recorded as treasury  stock at
September 30, 1996.

Other Payables to Related Parties

At December 31, 1996,  $262,240 is owed to Richard D. Barden,  the  president of
IPS,  and his wife June  Barden.  The  balance  generally  consists  of  accrued
compensation and expense  reimbursements  due to them and is included in accrued
expenses in the accompanying balance sheet.

Management Agreement

The Company and Integrated had entered into and operated under 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  terminated  on June 30,  1996.  The  Management
Agreement  had  been  provided  for  under  the  terms of the  consolidation  of
Partnerships,  the assets of which were exchanged for Concord Energy, Inc. stock
(see Note 1 above).  The services provided by Integrated  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 was also  entitled to 10% of all  syndicated
retail partnership gross sales made by Integrated.  As additional  consideration
for the Management Agreement, Integrated assigned to the Company, effective June
1,  1991  through  March  31,  1994,  its  revenue  sharing  in  future  program
syndications. Effective March 31, 1994, the Management Agreement was modified to
provide the Company with 20% of all syndicated  retail  partnership  gross sales
made by  Integrated.  During fiscal 1994,  the Company sold to Integrated all of
its revenue sharing interests which were earned under the 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

                                      F-16
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

the  Company's  full-cost  oil and gas  properties  pool.  In the  period  ended
December  31,  1996 and 1995 the Company  recorded  income  from  Integrated  as
follows:

                                                           1996         1995  
                                                                    
Share of syndication income                              $   --       $140,000
                                                         --------     --------
                                                                    
                                                         $   --       $140,000
                                                         --------     --------

Employment Agreements

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

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

Royalty Agreement

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

                                      F-17
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 then current salary totaling $75,000.



                                      F-18