Form 10-QSB -- Quarterly or Transitional Report

(Mark One)
   [X]             QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended March 31, 1998

   [ ]                 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 March  31,  1998,  the  outstanding  common  equity  of  Concord  Energy
Incorporated comprised 6,045,745 shares of common stock, $.0001 par value.


                                       1
<PAGE>

                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

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

                                                                        Pages
                                                                        -----
Consolidated Balance Sheet (Unaudited),
    March 31, 1998 and 1997                                              F-1

Consolidated Statements of Operations and
    Accumulated Deficit (Unaudited)
    Three and Nine Months Ended March 31, 1998,  and 1997                F-2

Consolidated Statements of Cash Flows (Unaudited),
    Three and Nine Months Ended March 31, 1998,  and 1997                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 nine months  ended March 31,  1998 the Company  reported  total
revenues of  $18,835,485.  Contract  revenues  during the nine month period were
$18,003,486.  Rental income for the nine month period was $93,105. The Company's
oil sales during the nine month  period were  $358,114  while gas sales  totaled


                                       3
<PAGE>

$165,767.  The Company reported revenue from software sales of $189,448 and well
operating  income of $25,566  during the nine month period ended March 31, 1998.
By comparison,  during the nine months ended March 31, 1997 the Company reported
total  revenues of  $11,901,677,  including  contract  revenues of  $10,395,544,
rental  income of  $164,664,  oil  sales of  $666,607,  gas  sales of  $489,308,
software sales of $155,174 and well operating income of $30,380.

     Total revenues  increased by $6,933,808  during the nine months ended March
31, 1998  compared to the nine month period ended March 31, 1997.  This increase
is primarily due to the increase in contract revenues of $7,607,942.

     Total costs and operating  expenses  during the nine months ended March 31,
1998 were  $19,920,421,  an increase of  $9,224,421  from the nine month  period
ended March 31, 1997,  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  $17,675,464.  Cost of
contract revenue as a percentage of contract revenue was  approximately  98%. In
comparison,  during the nine month  period  ended March 31, 1997 total costs and
operating  expenses were $10,696,000,  costs of contract revenue were $7,484,171
and  cost  of  contract   revenue  as  a  percentage  of  contract  revenue  was
approximately  72%. The increase in cost of contract  revenue of  $10,191,293 is
primarily the result of the increase in contract revenues.

     During  the  nine  month   period   ended  March  31,   1998   general  and
administrative  expenses  were  $1,524,950.  During the nine month  period ended
March 31, 1997,  the Company's  total general and  administrative  expenses were
$2,041,371, which includes costs of $354,636 associated with the winding down of
the Company's New Jersey and Houston office's and staff.


                                       4
<PAGE>

     Depreciation,  depletion and  amortization  expenses  during the nine month
period  ended March 31, 1998 were  $337,919.  During the nine month period ended
March 31,  1997 these  expenses  were  $662,823.  The  decrease  of  $324,904 is
primarily due to the  elimination of  amortization of IPS' goodwill which in the
nine month period  ended March 31, 1997 totaled  $132,660 as well as a reduction
in production of Oil and Gas .

     Interest  expense  for the nine  month  period  ended  March  31,  1998 was
$679,965. During the nine month period ended March 31, 1997 interest expense was
$728,426.  

     For the nine month period  ended March 31, 1998 the Company  reported a net
loss of  $1,742,467.  For the nine month period ended March 31, 1997 the Company
reported a net income of  $507,736.  The  decrease  of  $2,250,203  for the nine
months ended March 31, 1998 as compared to the nine months ended March 31, 1997,
primarily  resulted from the inclusion at March 31, 1998 of an estimated loss on
a certain  construction  project which the Company was unable to complete due to
cash flow  problems.  The Company has  established a reserve of  $1,500,000  for
costs that the customer will incur to complete  this  project.  During the three
months ended March 31, 1998 the Company  reported a net loss of $2,653,932.  The
net loss was  primarily  the  result of an  increase  in the  estimated  cost of
contract  revenue  associated  with certain  contracts which were in progress at
December 31, 1997 and includes the construction  project  previously  discussed.
The  Company  had  underestimated  the total cost  required  to  complete  these
contracts.

