<PAGE>


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

(Mark One)

         /X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997 or

         / / Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______.

                           Commission File No. 0-25006

                          UNITED PETROLEUM CORPORATION

                 (Name of small business issuer in its charter)

     Delaware                                        13-3103494
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                       Identification No.)

             Suite N-425 1111 Northshore Drive, Knoxville, TN 37919
               (Address of Principal Executive Offices) (Zip Code)

          Issuer's telephone number, including area code: 423-909-0890

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value per share

     Check whether the registrant (1.) 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 such shorter period that the registrant was required to file such
reports), and (2.) has been subject to such filing requirements for the past 90
days: Yes /X/  No / /

     Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B is not contained in this form and no disclosure will be
contained, to the best of the 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. / /

     State issuer's revenues for the most recent fiscal year: $9,720,861

     State the aggregate market value of the voting stock held by nonaffiliates
(based on the closing price on April 8, 1998 of $.05): $1,339,912.90

     State the number of shares outstanding of the registrant's $.01 par value
common stock as of the close of business on the latest practicable date (April
8, 1998): 29,465,352


     Documents incorporated By Reference: None

                  Transitional Small Business Disclosure Format
                           (check one): Yes / / No/X/
<PAGE>

PART I.

ITEM I.  BUSINESS

History of the Company

     United Petroleum Corporation ("Company") is a Delaware corporation with two
operating subsidiaries: Calibur Systems, Inc. and Jackson-United Petroleum
Corporation. It's primary business activities are operating retail car wash and
automotive related service facilities, acquiring and developing oil and gas
leases and the exploration of new business areas.

     The Company was organized under the laws of the State of Delaware on May
19, 1970, under the name "Don Reid Productions, Inc." The Company was formed as
an independent producer of television programs. From 1971 until the early part
of 1977, the Company developed and produced a number of new series and special
programs for television and acquired various interests in scripts and other
original literary rights for stage, television and motion picture production,
all with limited success. The Company was inactive from 1977 until 1982.
Effective November 12, 1982, United Petroleum Corporation, a Delaware
corporation ("United Petroleum-Delaware"), merged with and into the Company, and
the Company changed its name to "United Petroleum Corporation" and commenced to
engage in the business of acquiring and developing oil and gas leases.

     The Company was inactive from 1986 until receiving a proposal in the later
part of 1992 from Calibur Systems, Inc., a newly formed Tennessee corporation
("Calibur Systems"), and its sole stockholder, Michael F. Thomas, pursuant to
which the Company eventually acquired Calibur Systems in a transaction viewed as
a "reverse merger". In contemplation of this transaction, the Company organized
a wholly-owned subsidiary in December 1992, Calibur-United Petroleum
Corporation, a Tennessee corporation ("Calibur-United Petroleum). On April 22,
1993, an Agreement and Plan of Merger ("Plan") between the Company,
Calibur-United Petroleum, Calibur Systems and the sole stockholder of Calibur
Systems, Mr. Thomas, was completed; this Plan was deemed effective for
accounting purposes as of December 31, 1992. Pursuant to the Plan, the Company
issued 9,795,200 restricted shares of its common stock to Mr. Thomas , and
Calibur-United Petroleum merged with and into Calibur Systems, with Calibur
Systems being the surviving corporation; Calibur Systems became a wholly-owned
subsidiary of the Company, and the Company succeeded to its business operations.

     In February 1994, trading of the Company's shares of Common Stock resumed
in the over-the-counter market. The Company had two operating subsidiaries:
Calibur Systems, Inc. and Jackson-United Petroleum Corporation.

     In June 1995 the Company effected a one for three (1:3) reverse stock split
of the Company's outstanding Common Stock. On June 23, 1995 the Company's Common
Stock began trading on the Nasdaq Small Cap market.


     During the period from May 1996 to October 1996 the Company completed the
private placement of thirteen (13) convertible debentures (the "Debentures")
pursuant to an exemption

<PAGE>


from registration afforded by Regulation S ("Regulation S") as promulgated by
the Securities and Exchange Commission ("SEC"), under the Securities Act of
1933, as amended, Code of Federal Regulations 230.901-904. The Debentures had a
maturity of approximately two years with interest rates of six percent (6%) and
seven percent (7%). The aggregate face value of the Debentures issued was
$27,500,000 with net proceeds to the Company of approximately $20,631,500 before
expenses of approximately $2,890,000.

     Notwithstanding the representations in the Subscription Agreement executed
by the Debenture Holders, commencing in the middle of June 1996 and continuing
throughout the year certain Debenture Holders, at the earliest date possible,
converted large amounts of the debentures into substantial numbers of shares of
the Company's Common Stock and it appears they immediately then sold and in some
cases they sold short prior to converting their Debentures and then upon
conversion, used the shares to cover their short positions.

     In June 1996 the Company engaged TAJ Global Equities, Inc. ("TAJ") to act
as the Company's underwriter, stockbroker, agent, depository and fiduciary for
specific transactions. TAJ and it's affiliated parties acted wrongfully with the
Company's funds and have caused the Company to incur substantial losses. The
Company has sued TAJ and it's affiliates alleging a conspiracy to engage in a
course of misconduct intended to defraud the Company. For additional information
regarding this topic see ITEM 3 - "Legal Proceedings" contained in this report.

     In March 1997, the Company filed a charter amendment with the State of
Delaware authorizing the Company to have at any one time 60,000,000 shares, of
which 10,000,000 shares shall be Preferred Stock, par value $.01 per share,
issuable in one or more classes or series, and 50,000,000 shares shall be Common
Stock, par value $.01 per share. All or any part of the Common Stock and the
Preferred Stock may be issued by the corporation from time to time and for such
consideration as the Board of Directors may determine. All such shares, if and
when issued, and upon receipt of such consideration by the corporation, shall be
fully paid and non-assessable.

      Effective April 30, 1997, the Company entered into an agreement with
holders of $16,822,400 of Debentures. The agreement provided among other things,
for the exchange of $9,912,000 worth of debentures into 9,912 shares of "Series
A" Preferred Stock, after a reduction of ten percent (10%) in the face amount of
the debentures. The "Series A" Preferred Stock will pay a cumulative dividend of
eighteen percent (18%) for a period of one year. Thereafter, at the option of
the preferred shareholder, the dividend shall either be reduced to seven percent
(7%) for the second year or, a Preferred shareholder, at his option, may
surrender to the Company ten percent (10%) of the Preferred Stock and continue
to receive a dividend of eighteen percent (18%). At the option of the Company,
dividends may be paid in cash or in the Company's Common Stock.


                                        2

<PAGE>

     Preferred shareholders shall have voting rights equal to those which they
would have if they converted their Preferred shares to Common Stock at the then
conversion price, provided, however, that no Preferred shareholder or group of
affiliated Preferred shareholders may, at any one time, vote more than 4.99% of
the total of the stock entitled to vote.

     Commencing July 1, 1997, one-thirteenth of the Preferred Stock may be
converted each month on a cumulative basis. The conversion price shall be the
lesser of (x) $3.00 (as adjusted by the following clauses) and (y) the greater
of (i) the Fixed Conversion Price and (ii) the Market Price of the Common Stock
shall be the average for the five (5) consecutive trading days immediatelly
preceding the Conversion date; provided, if the Monthly Price for the preceding
month is greater than $3.00 (the "Ceiling Price"), then the Ceiling Price for
such month shall be the greater of (x) $3.00 and (y) 66-2/3rds% of the Monthly
Price for such preceding month. The "Fixed Conversion Price" shall be equal to
the following: $2.50 per share through September 30, 1997; $2.00 per share from
October 1, 1997 through December 31, 1997; $1.50 per share from january 1, 1998
through March 31, 1998; $1.00 per share after April 1, 1998; in each case
adjusted as follows: if the Market Price for the trading days in the applicable
calander month (the "Monthly Price") of the Common Stock for any calander month
commencing October 1997 is greater than the Fixed Conversion Price, then the
Fixed Conversion Price shall be the greater of the Fixed Conversion Price and
66-2/3rds% of the Monthly Price for the for the preceding calander month.

