<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                           _________________________

                                  FORM 10-KSB

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996

                                     or

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 -       EXCHANGE ACT OF 1934

                      Commission file number 033-19992-LA

                        NATIONAL EQUITIES HOLDINGS, INC.
           (Exact Name of Registrant as Specified in its Charter)

           Delaware                                              33-0284600
  (State or other jurisdiction                                (I.R.S. employer
of incorporation or organization)                            identification no.)

      616 FM 1960 West, Suite 222                                  77090
           Houston, Texas                                        (Zip Code)
(Address of principal executive offices)

     Registrant's telephone number, including area code: (281) 583-1199
      Securities registered pursuant to Section 12(b) of the Act: NONE

         Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001                          OTC Bulletin Board
    (Title of each class)                            (Name of each exchange on
                                                          which registered)

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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     No  X
                                             ----    ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB  or any
amendment to this Form 10-KSB. (   )

         The Registrant's revenues for the year ended December 31, 1996 were 
$66,161

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of November 12, 1997 was $6,405,934.  For purposes of the
determination of the above-stated amount only, all directors, executive
officers and 5% or more shareholders of the Registrant are presumed to be
affiliates.

         As of November 10, 1997 there were 16,116,204 shares of the Company's
common stock outstanding.
<PAGE>   2
                        NATIONAL EQUITIES HOLDINGS, INC.

<TABLE>
<S>       <C>                                                                        <C>
PART I

Item 1.   Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3

Item 2.   Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5

Item 3.   Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . .   13

Item 4.   Submission of Matters to a Vote of Security Holders  . . . . . . . . . .   13

Part II

Item 5.   Market for Registrant's Common Equity
                   and Related Stockholder Matters . . . . . . . . . . . . . . . .   13


Item 6.   Managements Discussion and Analysis
                   of Financial Condition and Results of Operations  . . . . . . .   14

Item 7.   Financial Statements and Supplementary Data  . . . . . . . . . . . . . .   15

Item 8.   Changes in and Disagreements With Accountants
                   on Accounting and Financial Disclosure  . . . . . . . . . . . .   16

PART III

Item 9.   Directors and Executive Officers of the Registrant . . . . . . . . . . .   17

Item 10.  Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . .   18

Item 11.  Security Ownership of Certain Beneficial Owners and Management.  . . . .   18

Item 12.  Certain Relationships and Related Transactions . . . . . . . . . . . . .   19

PART IV

Item 13.  Exhibits, Financial Statement Schedules,
          and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . .   20
</TABLE>





                                       2
<PAGE>   3
PART I

ITEM 1.  BUSINESS

General

         National Equities Holdings, Inc. (the "Company" or the "Registrant")
is an independent energy company primarily engaged in the exploration,
development and exploitation of oil and gas properties.  The Company does
business under the name "NEHI Petroleum Corporation" ("NEHI").  Prior to August
9, 1996, the Company was not involved in the oil & gas activities.

         The Company was initially organized in Delaware on November 24, 1987
under the name "Asquith Venture Associates, Inc."  On July 1, 1988, the Company
entered into an Agreement and Plan of Reorganization with the shareholders of
Amadeus Corporation, a Nevada corporation incorporated in April 1987, to
acquire all of the issued and outstanding shares of common stock of Amadeus.
On October 27, 1988, the Company changed its  name to "Amadeus Holdings, Inc."
and adopted its present name on January 20, 1993.

         In August 1996, the Company acquired the proved oil and gas assets of
Erin Oil Exploration, Inc. ("Erin"), a Texas corporation, located in west Texas
and West Virginia.  With this acquisition, the business focus of the Company
changed to the oil and gas industry and an oil and gas industry management team
was installed. The Company issued 21,510,418  shares of its common stock  for
proved oil and gas reserves having a discounted cash value of $12,464,584.00.
As a part of this transaction, the Company assumed the liability for
Convertible debentures issued by Erin in the amount of $2,770,000.
Subsequently, the value of the transaction was lowered to the carrying value of
the existing wells plus the purchase cost of the reserves for the twenty well
program less the Erin Debentures outstanding.  The Common Stock issued was
reduced to 13,122,045 shares.  The transaction was a nonmonetary exchange,
i.e., the Company exchanged its common stock for the discounted cash flow value
of ERIN 's   oil and gas reserves and assumed liability for ERIN 's
convertible Debentures.  The agreement requires the Company to assume the
operation of the drilling programs and well operations effective October 1,
1996.   The assets, however, were acquired August 9, 1996.

         The Company's exploration efforts are focused primarily on the Gulf
Coast and Upper Gulf Coast salt basins of the southeast United States and the
Permian Basin area of west Texas and southeast New Mexico.  Management's
experience in all the major oil and gas producing basins of the United States
allows the Company the flexibility of pursuing other producing opportunities as
they are presented.  The Company's primary efforts will be to assemble leases
on well documented oil and gas exploration prospects and obtain industry or
non-industry participants to drill the prospects.  This will be done on
individual or multiple prospect packages.  The Company will retain a working
interest between 25% and 50% in each well.  Larger working interests may also
be retained by the Company in certain prospects depending upon assessed risk,
capital availability, and other factors.





                                       3
<PAGE>   4
Exploration Strategy

         The identification and development of exploratory prospects to achieve
reserve growth, increase cash flow, and enhance share value are the central
focus of the Company's business.  Prospects are generated primarily internally,
by joint venture participation with industry partners, and by consulting
explorationists with which the Company has a working relationship.

         The Company's exploration strategy is to establish stable, long lived
oil and gas production and cash flow by innovative exploration programs in
proven prolific oil and gas trends of the United States.  Gas exploration
prospects must have potential reserves of the equivalent of 50 billion cubic
feet of gas or more and multiple productive zone opportunities capable of
producing the equivalent of 10 million cubic feet of gas or more per day.

         The Company utilizes modern, high-technology exploration methods to
reduce risks and uses precision horizontal drilling where applicable, to
increase oil and gas deliverability.  It also packages the drilling of low risk
development wells to supply a steady replacement of reserves by utilizing
investor money.

Competition

         The business of exploring, developing and producing oil and gas is
highly competitive.  The Company competes with numerous firms and other
individuals in its activities, including major oil firms and other independent
exploration and producing firms, many of which have substantially greater
financial resources, management and technical staffs, and facilities than those
of the Company.  Major and independent oil and gas companies and individuals
actively bid for desirable producing properties as well as unexplored oil and
gas prospects and compete for equipment, services, and labor required to
explore, develop and operate such properties.  The Company faces intense
competition from other energy firms attempting to form exploration groups to
provide funding to complete desired exploration, including drilling.  In the
opinion of the Company, the decision of a firm to participate in a proposed
exploration group is based on the estimated likelihood of finding oil and gas
in commercial quantities, the cost of exploration and, if warranted,
development, the size of the potential reservoir, the interest to be earned by
completing specified exploration or drilling or providing necessary funding,
alternative opportunities for the employment of limited capital, the
exploration philosophy or area of interest of potential participants, the
reputation of the Company, and other factors, many of which are beyond the
control of the Company.

         In its efforts to acquire leases or other exploration rights in new
prospect areas, the Company faces competition from major oil companies,
independent oil firms, and oil and gas speculators.  The ability to acquire
leases or exploration rights is generally determined by the amount of cash
required to obtain the property interest, the royalty or other interest
reserved by the transferor, and the nature of any commitment to drill or
complete other exploration.





                                       4
<PAGE>   5
Employees

         As of December 31, 1996, the Company employed three full-time persons
and utilizes five consultants.  The Company's employees are not represented by
a union.

SUBSEQUENT EVENTS

         On November 1, 1997, NEHI entered into a Joint Venture Agreement with
HORSE ENERGY LP ("HORSE"), a Texas registered limited partnership.  This
agreement gives NEHI a 25% limited partnership interest in HORSE.  NEHI issued
7,871,023 shares of common stock in return for this limited partnership
interest and agreed to raise $5,000,000 of investment capital for HORSE to use
in its oil and gas ventures.  NEHI and/or its affiliates will retain 20% of all
funds raised to cover overhead and sales costs.

         On November 5, 1997, NEHI  signed a joint venture agreement with
ROTARY STEERABLE TOOLS (U.S.A.) L.P.("RST (USA) L.P.")  This agreement concerns
the development of a device generally described as "A down hole adjustable
device for trajectory control in the drilling of deviated wells".  The
inventors have licensed this devised to a Limited Partnership which is called
RST (USA) L.P.  NEHI is funding certain expenses incurred in relation to the
development of the device and in return will receive a 25% partnership interest
in RST (USA) L.P.  As a part of the initial funding, NEHI issued 6,551022
shares of Common Stock to RST (USA) L.P.

As a part the HORSE and RST (USA) L.P. transactions referred to above,  George
Sutherland, Jack Chance, Feroze Variava, and Steve McLoughlin were
simultaneously appointed to the Board of Directors of NEHI.  Additionally,
George Sutherland has been appointed President & COO; Jack Chance--Chairman and
CEO;  Feroze Variava--Vice President Engineering; and Steve McLoughlin--Vice
President Oilfield Services.