Liquidity and Capital Resources

     As of March 31,  1998 and 1997,  the  Company  reported a negative  working
capital of $2,187,146 and $3,451,453,  respectively,  resulting in a decrease of
$5,638,599. This decrease in 1998 is the result of an increase in current assets
of $295,246 and an increase in current  liabilities 


                                       5
<PAGE>

of $5,933,805.  The increase in current  liabilities  primarily resulted from an
increase in accounts payable and accrued expenses of $6,170,458.

     During the nine months  ended March 31,  1998,  cash  provided in operating
activities  was  $277,843,  representing  an increase of $780,189  from the nine
months  ended  March  31,  1997.  This  increase  primarily  resulted  from  the
combination of the increased  accounts payable and accrued  expenses,  decreased
inventories, increased net loss and increase 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 nine months
ended  March 31,  1998 and  prior  fiscal  years,  as well as  significant  debt
maturing in the near future.

     On February 27, 1998,  the Company  executed a Direction,  Instruction  and
Consent to  Forbearance  by Trustee,  by which  $2,920,000 of debt which was due
February 27, 1998, was made due and made payable on or before February 27, 1999.
The Company has been  attempting  to secure  long-term  financing to replace the
notes that are payable on or before  February  27, 1999;  however,  there are no
current commitments to refinance this indebtedness.  Due to insufficient working
capital,  the Company was unable to make the semi-annual interest payment on the
notes of $146,000  which was due on May 1, 1998.  The nonpayment of the interest
resulted  in an event of default  under the terms of the note  agreement;  which
provides that the  noteholders or the related Trustee may declare the $2,920,000
principal  of and all  accrued  interest  on the  notes  to be due  and  payable
immediately,  although the noteholders have not yet made such a declaration. The
failure by the Company to pay the  interest  on the  $2,920,000  constitutes  an
event of default under 


                                       6
<PAGE>

other debt  agreements  which may result in an additional  $2,564,870  principal
amount of indebtedness to be declared due and payable immediately by the holders
of such indebtedness.  Upon an event of default,  the noteholders or the related
Trustee may pursue any remedy by  proceeding  at law or in equity to collect the
indebtedness  which  remedies may include  foreclosure of the pledged assets and
almost all of the  Company's  assets are  pledged  to secure the  $5,484,870  of
principal indebtedness of the Company.

     As a result of the Company's cash flow problems,  the Company was unable to
complete  a  significant   construction  contract  which  has  resulted  in  the
establishment of a $1,500,000  accrual for potential  additional costs, that the
customer may incur to complete the contract.

     Additionally,  the Company is currently  involved in numerous lawsuits as a
result of it's inability to meet its financial  obligations  to various  vendors
who have  supplied  materials  and or services to the  Company,  which  lawsuits
collectively  claim that the Company owes such vendors  potentially  $2,000,000.
The  Company  has  been  working  to  satisfy  these  obligations  by  obtaining
additional  financing  for  working  capital;  however,  there  are  no  current
commitments to improve the Company's working capital.

     The  Company's  ability  to meets  its  current  financial  commitments  is
dependent on the Company obtaining additional financing. Although the Company is
investigating  various  sources  of  financing,  the  Company  presently  has no
commitment  for  additional  financing  and there can be no  assurance  that the
Company will be successful in obtaining any additional financing. If the Company
is unable to obtain  additional  financing as needed,  it would consider,  among
other  alternatives,  the sale of unencumbered assets as well as other strategic
alternatives  in an effort to meet its  financial  requirements.  In view of the
current liquidity problems of the Company, any investment in the common stock of
the Company should be considered highly speculative.