     The Preferred shares may be automatically converted by the Company by
notice given between October 1, 1999 and October 10, 1999 at a price equal to
the average of the closing bid prices for the five trading days prior to giving
of the notice. Each Preferred share shall have liquidation rights equal to
$1,000 and shall have a preference over Common shareholders and junior Preferred
shareholders. The Company may redeem the Preferred shares at any time upon
payment of the liquidation price together with any accrued dividends.

     The agreement provides that the Preferred shareholders shall vote their
shares for the continuation of current management and shall not participate in
any proxy contests as long as the Company is not in default with respect to any
of the provisions of the agreement, the Preferred shares or the Debentures.

     The agreement provides that the holders of approximately $3,943,466 of the
Debentures shall receive in their place Amended Convertible Debentures in the
amount of approximately $3,549,120 in face value after a reduction of the face
value of the old debentures equal to ten percent (10%). The maturity date of the
amended debentures is September 1, 1999.

     The interest rate on the Amended Debentures is eighteen percent (18%) for
one year and seven percent (7%) thereafter, provided, however, that the Amended
Debenture holders shall have the option at the end of one year to surrender to
the Company, for no consideration, ten percent (10%) of their Amended Debentures
and to receive interest of eighteen percent (18%) on the remaining Amended
Debentures. At the option of the Company, interest may be paid in cash or in
Common Stock.


                                        3

<PAGE>

     One of the Debenture holders subscribed for $666,666 worth of New
Debentures to be issued pursuant to Regulation S. The purchase price for these
New Debentures was $500,000. These funds were to be used by the Company for
working capital purposes. This New Debenture is convertible under the same terms
and conditions as the Amended Debentures.

     As part of the agreement, Debentures with a face value of approximately
$623,500, together with shares issued in payment of interest accred through
April 30, 1997 were converted into Common Stock at a price of $.50 per share.

     The above referenced transactions, effective April 30, 1997, reduced the
liabilities of the Company and increased the equity of the Company for the
following reasons: (1.) the conversion of Debentures into Common Stock, (2.) the
conversion of Debentures into Preferred Stock and (3.) the forgiveness of
Debenture balances with a face value equal to approximately $1,495,680. The
forgiveness of debt is typically treated as an other income item for statement
purposes. In the case of the debenture restructure agreement the debenture
holders received an increased yield in return for the forgiveness. The Company
has elected to classify the amount forgiven as "unearned discount" for statement
purposes and will amortize the amount over a twelve month period. This will
represent a reduction in interest expense of approximately $124,640 per month
beginning May 1, 1997.

     An action, as more fully described in the Company's most recent annual
report on Form 10-KSB for the period ended December 31, 1996, entitled Mantel
International Investments, Limited ("Mantel"), Plaintiff, vs United Petroleum
Corporation and Interwest Transfer Co., Inc., Defendants, was settled on July 1,
1997. The settlement agreement contains, among other items, the following
provisions: (1.) that 466,667 shares of the Company's Common Stock which were
held in escrow pending the outcome of the action be released to Mantel, (2.) the
Company authorized the issuance of 2,000 shares of newly created "Series B"
Convertible Preferred Stock, (3.) the Company acknowledge that Mantel retains
$1,833,333 in principal amount of the Company's Convertible Debenture due May 1,
1998 with an original face amount of $2,666,666 and (4.) that the Company allow
Mantel to exchange the $1,833,333 remaining balance of the debenture for 1,833
"Series B" Preferred Shares and a Warrant to purchase 300,000 shares of the
Company's Common Stock at a price of $1.00 per share. The Preferred shares will
bear a dividend rate of eight percent (8%) per annum with dividends payable
quarterly. At the option of the Company the dividends may be paid in cash or in
Common Stock of the Company. The conversion of the Preferred Shares is limited
such that no more than 1/15th of the "Series B" Preferred Shares may be
converted per month commencing July 1, 1997. Further, the Company has the right
to automatically convert any remaining "Series B" Preferred Shares into Common
Stock of the Company on October 10, 2000. The mandatory conversion price shall
be equal to the average market price for the five (5) consecutive trading days
immediately preceding the conversion date. Regarding conversion prior to the
mandatory conversion, the conversion price shall be equal to the lesser of (x)
$3.00 (as adjusted pursuant to the following clauses) and (y) the


                                        4

<PAGE>

greater of (i) the fixed conversion price and (ii) the average market price for
the five (5) consecutive trading days immediately preceding the conversion date;
provided, if the average monthly price for the preceding month is greater than
$3.00, then the price for such month shall be the greater of (x) $3.00 and (y)
66-2/3% of the average monthly price for each preceding month. The "fixed
conversion price" shall be equal to the following: (1.) $2.50 per share through
September 30, 1997, (2.) $2.00 per share from October 1, 1997 through December
31, 1997, (3.) $1.50 per share from January 1, 1998 through March 31, 1998 and
(4.) $1.00 per share after April 1, 1998. In each case adjusted as follows: if
the average monthly market price for the trading days in the applicable calendar
month of the Common Stock for any calendar month commencing October 1997 is
greater than the fixed conversion price, then the fixed conversion price shall
be the greater of the fixed conversion price and 66-2/3% of the average monthly
price for the preceding calendar month.

     On August 29, 1997 the Company entered into an agreement with one of the
holders of the Company's Preferred Stock and Amended Convertible Debentures to
amend the terms of the Preferred Shares set forth in the Certificate of
Designation by reducing the Fixed Conversion Price after April 1, 1998 from
$1.00 to $.50 per share. The Company further agreed to amend the terms of the
Amended Convertible Debentures by reducing the Fixed Conversion Price after
October 1, 1997 from $2.00 to $.50 per share. In addition, the agreement further
provided that the Company issue a promissory note in the form of a convertible
debenture in the amount of $1,575,000 for a cash purchase price of $1,250,000.
The difference in the amount of the note and the purchase price being a discount
in the amount of $325,000. Said note was funded in two advances. The first
advance was in the amount of $625,000 face value of the note for proceeds of
$500,000. The second advance was in the amount of $950,000 face value of the
note with proceeds of $750,000. The note has a maturity date of February 28,
1998 with interest payable monthly at the rate of 18%. Interest on the two
advances was prepaid through October 31, 1997 at closing. Closing costs equal to
$25,000 were also deducted from the first advance. The note is unsecured. In
conjunction with the issuance of the note the Company issued 400,000 Warrants to
purchase Common Stock with an initial purchase price of $.3688 per share. The
agreement contains provisions such that the number of Warrants could increase
and/or the exercise price of the Warrants could be adjusted subject to specific
anti-dilutive provisions agreed to by the Company. The agreement also contains a
covenant by the Company to file a registration statement regarding the resale of
the Warrants if and when exercised, the resale of their Common Stock issued as
payment of interest regarding the obligation and the resale of the Common Stock
issued by the Company in the event the holder converts all or a portion of the
obligation into Common Stock. The holder is entitled, at its option, at any time
commencing from and after March 31, 1998 to convert up to 100% of the unpaid
principal amount of the Debenture into Common Stock of the Company at a
conversion price equal to the lesser of (i) $1.00 per share and (ii) the average
market price of the Company's Common Stock for the five (5) consecutive trading
days immediately preceding the conversion date.