         In order to further enhance operations and to ensure the Company's
survival, management has elected to cease the sale of the ERIN debentures which
it assumed in the exchange transaction with ERIN.  Management has converted
$1,220,300 of the ERIN debentures into 1,242,574 shares of the Company's common
stock as of November 20, 1997 and will attempt to convert the balance of the
outstanding debentures on or before their maturity date (January 5, 1998).



ITEM 2.  PROPERTIES

Fisher County, Texas

         The Company has four primary properties in Fisher County, Texas that
are currently producing.  The four properties are located in different lease
blocks along the western flank of the Bend Arch and on the Eastern Shelf of the
Permian Basin.  The properties are listed below:





                                       5
<PAGE>   6
         The Pardue-Holly Lease - The Pardue-Holly lease consists of 640 acres
with two wells now producing oil.  On this lease, the Flippen Lime, Swastika
Sand and Canyon Sand formations are capable of production.

         The Neversuch Lease - The Neversuch lease has 156 acres with two wells
now producing.  The main formation on this lease that has potential for
production is the Flippen Lime.

         The Young Lease - The Young lease has one producing well on 640 acres.
On this lease, the Flippen Lime, Swastika Sand and Noodle Creek Sand formations
have potential for production.

         The Scifres Lease - The Scifres lease currently has one well on this
40 acre lease.  Formations that are capable of producing in the area are the
Flippen Lime at approximately 3,100 feet, the Swastika Sand at 3,700 feet, and
the Canyon Sand at 4,300 to 4,600 feet.

         The Company believes all of the above described lease blocks have
potential for future drilling and the Company is considering additional
development drilling on each block.  It should be noted that some wells in the
area were drilled and completed in the 1940's, 1950's and 1960's and are still
producing.

         The Company's interest in those properties in Fisher County has proved
producing reserves of 329,365 barrels of oil.

Scurry County, Texas

         The Scurry County lease block consists of 200 acres.  A study of the
electric logs of the area shows that the Tonto formation (called the 1,700 foot
pay zone) is present over a wide area.  The pay zone on the Company's lease is
well developed and is 20 feet higher structurally to the wells on offsetting
leases.  The Lario No. 1, 2, and 3 wells on the lease block, which were drilled
in the late 1960's and early 1970's, did not test this zone.

         Examination of electric logs shows good porosity and resistivity which
are indicative of oil production in the area.  The rock type of this reservoir
is an oolitic dolomite with porosity between 17% and 23%.

         Based on examination of the wells in the area, it is estimated that a
typical well on the Company's lease will produce approximately 20,000 barrels
of oil per well.  Since well spacing in the area is 10 acres per well, it is
estimated that the least could produce 400,000 barrels of oil.  The Company has
a 100% working interest and an 80% net revenue interest in this lease.  Net
proved undeveloped reserves owned by the Company in Scurry County are 320,000
barrels of oil.

         It is possible to produce more oil from this field after production is
established by installing a gas injection system between producing wells.  This
process would increase production possibilities to a total of 800,000 barrels.
Should the Company determine to allocate additional





                                       6
<PAGE>   7
capital to developing this field, the Company wold generate additional proved
undeveloped reserves of 640,000 barrels of oil.

Coleman County, Texas

         The Company has one lease block in Coleman County, Texas which
comprises 144.78 acres.  As of year end 1996, three exploratory wells have been
drilled on the lease to approximately 3,100 feet.  The first well has been
completed and tested in the Palo Pinto Lime formation (a historically
productive interval) below 3,000 feet with encouraging results and is awaiting
regulatory approval and marketing.  The second well has also been completed and
tested in the Palo Pinto Lime and is currently waiting on pumping equipment.
The third well has been suspended pending the results of the first two wells;
however, the Palo Pinto Lime is also the target in this wellbore.

Walker County, Texas

         This block consists of 179.57 acres and is located in close proximity
to successful horizontal Austin Chalk gas wells drilled by offsetting
operators.  The Austin Chalk in this area exists at a depth of approximately
13,000 feet, and it can be a very prolific, high volume gas producer.  A study
of electric logs and geological maps is underway to delineate the trend and to
plan the intended drilling program.  The drilling permit has already been
obtained for this horizontal well.

Gonzales County, Texas

         This block consists of 234.5 acres and is located adjacent to
previously successful Austin Chalk and/or Buda Limestone oil wells drilled by
offsetting operators in the early 1980's.  Several of these wells have produced
over 100,000 barrels of oil and are still producing.  The Austin Chalk in this
area exists at approximately 9,000 feet.  A study of the surrounding production
data, electric logs and maps is underway to evaluate this leasehold for a
drilling location.

Ritchie County, West Virginia

         The Company purchased five wells during 1996 in Ritchie County, West
Virginia which were all re-entry candidates on 5 acre leases in various
productive intervals of Devonian aged rock, at depths ranging from 2,000 to
4,000 feet.  All of these wells have been re-worked to some extent with
encouraging results; however, all of them require further work and evaluation.

Pleasants County, West Virginia

         The Company drilled one development well in 1996 in Pleasants County,
West Virginia.  The well was completed in various intervals of the Devonian
Shale horizon at approximately 5,000 feet and initial test results were very
good.  The well requires the installation of a tubing string to enhance fluid
lift and thereby increase gas production.  This work will be done in the near
future.





                                       7
<PAGE>   8
Reserves

         In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenues therefrom are based upon a number of
variable factors and assumptions such as historical production from the subject
properties, the assumed efforts of regulation by governmental agencies and
assumptions concerning future oil and natural gas prices and future operating
costs, all of which may vary considerably from actual results.  All such
estimates are to some degree speculative and classifications of reserves are
only attempts to define the degree of speculation involved.  For these reasons,
estimates of the economically recoverable oil and natural gas reserves
attributable to any particular group of properties, classifications of such
reserves based on risk of recovery and estimates of the future net revenues
expected therefrom, prepared by different engineers or by the same engineers at
different times, may vary substantially.  Therefore, the actual production,
revenues, severance and excise taxes, development and operating expenditures
with respect to the Company's reserves will likely vary from such estimates,
and such variances could be material.

         In accordance with applicable requirements of the Commission, the
estimated discounted future net revenues from estimated proved reserves are
based on prices and costs as of the date of the estimate unless such prices or
costs are contractually determined at such date.  Actual future prices and
costs may be materially higher or lower.  Actual future net revenues also will
be affected by factors such as actual production, supply and demand for oil and
natural gas, curtailments or increases in consumption by natural gas
purchasers, changes in governmental regulations or taxation and the impact of
inflation on costs.

Acreage

         Title to Properties.  As is customary in the oil and natural gas
industry, the Company makes only a cursory review of title to undeveloped oil
and natural gas leases at the time they are acquired by the Company.  However,
before drilling commences, the Company causes a thorough title search to be
conducted, and any material defects in title are remedied prior to the time
actual drilling of a well on the lease begins.  To the extent title opinions or
other investigations reflect title defects, the Company, rather than the seller
or lessor of the undeveloped property, is typically obligated to cure any such
title defects at its expense.  If the Company were unable to remedy or cure any
title defect of a nature such that it would not be prudent to commence drilling
operations on the property, the Company could suffer a loss of its entire
investment in drilling operations on the property.  The Company believes that
it has good title to its oil and natural gas properties, some of which are
subject to immaterial encumbrances, easements and restrictions.

         The oil and natural gas properties owned by the Company are also
typically subject to royalty and other similar non-cost bearing interests
customary in the industry.  The Company does not believe that any of these
encumbrances or burdens will materially affect the Company's ownership or use
of its properties.





                                       8
<PAGE>   9
         Marketing of Production.  The Company's production is marketed to
third parties consistent with industry practices.  Typically, oil is sold at
the wellhead at field posted prices and natural gas is sold under contract at a
negotiated price based upon factors normally considered in the industry, such
as price regulations, distance from the well to the pipeline, well pressure,
estimated reserves, quality of natural gas and prevailing supply/demand
conditions.


Reserves Reported to Other Agencies

         During fiscal year 1996, there were no estimates of total, proved net
oil or gas reserves filed with or included in reports to any other Federal
authority or agency.

Production

         The production of crude oil by Erin/NEHI represents one fiscal year
(1/1/96 thru 12/31/96) and is shown below as required by SFAS No. 69.  Total
annual gross production was 11,283 bbls (6,330 net).

<TABLE>
<CAPTION>
                       Total Gross      Total Net                        Effective*
                      (8/8ths bbls)    Production    Average Sales      Lifting Cost
      Lease Name       Production      Fiscal 1996   Price ($/bbl)         ($/bbl)
      ----------       ----------      -----------   -------------         -------
<S>                       <C>              <C>           <C>                <C>
Neversuch B Orig.          3,655           2,813         19.86              1.76

Neversuch B Pgm.           2,794           1,076         22.17              3.20

Neversuch C                2,094             461         23.28              2.77

Pardue-Holly C               492             339         21.36              5.99

Pardue-Holly               1,129             785         20.69              11.13

Scifres                      584             447         20.32              11.74

Young                        535             409         20.08              4.80
                          ------           -----
   TOTAL                  11,283           6,330
                          ======           =====
</TABLE>

* Effective Lifting Cost is calculated by dividing the Gross Lease Operating
  Expense (only in months where expenses and production occurred) by the Gross
  8/8ths Production for that month.