                                       7
<PAGE>

Capital Expenditures and Commitments

     During the nine months ended March 31, 1998, the Company  incurred  capital
expenditures  of $83,384.  These  capital  expenditures  primarily  consisted of
equipment purchases by KEMCO.

Forward Looking  Information 

All statements other than statements of historical facts included in this report
regarding the Company's financial position,  business strategy and objectives of
management for future  operations are  forward-looking  statements  that involve
risks  and  uncertainties.   Although  the  Company  believes  the  expectations
reflected in such  forward-looking  statements  are  reasonable,  it can give no
assurance  that  such  expectations  will  prove  to  have  been  correct.  Such
forward-looking  statements are made in reliance on the "safe harbor" protection
provided under the Private  Securities  Litigation  Reform Act of 1995.  Factors
that  could  cause  actual  results  to  differ  materially  from the  Company's
expectations  include,  among other, the following:  (i) market  dynamics,  (ii)
regulatory  changes,  (iii)  competition and other economic  conditions and (iv)
actions of the Company's lenders,  vendors and other third parties over whom the
Company has no  control.  It is not  possible  to foresee or  identify  all such
factors.   The  Company  makes  no  commitment  to  update  any  forward-looking
statement,  or to disclose  any facts,  events or  circumstances  after the date
hereof that may affect the accuracy of any forward-looking statement.

                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

     As of March 31,  1998,  the  Company  was  involved  in various  litigation
matters,  many of which are as a result of its  inability to meet its  financial
obligations to various  vendors who have supplied  materials  and/or services to
the  Company.  The total  amount of these  claims  is  potentially  in excess of
$2,000,000. These litigation's include, but are not limited to, the following:

a)  In the State Court of Cobb County, State of Georgia
    Filed April 3, 1998
    Trism Specialized Carriers, Inc. v. KEMCO, Inc. and Shell Oil Company
    $548,720.90

b)  In the 347th Judicial District Court, Nueces County, Texas
    Received April 7, 1998
    Industrial Piping Specialists, Inc. vs. Knight Equipment & Mfg. Corp.
    $30,241.17

c)  In the District Court of Okmulgee County Oklahoma
    April 23, 1998
    The Pump & Motor Works, Inc. vs. Knight Equipment & Manufacturing 
    Corporation d/b/a KEMCO
    $19,059.73

d)  In the 49th Judicial District Court, Zapata County, Texas
    Received April 29, 1998
    Raymond E. Rabalais, Inc. d/b/a Rabalais Electrical Constructors v. 
    Knight Equipment & Manufacturing Corporation, d/b/a KEMCO, Concord
    Energy Incorporated, and Concord Energy, Inc.
    $158,144.61

e)  In the 49th Judicial District Court, Zapata County, Texas
    Received April 29, 1998
    H  &  S  Constructors,   Inc.  v.  Knight   Equipment  &  Manufacturing
    Corporation,  d/b/a KEMCO,  Concord  Energy  Incorporated,  and Concord
    Energy, Inc.
    $337,349.73


                                       8
<PAGE>

Item 5.  Other Information

     On May 11,  1998,  Craig  Stewart  resigned  from the  Board of  Directors,
effective  immediately.  

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 not so designated are filed with
this Form 10-QSB.


                                       9
<PAGE>

     (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.

b)  Reports on Form 8-K

     A current report on Form 8-K was filed on March 3, 1998, regarding the
     execution of the Direction, Instruction and Consent to Forbearance by
     Trustee, by which $2,920,000 of debt which was due February 27, 1998,
     became payable on or before February 27, 1999.