                                        5


<PAGE>

     On October 3, 1997 the Company received notification that the Nasdaq Stock
Exchange had decided to delist the Company's common stock from trading on the
Nasdaq Small Cap market effective as of the close of business October 17, 1997.
For more information regarding this topic see ITEM 5. "Market For Common Equity
and Related Stockholder Matters" contained in this report.

     The Company is presently located at Suite N-425, 1111 Northshore Drive,
Knoxville, Tennessee 37919. The Company's telephone number is (423)909-0890 and
the Company's fax number is (423)909-0690.

Retail Car Wash and Automotive Related Services
Subsidiary - Calibur Systems, Inc.

     This business division, formerly Calibur Car Wash Systems, was founded by
Michael F. Thomas in 1977. At the end of fiscal 1997, the Company operated ten
(10) car wash facilities in Tennessee and Georgia, all of which offer other
services, as compared to sixteen (16) car wash facilities at the end of fiscal
year 1996, all of which offer other services. Six (6) of the car wash facilities
also served as gasoline stations at the end of fiscal year 1997 as compared to
ten (10) which also served as gasoline stations at the end of fiscal year 1996.
Six (6) of the car wash facilities also provide express lubrication services at
the end of fiscal year 1997 as compared to eight (8) providing express
lubrication services at the end of fiscal year 1996. At the end of the fiscal
year 1997 the Company had four (4) free standing lubrication locations as
compared to one (1) free standing lubrication location at the end of fiscal year
1996. All four of the free standing lubrication locations are on properties
leased from non-affiliated third parties. In the past several Company locations
were leased from, Michael F. Thomas, the Company's President and CEO. At year
end there were no properties being leased from Michael F. Thomas other than
office space at 4867 N. Broadway in Knoxville, Tennessee. The office space lease
is for $2,500 per month. For more information related to acquisitions and
divestitures related to this subsidiary, refer to ITEM 6 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in this report.

Oil and Gas Subsidiary - Jackson-United Petroleum Corporation

     The Company is engaged in activities related to the exploration and
development of oil and gas. This energy products division has all of its assets
in the United States.

     In late 1996 and early 1997 the Company completed a joint venture drilling
program with Kastle Resources Enterprises, Inc. ("Kastle") of Edinboro,
Pennsylvania in which the Company has a seventy-five percent (75%) working
interest in sixteen wells. During 1997 the wells produced a net revenue to the
Company of approximately $252,000. This is well below the

                                        6
<PAGE>


anticipated level of revenues as expected at the onset of the drilling program.

As a result of this level of performance and based on an engineering report
prepared by Wright & Company of Nashville, Tennessee the Company has taken a
write off in 1997 associated with these wells. For further information regarding
this issue refer to ITEM 6 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this report.

     Subsequent to the end of the year and prior to the release of this report,
the Company agreed to sell four wells drilled in Eastern Kentucky at a cost of
approximately $1,000,000 to Penn Virginia Oil & Gas Corporation for $300,000.
This sales transaction results in a loss which is being taken by the Company in
the 1997 year. For further information regarding this issue refer to ITEM 6 -
"Management's Discussion and Analysis of Operations" section of this report.

     In addition, the Company has elected not to proceed with four wells drilled
in Jackson County, Kentucky and will plug or sell the four shut-in wells during
1998. Additional costs related to lease property in central Kentucky will be
abandoned in conjunction with the decision not to proceed in central Kentucky. A
charge of approximately $500,000 in 1997 was taken as a result of these
decisions.

Environmental Impact

     The present and contemplated business operations of the Company are subject
to compliance with numerous federal, state and local environmental laws, rules
and regulations designed to protect the environment and require remediation of
environmental contamination. Many of these risks can not be insured against, and
when insurance is available, the cost is often prohibitive. The Company does not
carry any environmental hazard insurance coverage.

     In general the Company is impacted by Federal and State laws, rules and
regulations summarized below:

              Federal - The federal government has broad discretion in matters
relating to the enforcement of environmental laws and remediation of
environmental contamination. Under the enabling statutes, the Environmental
Protection Agency (the "EPA") has the discretionary power to conduct
investigations into suspected violations, to enjoin questionable business
practices and to bring civil or criminal proceedings against persons or
companies that violate the federal environmental laws. While the Company
believes that its business operations are conducted in a manner that no laws,
rules or regulations are violated, there can be no assurance that the EPA will
not institute enforcement proceedings or conduct investigations and issue
injunctions against the Company, if it reaches a determination that its
practices violate applicable laws, rules or regulations. Any violations of these
regulations could have a material adverse effect on the business and financial
resources of the Company.

                                        7
<PAGE>


              State - In addition to the potential for Federal regulation of the
Company, many states have created administrative agencies that have the
statutory authority to regulate operations such as those conducted by the

Company, thereby increasing regulatory burdens on the Company. The adverse
impact these regulations will have on the Company's potential profitability
might preclude the Company from operating in certain markets. Most states,
including Georgia and Tennessee, the two states in which the Company presently
conducts its principal retail business operations, have adopted statutes
regulating installation of underground storage tanks for gasoline, diesel fuel
or other hazardous products, which contain stringent guidelines relative to the
location of such tanks to ground water resources, tank design, tank composition,
installation and leak monitoring. In Georgia, a fine of up to $10,000 per day
per tank may be levied for non-compliance. A tax equal to $.002 per gallon for
all fuel sales is deposited in the Georgia Underground Storage Trust Fund ("GUS
Trust Fund") to help remediate environmental spills. Owners or operators owning
less than one hundred (100) underground storage tanks are required to pay the
first $10,000 in clean-up and remediation expenses, and the total liability of
the GUS Trust Fund is one million dollars ($1,000,000); if the owner or operator
has in excess of two hundred (200) underground storage tanks, the total
liability of the GUS Trust Fund is two million dollars ($2,000,000).
Registration of underground storage tanks is required, but there is no initial
or annual filing fee. In Tennessee, a fine of up to $5,000 per day per tank may
be levied for non-compliance. A tax equal to $.004 per gallon for all fuel sales
is deposited in the Petroleum Storage tank Environmental Assurance Fund
Commission ("Assurance Fund") to help remediate environmental spills. Owners or
operators owning six (6) or more underground storage are required to pay the
first $25,000 in clean-up and remediation expenses. For owners and operators
owning less than one hundred (100) underground storage tanks, the total
liability of the Assurance Fund is one million dollars ($1,000,000); if the
owner or operator has in excess of two hundred (200) underground storage tanks,
the total liability of the Assurance Fund is two million dollars ($2,000,000).
Tennessee law requires registration of all underground storage tanks and
provides for the owner or operator to pay the first seventy-five thousand
($75,000) and everything over one million dollars ($1,000,000), and the first
one hundred fifty thousand ($150,000) and everything over one million dollars
($1,000,000) on third party claims. Each underground storage tank must be
registered at an annual fee of one hundred dollars ($100); the Company's
estimated annual expense for registration of underground storage tanks is
approximately $1,800 in 1998.

     The Company estimates that it expends approximately fifty (50) man-hours
per month on environmental compliance, at an estimated cost of approximately
$1,000 per month. The Company strives to be in compliance with all applicable
federal, state and local environmental laws, rules and regulations. Continued
compliance or failure to comply with future legislation, however, may have a
material adverse impact on the Company's present and contemplated operations.