                                       9
<PAGE>   10
Productive Wells and Acreage

         At the end of fiscal year 1996 (1/1/96 thru 12/31/96), the total gross
and net productive wells and developed acreage owned by Erin/NEHI is shown in
the table below by geographical region as required by SFAS No. 69.  The total
number of gross productive wells owned by Erin/NEHI is 16.218, while the total
number of net productive wells is 12.360.  Gross developed acreage is 1,685.78
acres; net drilled and developed acreage is 1,062.20 acres.

<TABLE>
<CAPTION>
                                      Gross
                                    Developed                  Gross         Net          Gross         Net
                                    Acres On       Well       Working      Revenue       Acreage      Drilled
                 Lease Name           Lease        Name       Interest     Interest      to Well      Acreage
                 ----------           -----        ----       --------     --------      -------      -------
         <S>                            <C>      <C>            <C>          <C>         <C>           <C>
         TEXAS
         -----

             Neversuch                156.00  
                                                      #1B       0.450        0.305        20.00          7.70
                                              
                                                      #3B       0.450        0.305        20.00          7.70
                                              
                                                      #3C       0.300        0.200        20.00          4.40
                                              
             Pardue & Holly           640.00  
                                                      #1C       0.925        0.638        20.00         13.80
                                              
                                                      #2C       0.925        0.638        20.00         13.80
                                              
                                                      #3C       0.925        0.638        20.00         13.80
                                              
                                                Pardue #6       1.000        0.690       290.00        200.10
                                                       
                                                 Holly #1       1.000        0.690       290.00        200.10
                                              
             Scifres                   40.00   Scifres #1       1.000        0.760        40.00         30.40
                                                       
             Young                    640.00     Young #7       1.000        0.760       640.00        486.40
                                              
             Carroll Hinds            144.78  
                                                       #1       0.963        0.714        20.00         16.00

                                                       #2       0.963        0.714        20.00         16.00
</TABLE>





                                       10
<PAGE>   11

<TABLE>
<CAPTION>
                                      Gross
                                    Developed                  Gross          Net         Gross         Net
                                    Acres On       Well       Working       Revenue      Acreage      Drilled
                 Lease Name           Lease        Name       Interest      Interest     to Well      Acreage
                 ----------           -----        ----       --------      --------     -------      -------
         <S>                          <C>             <C>       <C>          <C>         <C>         <C>
         WEST VIRGINIA
             Ball                         5.00        #2A       1.000        0.800         5.00          4.00

             Campbell                     5.00         #1       1.000        0.800         5.00          4.00

             Cokeley                      5.00         #1       1.000        0.800         5.00          4.00

             Freshwater                   5.00         #1       1.000        0.800         5.00          4.00

             Jemison                      5.00         #1       1.000        0.800         5.00          4.00

             Richards                    40.00         #2       1.000        0.800        40.00         32.00
                                      --------                 ------       ------     --------      --------

                  TOTALS              1,685.78                 16.218       12.360     1,485.00      1,062.20
                                      ========                 ======       ======     ========      ========
</TABLE>


Undeveloped Acreage

         At the end of fiscal year 1996 (1/1/96 thru 12/31/96), the total gross
and net undeveloped acreage owned by Erin/NEHI is shown in the table below, by
geographical region.  The total gross undeveloped acreage owned by Erin/NEHI is
614.07, while the total net undeveloped acreage is 485.87.


<TABLE>
<CAPTION>
                                                                            Gross            Net
                                               Gross         Net         Undeveloped     Undeveloped
                                              Working      Revenue        Acres On        Acres On
            Lease Name            County      Interest     Interest         Lease           Lease
            ----------            ------      --------     --------      -----------     -----------
 <S>                             <C>           <C>          <C>            <C>             <C>
 TEXAS

      McMullen/Brunson            Scurry       1.000        0.800          200.00          160.00

      DuBose                     Gonzales      1.000        0.800          234.50          187.60

      Smithers                    Walker       1.000        0.770          179.57          138.27
                                                                           ------          ------
           TOTALS                                                          614.07          485.87
                                                                           ======          ======
</TABLE>





                                       11
<PAGE>   12
Drilling Activity

         At the end of fiscal year 1996 (1/1/96 thru 12/31/96), the total
number of net productive development wells drilled was 2.72; the number of
development dry holes was 0.505.  The total number of net productive
exploratory wells drilled was 1.43; the number of exploratory dry holes was
1.60.  These are shown by lease in the following table.

<TABLE>
<CAPTION>
                                              Net                                Net
                                 Net       Productive         Net Dry         Productive        Net Dry
        Lease        Well      Revenue    Development       Development      Exploratory      Exploratory
        Name         Name      Interest      Wells             Wells            Wells            Wells
        ----         ----      --------   -----------       -----------      -----------      -----------
 <S>                  <C>        <C>         <C>               <C>              <C>              <C>
 TEXAS

      Neversuch
                      #1B        0.305       0.305               -                -                -

                      #2B        0.305         -               0.305              -                -

                      #3B        0.305       0.305               -                -                -

                      #2C        0.200         -               0.200              -                -

                      #3C        0.200       0.200               -                -                -

      Pardue-
      Holly
                      #1C        0.638       0.638               -                -                -

                      #2C        0.638       0.638               -                -                -

                      #3C        0.638       0.638               -                -                -

      Carroll
      Hinds
                       #1        0.714         -                 -              0.714              -

                       #2        0.714         -                 -              0.714              -
      Rufus
      Allen
                       #1        0.800         -                 -                -              0.800

                       #3        0.800         -                 -                -              0.800
</TABLE>





                                       12
<PAGE>   13
<TABLE>
<CAPTION>
                                              Net                                Net
                                 Net       Productive         Net Dry         Productive        Net Dry
        Lease        Well      Revenue    Development       Development      Exploratory      Exploratory
        Name         Name     Interest       Wells             Wells            Wells            Wells
        ----         ----     --------    -----------       -----------      -----------      -----------
 <S>                 <C>         <C>         <C>               <C>              <C>              <C>
 WEST VIRGINIA

      Richards         #2        0.800       0.800               -                 -               -   
                                             -----             -----            -----            ----- 
        TOTALS                               2.720             0.505            1.430            1.600
                                             =====             =====            =====            =====
</TABLE>



ITEM 3.  LEGAL PROCEEDINGS

         Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         Not applicable.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Limited Trading Market

         The Company's common stock is traded in the over-the-counter market
and is quoted on the OTC Bulletin Board of the National Association of
Securities Dealers, Inc. under the symbol "NEHI."  Quotations prior to July
1996 are not available as the Company's common stock was traded only in the
pink sheets and the main market maker of the Company's common stock did not
publish its prices in the pink sheets; therefore, there is no reliable
information from which to present data as to market activity prior to mid-1996.
The following table sets forth for the calendar period indicated the high the
low bid prices for the Company's common stock as quoted on the OTC Bulletin
Board.  The prices shown reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions:

<TABLE>
<CAPTION>
                                                                         HIGH                LOW  
                                                                        ------             -------
 <S>                                                                      <C>               <C>
 FISCAL YEAR ENDED 1996
 ----------------------
 Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . .          2                 1-1/2
 Fourth  . . . . . . . . . . . . . . . . . . . . . . . . . . . .          2                 1-1/2
</TABLE>





                                       13
<PAGE>   14
         On November 24, 1997 there were 360 holders of record of the Company's
common stock.

         On April 5, 1993, a Form 15 was filed under Rule 12h-3(b)(1)(I) with
the SEC for Suspension of Duty to File Reports.  This report was filed
voluntarily and is not intended to be in response to any requirements under the
rules and regulations of the Exchange Act.

Dividend Policy

         The Company has not paid a cash dividend on its Common Stock and does
not expect to pay such a dividend in the foreseeable future.

ITEM 6.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

GENERAL

         NEHI operations during the first seven months of 1996 were a
continuation of the development of its patented subsurface irrigation system.
Two years were spent experimenting with various applications for the subsurface
irrigation system and refining the methods of installation. The new management
discovered that the subsurface irrigation system was not actually patented and
as a result the cost associated with this device was written off in 1996.

         The Company has a copyright on a family educational game which is
wholly owned by the Company, however, in order to market the software product,
the data and information for the game will have to be updated and animation
will have to be developed to make the game competitive with other software
products in the market place. The management of the Company has decided to
write this asset off.

         In August, the Company acquired $8,650,000 of oil and gas production
and proven reserves to be developed through additional drilling.  New acting
directors were appointed and new management was employed to operate NEHI, d/b/a
NEHI Petroleum Corporation, as an oil and gas exploration Company.

         The Company is primarily focusing on its oil and gas properties in
Fisher County, Texas and Scurry County, Texas, as well as additional
acquisitions of oil and gas leases and production, and corporate mergers, which
will provide the Company with a balance between its oil and gas reserves and a
diversification of the areas in which it operates.  New management plans to
continue this business plan and method utilized successfully by Erin for 23
years.