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


                                       10
<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)

Dated: May 15, 1998                  s\ Deral Knight
                                     --------------------------------------   
                                     Deral Knight
                                     President, Chief Executive Officer
                                     and Chairman of the Board of Directors

Dated: May 15, 1998                  s\ Scott Kalish
                                     --------------------------------------
                                     Scott Kalish
                                     Treasurer (Principal Accounting Officer)


                                       11
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                   (Unaudited)      (Unaudited)
                                                     March 31        March 31
                                                       1998            1997
Assets

Current assets
   Cash and cash equivalents                       $    254,954    $    109,380
   Costs and estimated earnings in excess
     of billings on uncompleted contracts, net        1,221,609       2,512,131
   Accounts receivable, net of allowance for
     doubtful accounts of $24,604 and $132,930        1,685,792       1,524,566
   Receivable due from Integrated, net                   19,468            --
   Inventories                                        7,123,016       5,894,470
   Prepaid expenses and other assets                    100,721          69,806
                                                   ------------    ------------

       Total current assets                          10,405,559      10,110,353

Property, plant and equipment, net                    7,789,077       8,115,893
Goodwill, net                                              --         2,461,588
Bond issuance costs, net                                187,390         210,070
Other assets                                             35,000          50,000
                                                   ------------    ------------
       Total assets                                $ 18,417,026    $ 20,947,904
                                                   ============    ============

Liabilities and Stockholders' Equity

Current liabilities
   Current portion of long-term debt               $  3,621,127    $  3,842,472
   Current portion of capital lease obligations            --             8,566
   Accounts payable                                   4,849,139       1,620,015
   Accrued expenses                                   4,064,960       1,123,626
   Payable due to Integrated, net                          --            35,099
   Federal  income taxes payable                         57,480          29,122
                                                   ------------    ------------

       Total current liabilities                     12,592,705       6,658,900

Long term liabilities
  Notes payable                                       2,587,266       2,557,807
  Capital lease obligations                                --              --
                                                   ------------    ------------
       Total long term liabilities                    2,587,266       2,557,807
                                                   ------------    ------------

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 5,965,061
    (post-split) shares issued and outstanding              605             605
   Paid-In capital                                   22,812,110      22,812,110
   Accumulated deficit                              (19,095,094)    (10,600,952)
                                                   ------------    ------------
                                                      3,717,621      12,211,763
Cost of Treasury Stock                                 (480,566)       (480,566)
                                                   ------------    ------------
       Total stockholders' equity                     3,237,055      11,731,197
                                                   ------------    ------------
       Total liabilities and stockholders' 
         equity                                    $ 18,417,026    $ 20,947,904
                                                   ============    ============

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


                                      F-1
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

<TABLE>
<CAPTION>

                                             (Unaudited)      (Unaudited)     (Unaudited)    (Unaudited)
                                             Quarter Ended    Nine-Months    Quarter Ended   Nine-Months
                                               March 31        March 31        March 31        March 31
                                                 1998            1998            1997            1997
<S>                                          <C>             <C>             <C>             <C>         
Revenue:
  Oil sales                                  $    118,114    $    358,114    $    223,302    $    666,607
  Gas sales                                         5,767         165,767         163,177         489,308
                                             ------------    ------------    ------------    ------------
     Total oil and gas sales                      123,881         523,881         386,479       1,155,915

  Contract revenue                              3,453,387      18,003,486       3,539,842      10,395,544
  Well operating income                             8,522          25,566           9,945          30,380
  Rental income                                    47,658          93,105          87,294         164,664
  Software Sales                                   66,025         189,448          59,638         155,174
                                             ------------    ------------    ------------    ------------
     Total revenue                              3,699,474      18,835,485       4,083,198      11,901,677
                                             ------------    ------------    ------------    ------------

Costs and Operating Expenses:
  Lease operating                                   1,400         382,087         207,169         507,635
  Cost of contract revenue                      5,588,866      17,675,464       2,802,221       7,484,171
  General and administrative:                     544,238       1,524,950         502,473       2,041,371
  Depreciation, depletion and amortization          2,829         337,919         264,829         662,823
                                             ------------    ------------    ------------    ------------
      Total costs and operating expenses        6,137,333      19,920,421       3,776,692      10,696,000
                                             ------------    ------------    ------------    ------------
     Income (loss) from Operations             (2,437,859)     (1,084,935)        306,506       1,205,677
                                             ------------    ------------    ------------    ------------