                                        8

<PAGE>


     Potential Liability; No Insurance for Environmental Claims - The Company
does not presently maintain insurance and has not posted bonds in material
amounts to compensate for any environmental damage that may occur at any of its
retail business locations, or in the drilling of any oil and gas wells other
than the legally required insurance and/or cash bonds which assure that funds

will be available to plug any dry holes which might be drilled; the cost of
these types of insurance policies are deemed to be prohibitive, even if
available. However, liability may in some instances be limited in connection
with claims made against the GUS Trust Fund and Assurance Fund for environmental
spills. The Company does maintain general liability coverage for personal
injuries and damages occurring at its locations, and will review the possibility
of obtaining similar insurance for any contemplated oil and gas operations. Any
claim filed for environmental contamination at any business location of the
Company could have a materially adverse impact on the Company's financial
condition.

Competition

     The Company's oil and gas exploration activities are a highly competitive
and speculative business. In seeking any other suitable oil and gas properties
for acquisition, or drill rig operators and related personnel and equipment, the
Company will be competing with a number of other companies, including large oil
and gas companies and other independent operators with greater financial
resources, and in many cases, management with more experience in this industry.
The Company's competitive position in the oil and gas industry is not
significant. The Company will be in direct competition with numerous oil and gas
companies in the acquisition of oil and gas properties, and the availability of
drilling rigs, including many companies with resources that are substantially
greater than those of the Company. No assurance can be given that the Company
can successfully compete with these companies.

     The major competition in the markets where the Company presently has
operating locations generally follow regional guidelines. Exxon, Amoco, Shell
and Texaco are the major competition in the sales of gasoline. Car wash
competition in the Chattanooga area include Eastgate, Hy's and King of Clean;
oil and lube sales competitors are Mastercare, Jiffy Lube, Midas and Valvoline.

Employees

     As of December 31, 1997, the Company employed 92 full time personnel as
follows: 27 in management and supervision, 54 in sales and service and 11 in
administrative and clerical. In addition, the Company has approximately one
hundred seventy-five (175) part time employees. Employee turnover is high, but
is considered within the norm for the car wash industry.

                                        9
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTIES

     The Company's executive offices consist of space located at Suite N-425,
1111 Northshore Drive, Knoxville, Tennessee 37919. The lease expires in October
of 1998 and has a monthly lease payment of $4,757.50.

     At the end of fiscal 1997, the Company operated ten (10) car wash
facilities as compared to sixteen (16) car wash facilities at the end of fiscal
year 1996 in Georgia and Tennessee, all of which offer other services. Six (6)
of the car wash facilities also served as gasoline stations at the end of fiscal
year 1997 as compared to ten (10) which also served as gasoline locations at the

end of fiscal year 1996. Six (6) of the car wash facilities also provide express
lubrication services at the end of fiscal year 1997 as compared to eight (8)
providing express lubrication services at the end of fiscal year 1996. At the
end of fiscal year 1997 the Company had four (4) free standing lubrication
locations as compared to one (1) free standing lubrication location at the end
of fiscal year 1996. All four (4) of the free standing lubrication locations are
on properties leased from non-affiliated third parties. In the past several
Company locations were leased from, Michael F. Thomas, the Company's President
and CEO. At year end there were no properties being leased from Michael F.
Thomas other than office space at 4867 North Broadway in Knoxville, Tennessee.
The office space lease if for $2,500 per month. For more information related to
acquisitions and divestitures, see ITEM 6. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section of this report. For
further information related to the acquisition or divestiture of properties
involving Company insiders, see ITEM 12. "Certain Relationships and Related
Transactions" contained in this report.

     The following is summary of the Company's retail locations:

<TABLE>
<CAPTION>

<S>                      <C>                        <C>                     <C>             <C>   
         Address          Facilities                Nature of Interest       Monthly Rent    Commenced

no. 1                     Full service car wash     Fee simple                     NA           1978*
917 Keith Street          Express lube center       Mortgage as of 12/31/97
Cleveland, TN 37311       Food Court                $443,024.15

no. 2                     Full service car wash     Leased (footnote 1)        $8,804.09        1984
1291 Oak Ridge Turnpike   Express Lube Center
Oak Ridge, TN 37830       Convenience Store

no. 3                     Full service car wash     Fee simple                     NA           1985
1500 E. Stone Dr                                    Mortgage as of 12.31.97
Kingsport, TN 37660                                 $394,921.11

no. 4                     Full service car wash     Fee simple                     NA           1985
4717 Hixon Pike           Self service gasoline     Mortgage as of 12/31/97
Chattanooga, TN 37343     Express lube center       $504,622.48

</TABLE>


                               10
<PAGE>
<TABLE>
<S>                       <C>                       <C>                        <C>              <C> 
no. 5                     Full service car wash     Leased and Fee simple      $2,120.00        1995
703 Parkway               Express lube center       (footnote 2)
Sevierville, TN 37862                               Mortgage as of 12.31/97
                                                    $575,833.98

no. 6                     Self service gasoline     Fee simple                     NA           1989

1107 W. Market            Full service car wash     Mortgage as of 12/31/97
Johnson City, TN 37601    Convenience store         $355,456.99
                          Detail shop

no. 7                     Self service gasoline     Fee simple                     NA           1989
700 Battlefield Pky.      Full service car wash     Mortgage as of 12/31/97
Ft. Oglethorpe, GA 37601  Convenience store         $810,506.77
                          Express lube center

no. 8                     Full service car wash     Fee simple                     NA           1993
1014 E. Walnut Ave.                                 Mortgage as of 12/.31/97
Dalton, GA                                          $406,588.25

no. 9                     Full service car wash     Fee simple                     NA           1993
5510 Memorial Dr.         Detail shop               Mortgage as of 12/31/97
Atlanta, GA 30083         Convenience store         $910,882.03
                          Express lube center
                          Self service gasoline

no. 10                    Full service car wash     Fee simple                     NA           1994
3028 Canton Hwy.          Self service gasoline     Mortgage as of 12/31/97
Marietta, GA 30066        Convenience store         $951,726.74

no. 11                    Self service car wash     Leased (footnote 3)        $1,000.00        1995
8016 Kingston Pike        Express lube center       Mortgage as of 12/31/97
Knoxville, TN 37919                                 $288,440.71

no. 12                    Express lube center       Leased (footnote 4)        $4,475.00        1996
1039 Cosby Road
Newport, TN 37821

no. 13                    Express lube center       Leased (footnote 5)        $3,750.00        1997
2519 E. Morris Blvd.
Morristown, TN 37813

no. 14                    Express lube center       Leased (footnote 6)        $4,100.00        1996
816 Merchants Rd.
Knoxville, TN 37912

</TABLE>

Footnotes to "Summary of Company's Retail Locations"

1. During 1997 the Company completed a sale/leaseback regarding this location
with a non-affiliated third party. This lease has a ten year term with two
option periods of five years each.

                                       11

<PAGE>

2. Approximately one-half of the Sevierville property is owned fee simple. The
remaining half is leased. The original five year lease began December 31, 1991,
and contains five option periods of five years each. The Company is presently in

the first option period.

3. This location is leased from the Cain Estate. Twelve years from February 12,
1996. Lease contains two option periods of ten years each.