                                       14
<PAGE>   15

TWELVE MONTHS ENDING DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         The Company reported a net loss during the twelve months ended
December 31, 1996 of $1,123,746, as compared to net income of $13,000 at
December 31, 1995.  The decrease in net income is primarily due to the
write-off of the copyright and the charge of the capitalized cost of the patent
to this period.

         Gross revenues increased to $50,040 from the acquired oil & gas
production. Gross Profit on the oil & gas operations was $18,467 after lease
operating expenses. General & Administrative Expenses, interest expenses and
write off of assets all contributed to a net loss of $1,123,746.

LIQUIDITY AND CAPITAL RESOURCES

         NEHI reported an operating loss of $1,123,746 for the twelve months of
1996 ending with the audit of December 31, 1996. Operating profits were
realized from oil & gas operations, which commenced in 4th quarter of 1996,
however, it was offset by General & Administrative cost.

         The Company  currently believes that its operating income from its
existing oil and gas production is projected to exceed $170,000 in 1997.
Currently planned drilling of lease blocks with existing oil and gas production
could increase this amount to be in excess of $700,000 of operating income for
1997.  The Company currently intends to drill additional wells to develop the
leases the Company owns.  NEHI will follow a policy of retaining as much of
each well drilled as possible to increase its production revenues and the
profits of the Company.  The objective is to retain fifty percent of the net
revenue of each well.

         The acquisition of additional oil and gas leases, production and
companies will be funded through the possible sale of securities by NEHI, or
otherwise through bank or third-party financing.

FORWARD-LOOKING STATEMENTS

         This Form 10-KSB includes forward-looking statements.  Such statements
are based upon management's current expectations and assumptions.  Important
factors that could cause actual results to differ materially from those in
forward-looking statements included herein include, among others, commodity
pricing for oil and gas, exploration and operating risks, development and
completion risks, market acceptance for the Company's products, and
availability of financing.



ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The financial statements required by this Item 7 are incorporated
under Item 13 in Part IV of this report.





                                       15
<PAGE>   16
ITEM  8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         M. S. Finkel & Co. ("Finkel"), Certified Public Accountants, of
Pittsburgh, Pennsylvannia, audited the financial statements of the Company for
the period ended November 30, 1995 and the years ended December 31, 1994 and
1993.  Finkel was dismissed as of December 31, 1995.

         Alvin L. Dahl & Associates, P.C. ("DAHL"), Certified Public
Accountants, of Dallas,Texas was engaged as the Company's accountant on
September 1, 1996.

         There were no disagreements between the Company and Finkel, whether
resolved or not resolved, on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which, if not
resolved, would have caused them to make reference to the subject matter of the
disagreement in connection with their report.

         The report of Finkel for the past two fiscal years did not contain any
adverse opinion or disclaimer of opinion, excepting a "going concern"
qualification, and was not qualified or modified as to uncertainty, audit scope
or accounting principles.

         The decision to change principal accountants was not submitted for
approval to the Board of Directors.  The change was made by the Company's
President, Bill M. Knolleberg, because DAHL's offices were located nearer to
the executive offices of the Company.

         Also, during the Company's two most recent fiscal years, and since
then, Finkel has not advised the Company that any of the following exist or are
applicable:

         (1)     That the internal controls necessary for the Company to
                 develop reliable financial statements do not exist, that
                 information has come to their attention that has lead them to
                 no longer be able to rely on management's representations, or
                 that has made them unwilling to be associated with the
                 financial statements prepared by management;

         (2)     That the Company needs to expand significantly the scope of
                 its audit, or that information has come to their attention
                 that if further investigated may materially impact the
                 fairness or reliability of a previously issued audit report or
                 the underlying financial statements or any other financial
                 presentation, or cause him to be unwilling to rely on
                 management's representations or be associated with the
                 Company's financial statements for the foregoing reasons or
                 any other reason; or

         (3)     That they have advised the Company that information has come
                 to their attention that they have concluded materially impacts
                 the fairness or reliability of either a previously issued
                 audit report or the underlying financial statements for the
                 foregoing reasons or any other reason.





                                       16
<PAGE>   17
         Further, during the Company's two most recent fiscal years and since
then, the Company has not consulted Finkel regarding the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Company's financial
statements or any other financial presentation whatsoever.

         The Company has provided Finkel with a copy of the disclosure provided
under this caption, and has advised them to provide the Company with a letter
addressed to the Securities and Exchange Commission as to whether they agree or
disagree with the disclosures made herein.

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
 Name                     Age         Position
 ----                     ---         --------
 <S>                       <C>        <C>
 Bill M. Knollenberg       70         Chairman of the Board, President and Secretary

 Bill McGowen (1)          60         Director (1)
</TABLE>

(1)      Mr. McGowen ceased being a director in May 1997 when all his
         affiliations with the Company ceased.

         The Board of Directors is divided into three classes which have
staggered terms of three years each.  Mr.  Knollenberg, whose term expires in
1999, is currently the sole director of the Company.

BUSINESS EXPERIENCE OF OFFICERS AND DIRECTORS

         Bill M. Knollenberg.  Mr. Knollenberg received a honorable discharge
from the U.S. Navy in 1946 and immediately was employed by Sun Oil Company.  He
worked for Sun Oil for three years as a roughneck on a drilling rig, then a
roust- about, and then a pumper.  Mr. Knollenberg decided to go into sales and
for four years worked in traveling sales.  In 1953, he went into new car sales
and worked his way into management.  After moving to Houston, Texas in 1965, he
began floor planning used car dealers.  In 1974 he sold the business at a
profit and started a heavy equipment rental company which is built into a
multi-million dollar business and then sold in 1980.  In 1982, after deciding
retirement was not what he wanted, Mr. Knollenberg began selling oil and gas
ventures.  In 1995, Gulf Minerals Exploration, a general partnership of which
Mr. Knollenberg, Doris C. Knollenberg and A. Bradley Knollenberg are partners,
acquired controlling interest in Erin Oil Exploration, Inc., with Mr.
Knollenberg assuming the position of Chairman of the Board of





                                       17
<PAGE>   18
Directors.  In August of 1996, Gulf Minerals Exploration became the largest
shareholder of NEHI and Mr. Knollenberg assumed the position of Chairman of the
Board of Directors of NEHI.

Bill McGowen. Mr. McGowen has over thirty years experience as an oil and gas
executive in exploration, development, production and operations.  Mr. McGowen
ceased being a director in May 1997 when all his affiliations with the Company
ceased.


COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

         Bill M. Knollenberg, Doris C. Knollenberg, A. Bradley Knollenberg and
Bill McGowen have not filed those reports required by Section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.

ITEM 10.  EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
 Name and Principal Position                       Year      Salary      Bonus
 ---------------------------                       ----      ------      -----
 <S>                                               <C>         <C>        <C>
 Bill M. Knollenberg (CEO)                         1996        -0-        -0-

                                                   1995        -0-        -0-

                                                   1994        -0-        -0-
</TABLE>




ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


<TABLE>
<CAPTION>
                                                Amount and Nature of      Percent
 Name and Address of Beneficial Owner           Beneficial Ownership      of Class
 ------------------------------------           --------------------      --------
 <S>                                            <C>                       <C>
 Gulf Minerals Exploration                      13,122,045 shares(1)      86.45%
 21818 North Freeway
 Spring, Texas  77373

 Bill M. Knollenberg                            13,422,045 shares(1)(2)   86.45%

 Doris C. Knollenberg                           13,122,045 shares(1)      86.45%
 21818 North Freeway
 Spring, Texas  77373

 A. Bradley Knollenberg                         13,122,045 shares(1)      86.45%
 21818 North Freeway
 Spring, Texas  77373

 Directors and Executive Officers as a Group    13,122,045 shares(1)      86.45%
</TABLE>





                                      18
<PAGE>   19
---------------
(1)      Gulf Minerals Exploration is a general partnership, of which Bill M.
Knollenberg is a 20% partner, Doris C.  Knollenberg is a 20% partner, and A.
Bradley Knollenberg is a 60% partner.

(2)      Erin Oil Exploration, Inc. ("ERIN") owns 300,000 shares of common
stock of the Company.  Bill M. Knollenberg owns 100% of the stock of ERIN.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On August 9, 1996, the Company acquired the proved oil and gas
reserves of Erin Oil Exploration, Inc.  ("ERIN").  The Company issued
21,510,418  shares of its common stock  for proved oil and gas reserves having
a discounted cash value of $12,464,584.00.  As a part of this transaction, the
Company assumed the liability for Convertible debentures issued by Erin in the
amount of $2,770,000.  Subsequently, the value of the transaction was lowered
to the carrying value of the existing wells plus the purchase cost of the
reserves for the twenty well program less the Erin Debentures outstanding. The
Common Stock issued was reduced to 13,122,045 shares.  The transaction was a
nonmonetary exchange, i.e., the Company exchanged its common stock for the
discounted cash flow value of ERIN 's   oil and gas reserves and assumed
liability for ERIN 's    convertible Debentures.  The agreement requires the
Company to assume the operation of the drilling programs and well operations
effective October 1, 1996.  The assets, however, were acquired August 9, 1996.