Other income (expense):
  Other income                                      7,261          22,435          10,519          30,485
  Interest expense                               (223,334)       (679,965)       (257,026)       (728,426)
                                             ------------    ------------    ------------    ------------
     Total other income (expense)                (216,072)       (657,530)       (246,507)       (697,941)
                                             ------------    ------------    ------------    ------------
     Income (loss) before income taxes         (2,653,932)     (1,742,467)         59,999         507,736
                                             ------------    ------------    ------------    ------------
          Income tax benefit                         --              --              --              -
                                             ------------    ------------    ------------    ------------
     Net Income (loss)                       $ (2,653,932)   $ (1,742,467)   $     59,999    $    507,736
                                             ============    ============    ============    ============
Accumulated deficit, beginning of period      (16,441,163)    (17,352,628)    (10,660,951)    (11,108,688)
                                             ============    ============    ============    ============
Accumulated deficit, end of period           $(19,095,095)   $(19,095,095)   $(10,600,952)   $(10,600,952)
                                             ============    ============    ============    ============
     Net Income (loss) per share             $      (0.45)   $      (0.30)   $       0.01    $       0.09
                                             ============    ============    ============    ============
</TABLE>

                   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)      (Unaudited)        (Unaudited)
                                               Quarter Ended  Nine-Months Ended  Quarter Ended    Nine-Months Ended
                                                  March 31        March 31          March 31          March 31
                                                   1998             1998              1997               1997
<S>                                             <C>             <C>               <C>            <C>        
Cash flows from operating activities
  Net Income (loss)                             $(2,653,932)    $(1,742,467)      $    59,999       $   507,736
  Adjustments to reconcile net                                                                      
    income/loss to net cash                                                                         
    (used in) provided by operating activities:                                                       
  Depreciation, depletion and amortization            2,829         337,919           264,829           662,823
  Other noncash transactions                          3,487          27,591           186,654           422,217
  Decrease (Increase)  in assets:                                                                   
    Accounts receivable                             110,200        (973,937)          303,832          (264,781)
    Costs and estimated earning in excess                                                           
      of billings on uncompleted contracts         (589,028)       (815,373)       (1,048,650)       (2,395,036)
    Receivable due from affiliated company             --              --               7,853           236,415
    Inventories                                    (528,708)     (1,397,173)           (5,563)          187,503
    Other assets and liabilities                    (27,994)        (43,951)           29,622           (49,542)
  (Decrease)  Increase  in liabilities                                                              
    Accounts payable                              1,444,784       2,710,014           270,502           287,624
    Accrued expenses                              2,344,498       2,162,810           (11,618)          (63,608)
    Federal income tax payable                        8,267          24,933           (77,129)          (68,796)
    Receivable due from/payable due to                                                              
      Integrated, net                                34,565         (12,524)           35,099            35,099
                                                -----------     -----------       -----------       -----------
                                                                                                    
    Net cash provided by (used in)                                                                  
      operating activities                          148,968         277,843            15,430          (502,346)
                                                -----------     -----------       -----------       -----------
                                                                                                    
Cash flows from investing activities                                                                
  Purchases of equipment, well workovers                                                            
    and recompletions                               (11,295)        (83,384)          (19,674)         (123,507)
                                                -----------     -----------       -----------       -----------
  Net cash (used in) provided by                                                                    
    investing activities                            (11,295)        (83,384)          (19,674)         (123,507)
                                                -----------     -----------       -----------       -----------
                                                                                                    
Cash flows from financing activities                                                                
  Net proceeds from note payable                     70,000         109,414              --                --
  Net proceeds from issuance of common stock           --              --                --             856,665
  Principal payments on notes payable                                                               
    and capital lease obligations                    (4,629)        (90,858)         (192,779)       (1,019,515)
                                                -----------     -----------       -----------       -----------
                                                                                                    