4. Fifteen year lease beginning upon completion of construction with two option
periods of five years each.

5. Fifteen year lease beginning upon completion of construction with two option
periods of five years each.

6. The Company assumed a twenty year lease from a non-affiliated party which
began June 26, 1987.

ITEM 3.  LEGAL PROCEEDINGS

     1. In 1996, the Company was named as a defendant in an action commenced in
New York State Supreme Court, New York County entitled Mantel International
Investments, Limited, Plaintiff, vs. United Petroleum Corporation and Interwest
Transfer Co., Inc., Defendants, Index No. 119965/96 was settled July 1, 1997.
The settlement agreement contains, among other items, the following provisions:
(1.) that 466,667 shares of the Company's common stock which were held in escrow
pending the outcome of the action be released to Mantel, (2.) the Company
authorized the issuance of 2,000 shares of newly created "Series B" Convertible
Preferred Stock, (3.) the Company acknowledge that Mantel retains $1,833,333 in
principal amount of the Company's Convertible Debenture due May 1, 1998 with an
original face amount of $2,666,666 and (4.) that the Company allow Mantel to
exchange the $1,833,333 remaining balance of the debenture for 1,833 "Series B"
Preferred Shares and a warrant to purchase 300,000 shares of the Company's
common stock at a price of $1.00 per share. The preferred shares will bear a
dividend rate of eighteen percent (18%) per annum with dividends payable
quarterly. At the option of the Company the dividends may be paid in cash or in
common stock of the Company. The conversion of the Preferred Shares is limited
such that no more than 1/15th of the "Series B" Preferred Shares may be
converted per month commencing July 1, 1997. Further, the Company has the right
to automatically convert any remaining "Series B" Preferred Shares into common
stock of the Company on October 10, 2000. The mandatory conversion price shall
be equal to the average market price for the five (5) consecutive trading days
immediately preceding the conversion date. Regarding conversion prior to the
mandatory conversion, the conversion price shall be equal to the lesser of (x)
$3.00 (as adjusted pursuant to the following clauses) and (y) the greater of (i)
the fixed conversion price and (ii) the average market price for the five (5)
consecutive trading days immediately preceding the conversion date, provided, if
the average monthly price for the preceding month is greater than $3.00, then
the price for such month shall be the greater of (x) $3.00 and (y) 66-2/3% of
the average monthly price for each preceding month. The "fixed conversion price"
shall be equal to the following: (1.) $2.50 per share through September 30,

                                       12
<PAGE>


1997, (2.) $2.00 per share from October 1, 1997 through December 31, 1997, (3.)
$1.50 per share from January 1, 1998 through March 31, 1998 and (4.) $1.00 per

share after April 1, 1998. In each case adjusted as follows: if the average
monthly market price for the trading days in the applicable calendar month of
the common stock for any calendar month commencing October 1997 is greater than
the "fixed conversion price", then the fixed conversion price shall be the
greater of the "fixed conversion price" and 66-2/3% of the average monthly price
for the preceding calendar month.

     2. In 1996, the Company along with the President and Secretary of the
Company, who are also directors of the Company, along with three former
directors of the Company and three other unrelated corporations were named as
Defendants in a shareholder derivative action commenced in the Chancery Court of
Delaware entitled Viola J. Heitz, Plaintiff, vs Michael F. Thomas, William Ted
Phillips, Dwight F. Thomas, James F. Rose, James R. Fitzgerald, TAJ Global
Equities, Strategic Holdings Corporation, National Financial Service
Corporation, Defendants, Civil Action No. 15548-NC. The Delaware Chancery Court
dismissed the case in 1997 on grounds that the Delaware Chancery Court lacks the
jurisdiction over the defendants.

     3. In 1996 the Company suffered substantial injury from actions by TAJ
Global Equities, Inc. ("TAJ") and related parties. A lawsuit is pending.

     In June 1996 the Company engaged TAJ to act as the Company's underwriter
for a planned twenty million dollar ($20,000,000) offering of the Company's
Common Stock which was to take place in the third quarter of 1996. In connection
therewith, the Company paid TAJ an underwriting fee of one hundred thousand
dollars ($100,000).

     On or about July 11, 1996, the Board of Directors of the Company,
authorized the Company to purchase up to one million (1,000,000) shares of the
Company's Common Stock in the open market. The public was notified of the
decision by the Company's Board of Directors by a press release and the filing
of a Current Report on Form 8-K with the Securities and Exchange Commission
("SEC").

     The Company employed TAJ as a stockbroker, agent, depository and fiduciary
to purchase shares for the Company through an account the Company had opened
with TAJ. The Company ordered TAJ to purchase the shares at the then prevailing
market price, Thereafter, at the direction of TAJ and its President, Wilbur
Jurdine ("Jurdine"), the Company began to advance funds for the use by TAJ in
the repurchase of the Company's shares on behalf of the Company.

     In fact, TAJ did not use any of the funds advanced to TAJ to purchase
Company shares for the Company's account is instructed. Instead, TAJ and Jurdine
used the Company's funds wired to TAJ for their own purposes, including the
purchase of the Company's stock for their own account. For further information
related to this topic refer to the Company's annual report on Form 10-KSB for
the year ended December 31, 1996.

                                       13
<PAGE>

     In March 1997, a civil action was filed by the Company, Plaintiff, vs TAJ
Global Equities, Wilbur Jurdine and National Financial Service, Inc.,
Defendants, in the United States District Court for the Eastern District of

Tennessee alleging conspiracy to engage in a course of misconduct intended to
defraud the Company, conversion, unjust enrichment, breach of fiduciary duty and
associated causes of action claiming compensatory and punitive damages in excess
of one hundred million dollars ($100,000,000). Notice of suit and waiver of
service has been sent to each defendant pursuant to the Federal Rules of Civil
Procedure. Service has been completed on National Financial Service, Inc and
they have filed a Motion To Dismiss which has not been heard by the court at
this time. Service has been attempted on TAJ Global Equities and Wilbur Jurdine
without success. Additional attempts at service on these defendants is planned.

     4. In June of 1997 the Company was sued by a former employee alleging that
the Company had dismissed him improperly. A final judgment has been handed down
against the Company ordering that the Company pay the employee back pay and
damages totaling $54,422.03. The Company has also been ordered to reinstate the
employee. Negotiations with the employees counsel are ongoing.

     5. In May of 1997 the Company was sued by Unifirst, Inc. a supplier of work
uniforms for breach of contract. The Company believes it has significant valid
defenses to this suit. During the pendency of the suit counsel for the Company
became terminally ill and died. During that period counsel for Unifirst, Inc.
obtained a default judgment against the Company in the amount of $72,844.22. The
Company has obtained new counsel and has moved the court to set aside the
default judgment and set the case for trial. Counsel believes the chances to be
good for this motion to succeed.

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

     None

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     On October 3, 1997 the Company received notification that the Nasdaq Stock
Exchange had decided to delist its common stock from trading on the Nasdaq Small
Cap market effective as of the close of business October 17, 1997. The Company
is presently trading in the "pink sheets".

     A copy of the Nasdaq letter of October 3, 1997 is being filed with the
Securities and Exchange Commission as an Exhibit to this report. Nasdaq first
alleged that the Company had entered into various consulting agreements with the
sole purpose of expanding investor interest in the Company's shares, which
arrangements are said to have led to a deterioration of shareholder value. It is
the Company's position that the consulting arrangements were not solely or even

                                       14

<PAGE>

primarily for the purpose of expanding shareholder interest, but, rather were
for the purpose of obtaining investment banking assistance, primarily in
connection with the location of possible acquisitions and in arranging financing
for those acquisitions and for the development of the Company's oil and gas
properties. Moreover, the Company does not believe that these arrangements, in
any way, led to a deterioration of shareholder value. Compensation for these
services was paid primarily with stock or options and the number of shares

involved did not significantly dilute shareholder equity.