         The ERIN transaction utilized a trust so that there would not be
issues related to (1) control of the assets before and after the transaction,
and (2) related party issues.  Subsequently, a legal opinion has  been received
which indicates that the trust for the Knollenberg family is, in fact, a Texas
general partnership of which Bill Knollenberg and  his family members are
partners.  The transaction is an exchange of nonmonetary assets by each party,
i.e., common stock was exchanged for oil & gas reserves and the assumption of
debt.

         Ms. P.A. Hartley, former Chairman of the Board of Directors, received
180,000 shares of common stock for services rendered on behalf of the company
for the eight month period from January 1, 1996 through August 9, 1996, under
the agreement authorized by the Board of Directors at a meeting of the Board of
Directors, January 6, 1996.





                                       19
<PAGE>   20
                                    PART IV

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.



(A) 1.    FINANCIAL STATEMENTS:

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
    <S>                                                                         <C>
    Reports of Independent Certified Public Accountants . . . . . . . . . . .   F-2

    Balance Sheets at December 31, 1996, December 31, 1995  . . . . . . . . .   F-4

    Statements of Income for the twelve months ended December 31, 1996 
          and the year ended December 31, 1995  . . . . . . . . . . . . . . .   F-6

    Statements of Stockholders' Equity for the period January 1, 1994 - 
         December 31, 1996  . . . . . . . . . . . . . . . . . . . . . . . . .   F-7

    Statements of Cash Flows for the twelve ended December 31, 1996 and 
         the year ended December 31, 1995 . . . . . . . . . . . . . . . . . .   F-8

    Supplemental Schedule of Non-Cash Investing and Financing
         Activities For the Nine Months Ended December 31, 1996 . . . . . . .   F-9

    Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . .   F-10
</TABLE>


     3.   SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION:

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
     <S>                                                                        <C>
     Supplemental Information for Oil & Gas Properties
          Formerly owned by Erin Oil Exploration, Inc.
          For the Twelve months ended December 31, 1996 (unaudited) . . . . .   F-20
</TABLE>

     2.   EXHIBITS:

          16.1     Letter on change in certifying accountant
          27.1     Financial Data Schedule

(B)  REPORTS ON FORM 8-K:              None





                                       20
<PAGE>   21
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf of the undersigned, thereunto duly authorized.

                                          NATIONAL EQUITIES HOLDINGS, INC.


                                        By: /s/ Bill M. Knollenberg
                                            -----------------------------------
                                                Bill M. Knollenberg, President
                                                (Principal Executive Officer)

                                        Date:   December 15, 1997

         Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

       Signature                         Title                               Date
       ---------                         -----                               ----
<S>                        <C>                                         <C>
/s/ Bill M. Knollenberg    Chairman of the Board, President, Chief     December 15, 1997
-----------------------    Accounting Officer and Secretary
Bill M. Knollenberg                  
</TABLE>





                                       21
<PAGE>   22
NATIONAL EQUITIES HOLDINGS, INC.

FINANCIAL STATEMENTS

For the Year Ended December 31, 1996
And One Month ended December 31, 1995

<TABLE>

<S>                                                                         <C>
Auditors' Reports........................................................   F-2
                                                                              
Financial Statements:                                                         
                                                                              
         Balance Sheet - Assets..........................................   F-4
                                                                            
         Balance Sheet - Liabilities and Stockholders' Equity............   F-5
                                                                            
         Statement of Income.............................................   F-6
                                                                            
         Statement of Stockholders' Equity...............................   F-7
                                                                            
         Statement of Cash Flows.........................................   F-8
                                                                            
         Supplemental Schedule of Non-Cash Investing and                    
                  Financing Activity.....................................   F-9
                                                                           
         Notes to the Financial Statements...............................  F-10
                                                                           
         Supplemental Financial Statement Information....................  F-20

</TABLE>




                                      F-1

<PAGE>   23
Independent Auditor's Report
The Board of Directors and Stockholders
National Equities Holdings, Inc.

We have audited the accompanying balance sheet of National Equities Holdings,
Inc. as of December 31, 1996 and December 31, 1995, and the related statements
of operations, stockholders' equity, and cash flows for the year and the one
month then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audit.  The financial statements of National
Equities Holdings, Inc. for the eleven months ended November 30, 1995 and the
year ended December 31, 1994 were audited by other auditors whose report dated
December 27, 1995 expressed an unqualified opinion on those statements.  

We conducted our audit in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of National
Equities Holdings as of  December 31, 1996 and December 31, 1995, and the
results of their operations and their cash flows for the year and one month
then ended, in conformity with generally accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole.  The supplemental information regarding
revenues and direct expenses of the oil and gas properties  is presented for
purposes of additional analysis and has not been subjected to the auditing
procedures applied in the audit of the basic financial statements, and,
accordingly, we express no opinion on it.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 20 to the
financial statements, the Company has convertible debentures due in the near
term and does not have sufficient cash reserves to redeem them on the due date
which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to this matter are discussed in note 21. 
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ ALVIN L. DAHL & Associates, PC
Dallas, Texas
November 20, 1997

                                     F-2

<PAGE>   24
                         [M. S. FINKEL & CO. LETTERHEAD]



To the Board of Directors and stockholders of
NATIONAL EQUITIES HOLDINGS, INC.
Las Vegas, Nevada

We have audited the balance sheet of NATIONAL EQUITIES HOLDINGS, INC. (a
development stage company) as of November 30, 1995, December 31, 1994 and 1993
and the related statements of income, retained earnings, and cash flows for the
period and years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NATIONAL EQUITIES HOLDING,
INC. (a development stage company) as of November 30, 1995, December 31, 1994
and 1993, and the results of its operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.

/s/ M. S. FINKEL & CO.
----------------------------
December 27, 1995
Pittsburgh, Pennsylvania





                                      F-3
<PAGE>   25



NATIONAL EQUITIES HOLDINGS, INC.

BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>

                                                    December 31       December 31
                                                       1996               1995 

<S>                                                  <C>              <C>       
Current Assets:
         Cash                                        $    3,480       $       46
         Accounts Receivable                             37,554                0
         Due from Erin (Note 18)                        342,506                0
         Inventory                                            0            5,769

         Total Current Assets                           383,560            5,815

Proved Oil and Gas Properties
          Net (Note 3)                                1,050,964                0
Unproved Oil and Gas
Properties (Note 16)                                  2,876,300                0
Wells and Related Equipment                             390,385                0

         Oil and Gas Properties                       4,317,649                0

Equipment (Note 14)                                           0           18,898

Other Assets:
         Development Costs(14)                                0           60,746
         Copyright(2)(14)                                     0          360,753
         Patent(2)(14)                                        0          298,358

         Total Other Assets                                   0          719,857

Total Assets                                         $4,701,209       $  744,570

</TABLE>






                                       F-4

<PAGE>   26
NATIONAL EQUITIES HOLDINGS, INC.

LIABILITIES and CAPITAL

<TABLE>
<CAPTION>

                                                      December 31     December 31
                                                         1996            1995
Current Liabilities:
<S>                                                    <C>              <C>
         Accounts Payable (Note 19)                     151,727               0
         Accrued Interest (Note 19)                     135,213               0

                  Total Current Liabilities             286,940               0

Notes Payable                                                 0     $    38,526

Loans Payable                                                 0          34,892
         Convertible Debentures(6)                    3,468,800               0

                  Total Liabilities                   3,755,740          73,418

Preferred Stock
         1,000,000 shares authorized at
         $.001 par value; none issued
         and outstanding                                      0               0

Common Stock
         49,000,000 shares authorized at
         $.001 par value; 14,873,630 issued
         and outstanding at December 31,
         1996; 1,271,585 issued and 
         outstanding at December 31, 1995(10)            14,873           1,271

Paid In Capital                                       3,365,617       1,980,956

Accumulated (Deficit)                                (2,434,821)     (1,311,075)
         Total Stockholders' Equity(10)                 945,469         671,152
         Total Liabilities and
         Stockholders' Equity                       $ 4,701,209     $   744,570
</TABLE>

                                       F-5

<PAGE>   27





NATIONAL EQUITIES HOLDINGS, INC.

STATEMENTS OF OPERATIONS

For the Year Ended December 31, 1996 And the one month ended December 31, 1995
<TABLE>
<CAPTION>
                                    December 31, 1996     December 31, 1995
<S>                                    <C>                    <C>
INCOME:
         Sales                         $    50,040            $      0
         Less:  Lease Operating
                Expenses                   (31,573)                  0


Gross Profit                                18,467                   0

General & Administrative
         Expenses                         (384,897)                 35

Net Income (Loss) from operations         (366,430)                (35)

OTHER REVENUES:

Refund of Prepaid Legal                     10,756                   0

OTHER EXPENSES:

Interest Expense                           (28,913)                  0
Write Off of Assets(14)                   (744,524)                  0

 EXTRAORDINARY ITEM:

 Forgiveness of Debt(15)                     5,365                   0

NET INCOME (LOSS)                      $(1,123,746)            $   (35)

Weighted Average
Number of Shares                         3,326,144

Income (Loss) Per Share                $    (0.338)

</TABLE>

                                       F-6

<PAGE>   28







NATIONAL EQUITIES HOLDINGS, INC.