  Net cash flows provided by (used in)                                                              
    financing activities                             65,371          18,556          (192,779)         (162,850)
                                                -----------     -----------       -----------       -----------
                                                                                                    
Net increase (decrease) in cash                                                                     
  and cash equivalents                              203,044         213,015          (197,023)         (788,703)
                                                -----------     -----------       -----------       -----------
                                                                                                    
Cash and cash equivalents at                                                                        
  beginning of period                                51,910          41,939           306,403           898,083  
                                                -----------     -----------       -----------       -----------
                                                                                                    
Cash and cash equivalents at                                                                        
  end of period                                 $   254,954     $   254,954       $   109,380       $   109,380
                                                ===========     ===========       ===========       ===========
</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  expensed 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 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 March 31, 1998 and 1997 are stated net of accumulated  amortization  of
$383,371 and $310,691, 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 March 31, 1998 and
1997, 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 5,960,366 at March 31, 1998
and 1997, 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 $191,620 is recorded as of March 31, 1997.

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 March 31
include the following:

                                                       1998           1997

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          81,131
                                                   ------------    ------------
                                                     11,811,162      11,811,661
                                                   ------------    ------------

Other property, plant & equipment
   Land                                                 185,413         185,413
   Buildings & improvements                             362,746         361,925
   Machinery & equipment                                358,646         338,136
   Vehicles                                             176,336         237,896
   Furniture, fixtures & software                       200,813         206,278
                                                   ------------    ------------
                                                      1,283,954       1,329,648
                                                   ------------    ------------
Accumulated depreciation,
depletion and amortization                           (5,306,039)     (5,025,416)
                                                   ------------    ------------
Property, plant and equipment, net                 $  7,789,077    $  8,115,893
                                                   ============    ============


                                      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 March
31 are as follows:

                                                           1998          1997

Oil and gas properties                                   $220,635       $414,446
Other property, plant and equipment                       112,284        115,697
                                                         --------       --------
                                                         $332,919       $530,163
                                                         ========       ========

7.  Debt and Capital Lease Obligations

Debt

Notes payable and long-term debt includes the following at March 31:

                                                            1998          1997

Bond payable, dated May 1995, with interest at 10%
per annum, requiring semi-annual interest payments
through maturity on February 28, 1999. 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.                 1,808,726    1,789,226


                                      F-10
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                            1998          1997
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
properties owned by the Company.                            756,144      737,440

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.                                              24,361       37,113

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      174,000

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.                                              12,662         -


                                      F-11
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

                                                            1998         1997
Secured note payable dated January 1998, with
interest at 8% per annum. The note is secured with
certain receivables of the Company and a personnel
guarantee President, CEO and Chairman of the Board
of Directors, Deral Knigh.                                 70,000           --

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 (see Note 8) and July 1998.              167,500        142,500
                                                       ----------     ----------
Total debt outstanding                                  6,208,393      6,400,279

Less: current portion                                   3,621,127      3,842,472
                                                       ----------     ----------
Long-term debt                                         $2,587,266     $2,557,807
                                                       ==========     ==========

As of March 31, 1998,  maturities and scheduled payments for the next five years
and thereafter are:  $3,621,127 in 1999, $12,520 in 2000, $6,311 in 2001, $3,565
in 2002, and the remainder after year 2002.

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.


                                      F-12
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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

                                                             1998          1997

Total future minimum lease payments                         $  --         $9,000
Less:  amounts representing interest                           --            434
                                                            -------       ------
Present value of minimum lease payments                     $  --         $8,566
                                                            =======       ======

The obligations under capital lease mature as follows: $0 in 1999.

8. Commitments and Contingencies

Minimum Rental Commitments

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

Legal Matters

As of March 31,  1998,  the Company was involved in various  litigation  matters
many  of  which  are as a  result  of  it's  inability  to  meet  its  financial
obligations  to various  vendors who have supplied  materials and or services to
the  Company.  The total  amount of these  claims  is  potentially  in excess of
$2,000,000.