     Nasdaq further alleged that the Company facilitated and pursued
manipulative transactions in the Company's stock. This allegation apparently
refers to the sale of convertible debentures and the actions thereafter which
were initiated by virtue of the improper actions of certain of the purchasers of
the debentures. The facts are these. The debentures contained provisions
prohibiting short sales and contained representations that they were being
purchased for investment not for resale. In fact, certain of the debenture
holders apparently sold short substantial quantities of shares prior to
conversion of their debentures placing downward pressure on the price of the
shares. The Company was unaware of these activities until the price of the
shares began to fall sharply. Believing that the lower prices were not
justified, and in an effort to stabilize the market in the shares, the Company's
Board of Directors authorized a share buy-back program. However, the Company
never actually put this program into effect. It deposited some of the proceeds
of the debenture sale with TAJ Global Securities, a broker/dealer for use if and
when purchases were desired. At that time, TAJ had entered into a proposed
public offering of shares of the Company's stock.

     TAJ, without the Company's knowledge or consent, purchased a large quantity
of shares from its own customers when the price of the shares commenced to drop.
Those purchases were initially made through the TAJ trading account apparently
maintained by TAJ for it's own trading activities. Apparently, when that account
became too large, the shares were transferred to the account of strategic
Holding Corporation ("Strategic") from which TAJ had a power of attorney.
Strategic, which had assisted the Company in connection with the sale of the
debentures and which had a consulting agreement with the Company contends that
it did not authorize such transaction and that it did not even know they had
taken place. None of these shares were initially purchased in the Company
account at TAJ.

     When TAJ and Strategic were unable to pay for these trades, TAJ and
National Financial Services, TAJ's clearing broker, made demands upon the
Company to pay for those trades, threatening to summarily liquidate the shares
and thereby transform the orderly market in the Company's Common Stock into a
disorderly market, an action which would have clearly damaged the interests of
the shareholders. The Company, with good intentions, but, perhaps unwisely, made
payment for those shares. All these transactions took place over a period of a
little over a month.

                                       15

<PAGE>

     There was no intent on the part of the Company to manipulate or facilitate
the manipulation of the price of the Company's stock. Unfortunately, the
Company's activities which were intended to protect the shareholders were
unsuccessful. The price of the stock remained at a very low level which enabled
debenture holders to obtain large quantities of stock upon conversion, which,
according to the terms of the debentures was at market. It was as a result of
these conversions that the equity of the shareholders was seriously diluted, not
through any fault of the Company.


     Insofar as the 1,834,407 shares which were purchased through the Strategic
account are concerned, they were placed in escrow as collateral for the return
of the money which had been advanced by the Company. They were never transferred
to the Company and were never treated as redeemed stock by the Company. This
treatment was approved by the Company's auditors who also approved of the
recognition of a deferred tax asset as a result of the loss resulting from the
write-off of the advance for the payment for the Strategic shares. It is not
correct that the Company repurchased its shares through the Strategic account.

     The allegations set forth by Nasdaq also relates to the valuation placed
upon the Company's reserves of oil and gas by virtue of the purported doubt
about the Company's abilities to exploit these reserves. In fact, the Company
has been exploiting its reserves. At present the Company has seventeen (17)
producing wells which are producing revenues.

     With respect to the concern expressed over the Company's attempt to enter
into unrelated fields of business, none of the transactions has been
consummated. If and when any of these acquisitions were finalized, the Company
would have first satisfied itself of the availability of competent management.
The financing of these transactions was intended to be accomplished with the
participation of the debenture holders in an agreement which would have reduced
the Company's debt and provide the Company with additional sources of income.

     Finally, it was asserted that the Company has violated Marketplace Rule
4330(c) by failing to respond to the staff's requests for information and by
failing to meet the staff's deadlines for responding. The Company did provide
all information requested and provided most of such information in a timely
fashion. A small portion of the responses were provided a short time after the
deadline as a result of work pressure in the Company's offices and the large
effort required to accumulate all of the requested information. The Company
believes that it acted in good faith and to the best of its ability.

     The Company will have as a goal to seek reinstatement if its Common Stock
for trading on the Nasdaq Small Cap Market or any other trading exchanges which
might offer advantages to the Company and its stockholders.

     In December 1996, the Company entered into an escrow agreement with
Strategic Holdings Corporation ("Strategic") regarding 1,834,407 shares of
Company stock acquired by Strategic from TAJ Global Equities Corporation
(hereinafter referred to as the "Shares"). Said Shares were

                                       16

<PAGE>

pledged by Strategic as collateral on a note from the Company to Strategic. Said
Shares were held in escrow as follows: 334,407 of the Shares were held in escrow
by counsel for Strategic as security for management fees due Strategic and the
remaining 1,500,000 of the Shares were held in escrow by Neal Melnick legal
counsel for the Company and a member of the Board of Directors. The December
1996 agreement provides for Strategic to receive a minimum of $465,000 or five
percent (5%) of the sales price of such Shares whichever is greater, payable at
a minimum of $200,000 in 1997 and $265,000 in 1998. The agreement further
provides that the Company was to pay Strategic a management fee of $5,000 per

month for two months and $7,500 a month thereafter for a minimum of one year or
until such time as all of the collateral Shares have been sold or transferred
whichever is later. For further information regarding this agreement and the
events leading up to the execution of the agreement refer to the Company's
annual report on Form 10-KSB for the period ended December 31, 1996

     During late 1997 the escrowed Shares were released from escrow and were
distributed as follows: (1.) 184,000 shares to Robert Brent dba Royal Pictures,
Inc. in payment of expenses related to the aborted purchase of his company, (2.)
900,000 shares to Strategic in settlement of the escrow agreement and (3.)
750,000 shares to Equity Management Partners in payment of expenses and pre-paid
commissions associated with acquisitions. The market price of the Company's
common stock at the time of the release was approximately $.25 per share. The
aggregate value of the shares released was therefor approximately $458,600 which
was less than the aggregate balance due Strategic under the terms of the
agreement. The Company has been informed by Strategic that they do not consider
the release of the shares to have satisfied the Company's obligation to
Strategic and that Strategic shall explore all possible means of collecting that
which they feel they are due.

     The range of the high and low bid quotations for the Company's common stock
during the fiscal years ended December 31, 1997 and December 31, 1996 are set
forth below. Such bids represent prices between dealers without retail mark-up,
mark-down or commissions, and do not necessarily reflect actual transactions.
The bid prices for the period between January 1, 1997 and December 8, 1997 are
as reported by The Nasdaq Stock Market, and the bid prices for the period from
December 9, 1997 to December 31, 1997 are as reported from "pink sheet"
transactions subsequent to the delisting of the Company's common stock.