STATEMENT OF STOCKHOLDERS' EQUITY

January 1, 1994 - December 31, 1996

<TABLE>
<CAPTION>
                                                                                  Accu-          Stock-
                                        Common Stock            Paid In          mulated         holders'
                                 Shares               $         Capital         (Deficit)         Equity
<S>                             <C>                 <C>        <C>            <C>                <C>
Balance, Jan 1, 1994              5,677,815          5,678      1,963,049      (1,293,088)        675,639

Net (loss), year 1994                   -0-            -0-            -0-         (31,005)        (31,005)

Balance, December 31, 1994        5,677,815          5,678      1,963,049      (1,324,093)        644,634

September 15, 1995
   Reverse Split 1:7                811,116            811      1,963,049      (1,324,093)        644,634
Stock Issued for cash
   and services                     460,469            460         13,040             -0-          13,500
Net Income, year 1995                   -0-            -0-            -0-          13,018          13,018

Balance, Dec. 31, 1995            1,231,585          1,271      1,980,956      (1,311,075)        671,152

January 6, 1996
   Stock issued for services        180,000            180         26,820             -0-          27,000
August 9, 1996
   Stock issued for cash            300,000            300        131,700             -0-         132,000
August 9, 1996
   Stock issued for assets       13,122,045         13,122      1,226,141             -0-       1,239,263
Income (Loss) 1996                                     -0-            -0-      (1,123,746)     (1,123,746)

Balance, Dec. 31, 1996           14,873,630         14,873      3,365,617      (2,434,821)        945,469
</TABLE>







                                       F-7

<PAGE>   29



NATIONAL EQUITIES HOLDINGS, INC.

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                          For the Year Ended   One Month Ended
                                             December 31,       December 31,
                                                 1996               1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                          <C>                <C>
         Net Income (Loss)                     (1,123,746)     $      (35)
Adjustments to Reconcile net income to
Net cash provided by Operating Activities:
         Depreciation, Depletion
            & Amortization                         31,230
         (Increase) in Receivables               (380,060)              0
         Increase in Payables                     151,727               0
         Increase in Accrued Interest              28,913               0
         Asset Writeoff                           744,524               0
Net Cash Provided (used) by
         Operating Activities                    (547,412)            (35)

CASH FLOWS FROM INVESTING ACTIVITIES
         (Increase) in Capital
         Expenditures                            (206,516)
Net Cash Provided by (used) by
         Investing Activities                    (206,516)              0

CASH FLOWS FROM FINANCING ACTIVITIES
         Increase (Decrease) in
         Note Payable                             (38,526)              0
         Increase (Decrease)
                  in Loan Payable                 (34,912)              0
         Increase in Conv. Debentures             698,800               0
         Issuance of Common Stock
                  Paid In Capital                 132,000               0
Net Cash Provided by
         Financing Activities                     757,362              (0)

Net Increase (Decrease) in Cash                     3,434             (35)

Cash Balance, Beginning                                46              81

Cash Balance, Ending                                3,480              46
</TABLE>


                                       F-8

<PAGE>   30


NATIONAL EQUITIES HOLDINGS, INC.

SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES

For the Year Ended December 31, 1996

<TABLE>
<S>                                            <C>       
Acquisition of Proved Oil and Gas
         Reserves for Common Stock             $8,650,000
(Booked as adjusted                            $4,115,563)

Assumption of Erin Oil Exploration, Inc. 
         Convertible Debentures                $2,770,000

         Accrued Interest on Debentures        $  106,300

Issuance of Common Stock for Services          $   27,000

Extra-ordinary Item--Debt Forgiveness          $    5,365
</TABLE>

                                       F-9

<PAGE>   31
NATIONAL EQUITIES HOLDINGS, INC.


NOTES TO FINANCIAL STATEMENT

December 31, 1996
And December 31, 1995

NOTE 1:  Summary of Significant Accounting Policies

This summary of significant accounting policies of NATIONAL EQUITIES HOLDINGS,
INC. is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.

a.  Organization and Business Activities:

Asquith Venture Associates, Inc. was formed on November 24, 1987 with a name
change to Amadeus Holdings, Inc. on October 27, 1988. Corporate stock was issued
for the organization of several business ventures, all of which were
unsuccessful. On January 20, 1993, there was a name change to National Equities
Holdings, Inc. The business purpose was to market a subsurface irrigation system
(Patent number 5,205,487), a family educational game (Copyright Txu 516862) (See
Notes 2, 13, and 14), future real estate construction and development, and oil
and gas production and development.

b. Depreciation, amortization and depletion:

Depreciation will be provided by the straight-line method at rates calculated to
amortize cost over the estimated useful lives of respective assets. Upon sale or
retirement of the respective assets, the related cost and accumulated
depreciation will be eliminated from the accounts, and gains or losses will be
reflected on the income statement. Repair and maintenance expenditures, not
anticipated to extend original asset lives, will be charged to expenses as
incurred. Amortization will be provided by the straight line method when
products are brought to market. Depreciation and depletion (including provisions
for future abandonment and restoration costs) of all capitalized costs of proved
oil and gas producing properties, except mineral interests, will be expensed
using the unit-of-production method by individual fields as the proved developed
reserves are produced. Depletion expenses for capitalized costs of proved
mineral interest are recognized using the unit-of-production method by
individual fields as the related proved reserves are produced. Periodic
valuation provisions for impairment of capitalized costs of unproved mineral
interests will be expensed.



                                      F-10

<PAGE>   32





c.  Fiscal Year:

The Company operates on a December 31 calendar year.

d.  Cash and Cash Equivalents:

The Company considers all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments purchased with
a maturity of three months or less, to be cash equivalents.

e.  Basis of Accounting:

The Company prepares its financial statements and federal income taxes on the
accrual basis of accounting. The Company's oil and gas ventures will be
accounted for using the successful Efforts basis of accounting. The Company and
associated entities share office space and use common equipment. It is
management's view, that subsequent to September 30, 1996, NEHI benefits from use
of the facilities and is absorbing the majority of these costs. Said costs are
reflected in these financial statements.

Revenue Recognition:

The Company will recognize revenue from oil produced at the point of sale that
is, when the oil is run from the tanks. Gas is not stored on the lease; thus,
revenue will be recognized at the point of production and sale because they are
the same.

Oil & Gas Properties (Successful Efforts):

Costs to acquire mineral interests in oil and gas properties, to drill and equip
exploratory wells that find proved reserves, and to drill and equip development
wells will be capitalized. Costs to drill exploratory wells that do not find
proved reserves, geological and geophysical costs, and costs of carrying and
retaining unproved properties will be expensed.

Unproved oil and gas properties that are individually significant will be
periodically assessed for impairment of value, and a loss will be recognized at
the time of impairment by providing an impairment allowance. Other unproved
properties will be amortized based on the Company's experience of successful
drilling and average holding period. Capitalized costs of producing oil and gas
properties, after considering estimated dis-mantlement and abandonment costs and
estimated salvage values, will be depreciated and depleted by the
unit-of-production method. Support equipment and other property and equipment
will be depreciated over their estimated useful lives.

On the sale or retirement of a complete unit of a proved property, the cost and
related

                                      F-11

<PAGE>   33




accumulated depreciation, depletion, and amortization will be eliminated from
the property accounts, and the resultant gain or loss will be recognized. On the
retirement or sale of a partial unit of proved property, the cost will be
charged to accumulated depreciation, depletion and amortization with a resulting
gain or loss recognized in income.

On the sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale will be recognized, taking into
consideration the amount of any recorded impairment if the property had been
assessed individually. If a partial interest in an unproved property is sold,
the amount received will be treated as a reduction of the cost of the interest
retained.

Oil and gas leases held for resale:

The Company will acquire certain oil and gas leases for the purpose of
contributing the leases to affiliated oil and gas partnerships of for the
purpose of selling the leases to industry partners for cash consideration. Such
leases held for resale, or subsequently acquired, will be periodically reviewed
to determine if they have been impaired. If impairment exists, a loss will be
recognized by providing an impairment allowance. Abandonments of oil and gas
leases held for resale will be charged to expense. With respect to leases
transferred to affiliated oil and gas partnerships, the determination of
recovery of total costs will be made on a partnership-by-partnership basis.

Capitalized interest:

The Company will capitalize interest on expenditures for significant exploration
and development projects while activities are in progress to bring the assets to
their intended use.

Management Fees:

In connection with the sponsorship of oil and gas partnerships, the Company will
receive a management fee from partnership subscriptions, which will be credited
to income as earned.


NOTE 2:  Copyright & Patent Costs:

Copyright Txu 516862, issued for the family educational game and Patent Number
5,205,487 issued for the subsurface irrigation system was test marketed by the
Company. It was determined that a market for each product existed, however lack
of funding kept the Company from aggressively marketing these products. Stock
and notes were issued to purchase these products. (SEE NOTE 14)






                                      F-12

<PAGE>   34




NOTE 3:  Asset Acquisition

On August 9, 1996, the Company acquired the Oil and Gas Reserves of Erin Oil
Exploration, Inc. The Company issued 21,510,418 shares of its common stock for
oil and gas reserves having a discounted cash value of $12,464,584.00. As a part
of this transaction, the Company assumed the liability for Convertible
debentures issued by Erin in the amount of $2,770,000. Subsequently, the value
of the transaction was lowered to the carrying value of the existing wells plus
the purchase cost of the reserves for the twenty well program less the Erin
Debentures outstanding. The Common Stock issued was reduced to 13,122,045. The
transaction was a nonmonetary exchange, i.e., the Company exchanged its common
stock for the discounted cash flow value of ERIN's oil and gas reserves and
assumed liability for Erin's convertible Debentures.