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 stock at $1.00 per share.  At March 31, 1998 the Company has a
reserve  recorded  in the amount of  $175,000  for the cost of this  settlement,
however the settlement has not been completed.

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.


                                      F-13
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

In October  1997 the Company  filed suit  against one of its  customers  for the
collection of outstanding  receivables  due the Company.  As of May 10, 1998 the
uncollected balance was $870,079.  The customer has filed a declaratory judgment
action on this matter.

9. Outstanding Warrants

Warrants  outstanding  as of March 31,  1998  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 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               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 March 31, 1998.

Receivables from Related Parties/Affiliated Company

Integrated  and the Company  previously had an agreement by which the associated
receivables  and payables  were  permitted  to be netted.  At March 31, 1998 the
Company has a net  receivable  due from  Integrated  of $19,469 and at March 31,
1997, the Company has a net payable due to Integrated of $35,099.

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 March 31, 1998 and 1997 the  Company  owed AES
$17,784 and $6,863, respectively, which is included in accounts payable. 


                                      F-14
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

At March 31, 1998 and 1997, respectively,  there was $75,877 and $34,949 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
of accrued interest payable at March 31, 1998 and 1997.

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 December 31, 1997 and 1996.

Other Payables to Related Parties

At March 31, 1998 and 1997, $275,638 and $263,659, 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 December 31, 1996, Notes Payable to  stockholders,  which bear interest of 6%
per annum,  were payable to Deral  Knight.  Interest  expense  incurred on notes
which  matured and were paid in October 1996 totaled  $4,120 for the nine months
ended March 31,  1997.  At March 31, 1998 a new note  payable to Deral Knight in
the amount of $25,000 is included in short term debt.

Additionally,  the additional  $142,500  recorded as various  unsecured notes in
Note 7 as of  March  31,  1998  and  1997  represent  notes  payable  to  former
stockholders  of IPS who became  stockholders  of the  Company  when the Company
acquired IPS.

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. 


                                      F-15
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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 (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.

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.


                                      F-16
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

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  $1,894 and $1,552 for the nine  months
ended March 31, 1998 and 1997, 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 nine months  ended  March 31,  1998 and the fiscal  years ended June 30,
1997 and 1996,  the  Company  incurred  net losses and  negative  cash flow from
operations.  In October 1997 the Company  became  involved in a dispute over the
completion  of  a  significant  contract  which  has  delayed  collection  of  a
significant  account  receivable  (see Note 8). In February  1998 the  Company's
working  capital and cash flow problems  resulted in the Company's  inability to
complete  a  significant   construction  contract  which  has  resulted  in  the
establishment  of a $1,500,000  accrual for potential  additional costs that the
customer may incur to complete the  contract.  As a result,  the Company has had
difficulties meeting its current obligations as they come due.

Additionally,  the Company has notes payable of $2,920,000  maturing on February
28, 1999 or earlier due to a recent  failure of the Company to pay the  interest
due on this  indebtedness,  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.


                                      F-17
<PAGE>

Concord Energy Incorporated and Subsidiaries

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

Management is currently  attempting to obtain long-term  financing  secured by a
portion of the Company's inventory of plants to replace the notes that mature on
February 28, 1999 and supplement its working capital.  The Company's  ability to
continue as a going  concern is dependent on its being  successful  in obtaining
financing to replace its maturing debt and generate  sufficient  working capital
or pursuing  other  strategic  alternatives  in an effort to meet its  financial
obligations.

12. Events Subsequent to Date of Balance Sheet

On May 1, 1998 the  Company was unable to make a required  semi-annual  interest
payment of $146,000  due on notes  payable of  $2,920,000.  The Company has been
pursuing  additional  financing to meet this  obligation,  however  there are no
current  commitments  and no  assurances  can be given that the Company  will be
successful in its efforts to obtain the financing needed for this obligation.


                                      F-18