Fiscal Year Ended                High Bid          Low Bid
December 31, 1997

First Quarter                    $.90625           $.1875
Second Quarter                   $.46875           $.21875
Third Quarter                    $.50              $.1875
Forth Quarter                    $.3125            $.01

                                       17

<PAGE>

Fiscal Year Ended                High Bid          Low Bid
December 31, 1996

First Quarter                    $3.69             $2.00
Second Quarter                   $3.12             $1.75
Third Quarter                    $5.68             $1.87
Forth Quarter                    $3.12             $.21


     As of March 31, 1998, the number of shareholders of record of the Company's
common stock was five hundred thirty three (533). Management believes that there
are approximately two thousand (2,000) beneficial owners of the Company's common
stock.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS

     The Company realized a net loss of ($12,138,042) in 1997 as compared to a
net loss of ($11,572,293) in 1996. A summary of the comparative results between
fiscal year 1997 and fiscal year 1996 is as follows:

RESULTS OF OPERATIONS

                     Retail Car Wash and Related Automotive Services Subsidiary

Revenues were realized as follows:

Revenue                              1997              1996

Gasoline                        $ 2,901,079       $ 4,905,987
Car Wash                        $ 4,423,673       $ 5,641,815
Oil & Lube                      $ 1,397,871       $ 1,212,934
Grocery                         $   357,669       $   631,389
Other Sales                     $   421,935       $   843,857
Credit Card Discounts           $   (73,708)      $   (93,567)
                             ---------------   ---------------
                                $ 9,428,519       $13,142,415

     Gasoline revenues were $2,901,079 in 1997 as compared to $4,905,987 in
1996. This represents a decrease of $2,004,808 over the previous year. The
Company sold approximately 2,488,690 gallons of gasoline in 1997 as compared to
approximately 4,150,000 gallons in 1996. This represents a decrease of
approximately 1,661,310 gallons. Volume at same store locations

                                       18
<PAGE>


increased by 202,279 gallons in 1997 as compared to 1996. This increase is
mainly attributed to changing two Company locations from Pennzoil branded
gasoline locations to Exxon branded gasoline locations. During the year the
Company sold or ceased operations at seven retail gasoline locations which
attributed to a decrease in volume of 1,863,589 gallons during 1997 as compared
to 1996. For further information related to the divestiture of these seven
gasoline locations see the "expansion and divestiture" summary contained in this
section of the report. The gross profit margin on gasoline sales was 4.5% in
1997 as compared to 7.14% in 1996. The decrease in gasoline margins is primarily
attributed to aggressive gasoline pricing on behalf of Company competitors which
in turn required the Company to lower prices beyond the desired levels in an
attempt to maintain or increase volume levels at each location.

     Car wash revenues were $4,423,673 in 1997 as compared to $5,641,815 in
1996. This represents a decrease of $1,218,142 over the previous year. Decreases
at same store locations accounted for ($88,920) and the remaining decrease of
($1,129,222) represents the decrease associated with the sale or ceased
operations at six Company locations which offered car wash services. For further
information related to the divestiture of these six car wash locations see the

"expansion and divestiture" summary contained in this section of the report.
Management believes the decrease in same store car wash revenues is primarily
attributed to above average rain fall which occurred in the Southeastern United
States during 1997.

     Oil and lube revenues were $1,397,871 in 1997 as compared to $1,212,934 in
1996. This represents an increase of $184,937 or approximately 15.2% over the
previous year. Same store increases in oil and lube revenues were $224,783 and
revenues from new locations were $214,168 for a combined increase of $438,951.
These increases were partially offset by decreases in oil and lube revenues of
($254,014) associated with three Company oil and lube locations which were
either sold or operations ceased. The majority of the same store increases in
revenue are attributed to the fact that two Company locations opened in 1996
were not open the full year of 1996 and were open a full year in 1997. For
further information related to the new locations acquired and the stores
divested see the "expansion and divestitures" summary contained in this section
of the report.

     Grocery revenues decreased to $357,669 in fiscal year 1997 as compared to
$631,389 in 1996 which represents a decrease of approximately $273,720 or 43.4%.
The decrease is attributed to the sale of locations which sold grocery items or
ceased grocery operations at locations which sold grocery items.

     Other sales decreased to $421,935 in 1997 as compared to $843,857 in 1996
which represents a decrease of approximately $421,922 or 49.9%. The decrease is
attributed to the sale of locations or ceased operations at locations which sold
items such as beer, cigarettes, accessories and deli items.

                                       19
<PAGE>

     The subsidiary had an operating loss of ($129,944) in 1997 as compared to
an operating income of $295,975 in 1996. Selling, general and administrative
expenses were $2,365,818 in fiscal year 1997 as compared to $3,060,674 in fiscal
year 1996. The decrease in these expenses is attributed to a decrease in the
number of retail locations operated by the Company and the subsequent reduction
in office personnel required to manage the lesser number of locations. Other
income (expense) was ($267,551) in fiscal year 1997 as compared to $66,244 in
fiscal year 1996. The ($267,551) is primarily attributed to the divestiture of
several Company locations which created a loss on sale or the abandonment of
certain assets on the books of the Company. The subsidiary had a tax benefit of
$245,000 in fiscal year 1997 as compared to a tax benefit of $74,000 in 1996.
The subsidiary experienced a net loss after tax of ($896,740) in fiscal year
1997 as compared to a net loss after tax of ($225,631) for 1996. Included in the
expenses for 1997 were $572,241 in depreciation and $49,257 in amortization.

       In 1997 the Company continued to expand the oil and lube operations of
the Company while at the same time it either sold or ceased operations at some
of the locations previously operated by the Company. The following is a summary
of the acquisitions and divestitures:

     During the first quarter of 1997 the Company sold two retail facilities it
owned to, Michael F. Thomas, the President and CEO if the Company. These
facilities were located in Farragut, Tennessee and Cookeville, Tennessee. The

Farragut location was a car wash, food court, convenience store and branded
Exxon gasoline location. The Cookeville location was an Amoco branded gasoline
location, convenience store and free standing food court. The Farragut location
was sold for $1,140,000 on February 25, 1997 which was slightly more than the
$1,100,500 appraised value of the property as obtained by the Company from Hop
Bailey & Company, an M.A.I. appraisal firm. At year end 1996 the loan on the
Farragut location was in technical default and payment of the loan was demanded
in full by the lender. The subsidiary was unable to refinance the location. The
Cookeville location was sold for $879,000 on March 16, 1997 which was slightly
less than the appraised value of $961,500 as obtained by the Company from the
Furman Appraisal Agency in Cookeville, Tennessee. Both of these facilities were
operating at a cash flow loss to the Company after taking debt service into
consideration. The Company was unable to refinance the mortgages on these
properties such that the properties would contribute to the cashflow of the
Company and determined it was in the best interest of the Company to sell the
locations.

     Also during the first quarter, effective January 31, 1997, the Company's
lease at a location in Solway near Oak Ridge, Tennessee expired. The once
profitable Company location had a loss of approximately ($23,096) in fiscal year
1996 and the losses continued in fiscal year 1997. Increased competition
surrounding the location attributed to the decline in profitability of the
location. The decision was made to cease operations at the location and the
landlord was notified that the Company would not exercise the option to extend
the lease.

                                       20
<PAGE>


     During the second quarter of 1997 the Company opened new oil and lube
facilities in the following locations: (1.) Ft. Oglethorpe, Georgia, (2.)
Morristown, Tennessee and (3.) Newport, Tennessee. Also during the third quarter
the Company transferred the Exxon distributorship contract to, Michael F.
Thomas, the Company's President & CEO. Mr. Thomas was designated as the "key
person" in the original distribution contract between the Company and Exxon. The
transfer became necessary due to the fact that the letter of credit posted by
the Company in favor of Exxon matured. Exxon required the letter of credit to be
extended and increased from $100,000 to $200,000. In order to extend and
increase the letter of credit the issuer required the personal guarantee of Mr.
Thomas and the structure agreed upon included a transfer of the Exxon
distributorship contract to Mr. Thomas. The Company presently purchases Exxon
gasoline products for its Exxon branded locations from TCS Systems, Inc. for
$.01 per gallon over the wholesale price available to TCS Systems, Inc. plus
freight. TCS Systems, Inc. is owned by, Michael F. Thomas, the Company's
President and CEO.

     During the third quarter of 1997 the Company ceased operations at the
following locations: (1.) 4867 North Broadway in Knoxville, Tennessee, (2.) 5907
& 5909 Lee Highway in Chattanooga, Tennessee, (3.) 1330 West Broad Street in
Murfreesboro, Tennessee, (4.) 8871 Kingston Pike in Knoxville, Tennessee and
(5.) 795 South Jefferson Avenue in Cookeville, Tennessee.