The agreement required the Company to assume the operation of the drilling
programs and well operations effective October 1, 1996. The assets, however,
were acquired August 9, 1996.(SEE NOTE 16)

NOTE 4:  Risks and Uncertainties:

Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

Concentrations: The Company has acquired Proved Reserves in the oil and gas
industry. This will place the majority of the Company's assets in this industry.

NOTE 5:  Change in Control:

The acquisition of the Proved reserves from Erin Oil Exploration, Inc. resulted
in a change of control of the Company. The previous officers and directors
resigned and new directors were elected to fill the unexpired terms and serve
until the annual stockholder's meeting. The Directors elected to serve the
unexpired terms are as follows:

Acting Directors:

         Bill M. Knollenberg
         Bill S. McGowen (no longer a director or officer)

Officers:

Chairman of the Board --  Bill M. Knollenberg
President             --  Bill S. McGowen (no longer a director or officer)
Secretary             --  Bill M. Knollenberg

                                      F-13

<PAGE>   35




NOTE 6 -- Convertible Debentures:

As a part of the acquisition of the oil and gas reserves from Erin Oil
Exploration, Inc., the Company assumed liability for Convertible Debentures
previously issued by Erin. The debentures were issued at various times during
1996 at an interest rate of 8% with interest accruing and due and payable on
January 5, 1997 and with interest and principal due on January 5, 1998.
($595,000 of debentures were sold carrying a contract interest rate of 10%) At
the first anniversary date of the debenture, the debenture may be convertible
into common stock of the Company. The conversion ratio varies from 2.0 to 0.75
per share of common stock, depending upon the amount of the debenture. A
principal amount of $5,000,000 was authorized by the ERIN Board of Directors, of
which, $2,770,000 were sold and outstanding at September 30, 1996. An additional
$698,800 of debentures were sold from October 1 through December 31, 1996,
bringing the total amount of outstanding debentures to $3,468,800. If converted
on the call date, the outstanding debentures will represent 3,084,638 additional
shares of the Company's Common Stock. NEHI assumed the existing outstanding
debentures as of September 30, 1996, as a part of the acquisition transaction
and planed to continue the program until the entire $5,000,000 is outstanding.

NOTE 7 -- Stock Options:

On August 9, 1996, an option was granted to Diversified Service Brokers, Inc.,
an unrelated party, to purchase 200,000 shares of the common stock of the
Company, at $0.44 per share. This option expires on August 8, 1999 and was based
on a previous purchase of stock for cash at $0.44 per share.

NOTE  8 -- Income Taxes;

Income tax expense (benefit) is comprised of current tax expense, deferred tax
expense and Benefits from net operating loss carryforward. The Company has
available at December 31, 1996, unused net operating loss carryforwards that may
provide future tax benefits. However, since doubt exists as to the actual future
benefit to be realized, an allowance has been made and no deferred tax asset,
relating to the net operating loss carryforward, has been reported in these
financial statements.


<TABLE>
<CAPTION>

                                      12/31/96                 12/31/95              12/3194
<S>                                 <C>                 <C>                      <C>
Non Current Asset (Liability):

Benefit of NOL Carryforward         $2,403,391               $1,311,075             $1,324,093

Valuation Allowance                 (2,403,391)              (1,311,075)            (1,324,093)
</TABLE>


                                      F-14

<PAGE>   36




NOTE 9 -- Mergers and Acquisitions:

During the year ended December 31, 1996, the company made a significant
acquisition of assets as summarized below:

On August 9, 1996, the Company acquired oil and gas reserves in Texas and West
Virginia from Erin Oil Exploration, Inc, a previously unrelated party, in
exchange for a net 13,122,045 shares of common stock. The transaction was valued
at the seller's basis and effectively passed control of the Company to a new
shareholder. Erin simultaneously transferred its holdings in NEHI to a trust for
the Knollenberg family. (SEE NOTE 16)

NOTE 10 -- Stockholder's Equity:

 The total number of shares of all classes of authorized capital stock is
50,000,000 shares of which 1,000,000 shall be Preferred Stock, $.001 par value
per share and 49,000,000 shares of Common Stock, $.001 par value per share. As
of December 31, 1996, there is no Preferred Stock issued and outstanding and
14,873,620 shares of Common Stock are issued and are outstanding.

NOTE 12 -- Industry Segment Information:

During the year ended December 31, 1996, the Company explored current
opportunities in the sub-surface irrigation industry and in the educational game
industry. No action was taken by the Company to further develop the Company's
position in these industries. (SEE NOTE 14)

The oil and gas drilling and production segment was acquired in August of 1996
with production assumed October 1, 1996. The major business is production and
sales of oil and gas from existing wells and drilling of exploratory oil and gas
wells. This will be done for the Company's own account, for outside companies,
or for oil and gas partnerships. No drilling operations business was conducted
by the Company during the current year. Acquisition of the proven reserves have
been disclosed as a separate line item on the balance sheet. There was also no
income or expenses attributed to the previously existing industry segments
during the year ended December 31, 1996.

NOTE 13:  Asset Impairment

Statement of Financial Accounting Standards no. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
applies to (1) long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and (2) long-lived assets and
certain identifiable intangibles to be disposed of. Management is responsible
for considering whether an asset is impaired. SFAS 121 requires impairment
testing of assets to be held and used only when events or circumstances indicate
carrying amounts may not be recoverable.


                                      F-15

<PAGE>   37




Previous Company management had taken the position that no impairment exists to
the patent/license and copyright as of the balance sheet date. (SEE NOTE 14)

Proved Reserves are reviewed annually by independent petroleum engineers who
issue a report which estimates discounted future cash flows. As disclosed in
footnote 1, management will review these future reports for indicated impairment
and take appropriate steps if impairment exists.

NOTE 14:  Write off of Assets:

Statement of Financial Standards No. 2, Accounting for Research and Development
Costs Indicates costs which are included in research and development and costs
of activities which are typically excluded from research and development. The
Development Costs which were previously capitalized are more properly treated as
expense items as incurred. Therefore, they have been written off against income
in the current period. The inventory items are judged to be obsolete with no
discernable future value and have been written off against income in the current
period. Prior to the date of the audit report, information was discovered which
required that the patent and copyright be written off against income. This
action was disclosed in the financial statements issued September 30, 1996. The
patent was discovered to be a license issued by the actual patent holder.
Previous management had issued stock to reimburse the patent holder for the cost
of obtaining the patent and received a license to distribute the product. This
cost was capitalized and classified as a patent. The Company received
correspondence revoking the license and elected to charge the capitalized cost
of the patent to income in third quarter of 1996.

The copyright for a family educational game has been evaluated and determined to
be out of date. SFAS 86 requires computer software be evaluated for evidence of
having achieved technological feasibility. While technological feasibility may
have been reached in an earlier period, current research indicates that
additional costs of updating the software and bringing the product to market are
greater than the potential cash flows which may be generated. Therefore
management elected to write this asset off in the third quarter of 1996.

Previous Company management listed $18,898 in equipment in their published
financial statements. This equipment was not transferred in the exchange and a
charge to income in a corresponding amount has been taken in the fourth quarter
of 1996.

NOTE 15:  Debt Forgiveness Income:

During 1996, the former President of the Company made several cash advances to
and on behalf of the Company. These advances were acknowledged as a debt of the
Company and were forgiven by the former President as a part of the transaction,
which occurred on August 9, 1996.



                                      F-16

<PAGE>   38

NOTE 16:  Valuation of Exchange of Assets Transaction:

Subsequent to the issuance of the Previous Audit Report, dated October 23, 1996,
on the September 30, 1996 financial statements, information was discovered which
has required that the assets described as proved Reserves be revalued. The
original transaction was accounted for as a purchase transaction. The
transaction used a trust to eliminate issues related to (1)control of the assets
before and after the transaction, and (2)related party issues. Subsequently, a
legal opinion indicated that the trust for the Knollenberg family was, in fact,
a Texas general partnership. As such, control resided in the hands of the same
party, before and after, and the transaction should have been recorded at the
transferor's historical cost. This required that the audit report be re-issued.
The reserves were recorded at $6,854,486 which was ERIN's future discounted net
cash flows less future costs to develop these cash flows. Due to the control
issue, the reserves should have been recorded at historical cost of $1,239,263.
The transaction is an exchange of nonmonetary assets by each party, i.e., common
stock was exchanged for oil & gas reserves and the assumption of debt. APB 29
governs the accounting for nonmonetary transactions. The general rule
established by APB 29 is that the accounting for nonmonetary transactions should
be based on the fair values of the assets involved. The fair value to be used is
that of the asset surrendered unless the fair value of the asset received is
more clearly evident. Fair value is defined in APB 29 as: the estimated
realizable values in cash transactions of the same or similar assets, quoted
market prices, independent appraisals, estimated fair values of assets or
services received in exchange, and other available evidence.

The original transaction used a negotiated per share value of $0.44 as a stock
value. Trading information prior to the date of the transaction is not reliable,
because few trades were made. Therefore, a ready market price for the stock is
not determinable. The transaction involved trading common stock for reserves
plus the assumption of debt. Therefore the transaction has been valued at
historical cost of $1,239,263 plus the debt assumed of $2,876,300, or $4,115,263
which equals $0.31 per share.

Note 17:  Development Stage Corporation:

The Company was formerly a development stage corporation. The acquisition of the
oil and gas reserves from Erin Oil Exploration, Inc., effective October 1, 1996
marks the beginning of an operating cycle for the Company. In this and future
periods, the Company will be reporting as an operating company.

Note 18:  Intercompany Accounts:

Since NEHI did not have operating personnel or procedures in place at the time
of acquisition, an agreement was made with ERIN to continue to operate the oil
and gas properties until December 31, 1996. All transactions were processed by
ERIN through a DUE TO/FROM account.


                                      F-17

<PAGE>   39
Note 19:  Receivables, Payables, Depreciation and Depletion:

Accounts Receivable as of December 31, 1996 consist of the following:

Production Revenues                            $29,042
Other Receivables                                8,512

Accounts Payable as of December 31, 1996 consist of the following:

Trade Payables                                $110,430
Drilling Advances                               28,438
Other Payables                                  12,859
Accrued Interest                               135,213

Depreciation, Depletion, and Amortization for the year ended December 31, 1996
consists of the following:

Depreciation                                  $19,519
Depletion                                      11,711
Amortization                                        0


Note 20:  Going Concern:

The Company has $3,468,800 in indebtedness as of the balance sheet date. This
indebtedness is in the form of convertible debentures; of which, $2,770,000 were
assumed in the exchange transaction and $698,800 have been sold since October 1,
1996. While, technically these securities are not current liabilities, they are
due plus interest, 370 days from the balance sheet date and the Company's
current cash position and cash flows from operations do not indicate that the
Company would be able to repay these securities when due. This would indicate a
potential default on the securities at their due date and raises the issue of
whether the Company can continue as a going concern.

Note 21:  Information Subsequent to the Balance Sheet Date:

On November 1, 1997, NEHI entered into a Joint Venture Agreement with HORSE
ENERGY LP, a Texas registered limited partnership. This agreement gives NEHI a
25% limited partnership interest in HORSE. NEHI issued 7,871,023 shares of
common stock in return for this limited partnership interest and agreed to raise
$5,000,000 of investment capital for HORSE to use in its oil and gas ventures.
NEHI and/or its affiliates will retain 20% of all funds raised to cover overhead
and sales costs.

On November 5, 1997, NEHI signed a joint venture agreement with ROTARY STEERABLE
TOOLS (U.S.A.) L.P. This agreement concerns the development of a device
generally described as "A down hole adjustable device for trajectory control in
the drilling of deviated wells". The inventors have licensed this devised to a
Limited Partnership which is called RST (USA) L.P. NEHI is funding certain
expenses incurred in relation to the development of the device and in return
will receive a 25% partnership interest in RST (USA) L.P. As a part of the
initial funding,

                                      F-18

<PAGE>   40



NEHI issued 6,551022 shares of Common Stock to RST (USA) L.P.

As a part of this transaction, George Sutherland, Jack Chance, Feroze Variava,
and Steve McLoughlin have been appointed to the Board of Directors of NEHI.
Additionally, George Sutherland has been appointed Cheif Operating Officer; Jack
Chance--Vice President Operations; Feroze Variava--Vice President Engineering;
and Steve McLoughlin--Vice President Oilfield Services.

The value of the foregoing transactions have not be determined as of the date of
these financial statements.

In order to further enhance operations and to ensure the Company's survival,
management has elected to cease the sale of the ERIN debentures which it assumed
in the exchange transaction. Management has converted $1,220,300 of the ERIN
debentures into 1,242,574 shares of the Company's common stock as of November
20, 1997 and will attempt to convert the balance of the outstanding debentures
on or before their maturity date (January 5, 1998).

The following pro-forma calculations shows the capital account if the Company
had converted the shares converted through November 20, 1997 and if the balance
of the convertible debentures were converted on the balance sheet date of
December 31, 1996.

SHARES CONVERTED THROUGH NOVEMBER 20, 1997:

<TABLE>
<CAPTION>
                                            Common Stock         Paid In     Accumulated      Stock
                                                                 Capital      (Deficit)      Holder's
                                          Shares    $Value                                    Equity

<S>                                    <C>          <C>         <C>          <C>            <C>       
Balance Dec 31, 199                    14,873,630   $14,873     $3,365,617   $(2,434,821)   $  945,469

Converted Shares                        1,242,574     1,243      1,219,058        ______     1,220,300

(as of 11/20/97)

Balance if Converted                   16,116,204    16,116      4,584,675    (2,434,821)    2,165,769

ASSUMED CONVERSION AT JANUARY 5, 1998:

Balance Nov 20, 1997                   16,116,204    16,116      4,584,675    (2,434,821)    2,165,769

Assume conversion 1/5/98                1,842,064     1,842      2,256,658       _______     2,258,500

Balance if Converted                   17,958,268    17,958      6,841,333    (2,434,821)    4,424,269
</TABLE>




                                      F-19
<PAGE>   41
NEHI PETROLEUM CORPORATION
(For properties transferred by Erin Oil Exploration, Inc.,10/01/96)

Supplemental Information (Unaudited)

Twelve Months Ended December 31, 1996

<TABLE>
<CAPTION>
Capitalized Costs Relating to Oil and Gas Producing
Activities at December 31, 1996
---------------------------------------------------------------
<S>                                                                   <C>       
Unproved oil and gas properties                                       $2,876,300
Proved oil and gas properties                                          1,181,690
Support equipment and facilities                                         390,385
                                                                      $4,448,375
Less accumulated depreciation, depletion, amortization
         And impairment                                                  130,726
                  Net Capitalized Costs                               $4,317,649

<CAPTION>
Costs Incurred in Oil and Gas Producing Activities
For the Year Ended December 31, 1996
--------------------------------------------------------------
<S>                                                                   <C>
Property acquisition costs:
         Proved                                                       $  361,910
         Unproved                                                      2,876,300
Development Costs                                                        942,707
Exploration Costs                                                              0

<CAPTION>
Results of Operations for Oil & Gas Producing Activities
For the Year Ended December 31, 1996*
---------------------------------------------------------------
<S>                                                                   <C>       
Oil and gas sales                                                     $  225,883
Gain on sale of oil and gas properties                                         0
Gain on sale of oil and gas leases                                             0
Production costs                                                        (146,353)
Exploration Expenses                                                    (159,047)
Depreciation, depletion, and amortization                               (130,726)
Results of operations for oil and gas producing activities
         (excluding corporate overhead and financing costs)           $ (210,243)
</TABLE>

* Results of operations include fourth quarter NEHI results added to unaudited
  nine month information of predecessor



                                      F-20

<PAGE>   42






Reserve Information



The following estimates of proved and proved developed reserves quantities and
related standardized measure of discounted net cash flow are estimates only, and
do not purport to reflect realizable values or fair market values of the
Company's reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than those of
producing oil and gas properties. Accordingly, these estimates are expected to
change as future information becomes available. All of the Company's reserves
are located in the United States.

Proved reserves are estimated reserves of crude oil (including condensate and
natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated future income tax expense (based on year-end statutory
tax rates, with consideration of future tax rates already legislated) to be
incurred on pretax net cash flows less tax basis of the properties and available
credits, and assuming continuation of existing economic conditions. The
estimated future net cash flows are then discounted using a rate of 10 percent a
year to reflect the estimated timing of the future cash flows.


                                      F-21

<PAGE>   43




The following information has been extracted from a reserve report dated April
7, 1997 for proved reserves and future net cash flows associated with those
reserves as of January 1, 1997.

<TABLE>
<CAPTION>

                                                                Oil                Gas
                                                               (Bbls)             (Mcf)
Proved developed and undeveloped reserves
<S>                                                          <C>               <C>
         Beginning of year                                            0                 0
         Purchases of minerals in place                       1,032,395         3,616,345
         End of Year                                          1,032,395         3,616,345

Proved developed reserves
         Beginning of year                                            0                 0
         End of year                                            187,782           591,449

Standardized Measure of Undiscounted Future
         Net Cash Flows at January 1, 1997
         Future Cash Inflows                                           $15,221,888

Standardized Measures of Discounted Future
         Net Cash Flows relating to Proved Oil
         And Gas Reserves at January 1, 1997
        (Discounted at 10%)                                            $ 8,088,686
</TABLE>





                                      F-22
<PAGE>   44
                              INDEX TO EXHIBITS



<TABLE>
<CAPTION>
EXHIBIT
  NO.                    DESCRIPTION
-------                  -----------
<S>          <C>
16.1         Letter on Change in Certifying Accountant

27.1         Financial Data Schedule
</TABLE>