     Operations at 4867 North Broadway in Knoxville, Tennessee and 5907 & 5909

Lee Highway in Chattanooga, Tennessee were ceased due to the cancellation of the
lease for the facilities from, Michael F. Thomas, the Company's President and
CEO. The cancellation in the second quarter of 1997, was by the mutual consent
of both the Company and Mr. Thomas. A review of the financial performance of the
two locations indicated that the two locations combined produced an annual
cashflow of approximately $100,000. Mr. Thomas agreed to reduce his annual
compensation by $100,000 and allow the Company to cancel the lease for the two
properties. It is anticipated that the Company will be able to further reduce
expenses such as management and accounting as a result of the decreased level of
activity in the Calibur subsidiary.

     Operations at 1330 West Broad Street in Murfreesboro, Tennessee were ceased
due to a lack of profitability at the location. In addition, the mortgage on the
property from Sun Trust Bank matured and the mortgagor was unwilling to renew
the loan and had informed the Company of the bank's intent to foreclose on the
location. The Company was unable to refinance the loan at any other financial
institution due to the location's weak operating statements. As a guarantor on
the note, Michael F. Thomas, acquired the location and paid off the note. The
Board of Directors approved the sale as the sale would prevent a potential
situation with Sun Trust Bank which could adversely effect other banking
relationships of the Company. In addition, the sale was approved due to the weak
financial performance of the location over the past few years.

                                       21
<PAGE>

     Operations at 8871 Kingston Pike in Knoxville, Tennessee ceased due to the
sale of the location to, Michael F. Thomas, the Company's President & CEO for
$300,000. The Board of Directors made the decision to sell the location in order
to raise working capital for the Company. There was no debt on the location. The
fact that the location was built on leased property and the fact that the
location required substantial refurbishing and updating contributed to the
decision to sell the facility.

     In addition to the above divestitures in the third quarter of 1997, the
Company sold an existing non-operational vacant piece of real estate on Ashville
Highway in Knoxville, Tennessee, to Michael F. Thomas, the Company's President &
CEO. The vacant land, acquired from Exxon for approximately $125,000, was sold
via the assumption of a loan in the approximate amount of $140,000 from First
American Bank in Knoxville, Tennessee. The note had matured and the Company was
not in the position to develop the site or pay the loan off. As a guarantor of
the note, Mr. Thomas, agreed to assume the note personally in return for the
conveyance of the vacant piece of real estate.

     All of the above referenced divestitures involving properties being
transferred to, Michael F. Thomas, the Company's President & CEO were analyzed
by the Company's Chief Financial Officer, the Company's accounting department
and the Board of Directors. The result was that an assumption agreement was
entered into between the Company and Mr. Thomas on July 3, 1997. The purpose of
the agreement was to insure that the transaction was fair and equitable to both
parties. The agreement provided, among other things, that Mr. Thomas would
assume or pay the following: (1.) a note payable to Pennzoil in the approximate
amount of $219,829.17, (2.) the Pennzoil Unearned Discount in the amount of
$200,000, (3.) a note payable to Coffman Oil Company, Inc. in the approximate

amount of $25,405.57, (5.) a note payable to Sun Trust Bank in the approximate
amount of $389,387, (6.) a note payable to First American Bank in the
approximate amount of $140,000, (7.) real estate taxes in the approximate amount
of $85,529 and (8.) pay to the Company the sum of $300,000. As a result of the
divestitures and the assumption of numerous debts of the Company, the Company
experienced a loss on the sales of approximately ($22,966.27). These
transactions decreased the liabilities of the Company by approximately
$1,137,935. As of December 31, 1997 all but one of these assumptions had been
completed. The one item remaining as of the date of this report and at year end
1997 is the assumption of the $140,000 loan from First American Bank by Michael
F. Thomas. The bank has approved the assumption of the debt by Mr. Thomas
contingent upon all loans of the subsidiary with First American bank being paid
off prior to the assumption.

     Operations at 795 South Jefferson in Cookeville, Tennessee were ceased when
the Company sold the location to, Dwight Thomas, the Company's Secretary and a
member of the Company's Board of Directors. The location was sold for $516,000
and there was an M.A.I. appraised value of $536,000 on this location. The price
was deemed acceptable due to the fact that the location was in need of capital
improvements, including environmental updates of underground petroleum

                                       22
<PAGE>

storage tanks necessary to meet 1998 standards, in excess of approximately
$80,000 as of the date of the sale. In addition, Mr. Thomas agreed to the mutual
cancellation of his employment contract with the Company dated December 2, 1996.
The purpose of the sale was to raise working capital for the Company. The
Company received net proceeds from the sale in the amount of approximately
$152,385.

     In addition, during the third quarter the Company sold the real estate and
improvements at one of the Company's locations in Oak Ridge, Tennessee to a
non-affiliated local petroleum distributor. The location contained a full
service car wash, two bay Pennzoil Lube Center, Exxon branded gasoline facility
and a small convenience store. The purpose of the sale was to raise capital and
pay-off a short term loan on the facility in the amount of $300,000 which was
owed to, Michael F. Thomas, the Company's President and CEO. The funds loaned to
the Company by Mr. Thomas had been borrowed by Mr. Thomas personally from a
local bank. The loan matured and the Company was unable to pay the note as
agreed. The sale enabled the Company to pay-off the existing first mortgage from
Nations Bank, pay-off the note to Mr. Thomas and raise approximately $144,548 in
working capital. The location continues to be operated by the Company as the
transaction was in the form of a sale/lease back. The Company entered into a ten
year lease with the non-affiliated distributor with monthly payments of $8,804.
At the option of the Company the lease may be cancelled after the first six
months.

                         Oil and Natural Gas Subsidiary

Revenues were realized as follows:

         Revenue                                 1997            1996


         Natural Gas                           $ 220,701        $ 90,899
         Oil                                   $  71,641        $    995
                                               ---------        --------
                                               $ 292,342        $ 91,894

     The natural gas revenue increased to $292,342 in fiscal year 1997 as
compared to $90,899 in fiscal year 1996. This increase is attributed to the
completion of a sixteen well drilling program in Pennsylvania which was
completed in early 1997 which increased the number of producing wells in 1997 as
compared to 1996.

                                       23
<PAGE>


     The oil revenues increased to $71,641 in fiscal year 1997 as compared to
$995 in fiscal year 1996. This increase is mainly attributed to the completion
of a sixteen well drilling program in Pennsylvania which was completed in early
1997 and the completion of an enhanced oil recovery project in which the Company
participated in Missouri.

     The oil and gas subsidiary had a net loss of ($3,332,528) in fiscal year
1997 as compared to a net loss of ($35,113) in fiscal year 1996. Selling,
general and administrative expenses were $123,876 in 1997. Cost of sales for the
year was $141,265 which included $128,021 in amortization expense. Operating
income was $27,201 before charges for abandonments and impairments of
$3,366,729.

     The charge for abandonments and impairments in the amount of $3,366,729 in
1997 is a non-cash write down associated with several of the Company's oil and
gas properties. A current engineering report prepared by Wright & Company of
Nashville, Tennessee states that the present value of the Company's sixteen
Pennsylvania wells is approximately $1,159,000. These properties were carried on
the books of the Company at approximately $3,200,000. In order to more
accurately reflect the value of the properties the difference of approximately
$2,041,000 was shown as an impairment in 1997.

     Subsequent to December 31, 1997 and prior to the release of this report,
the Company has agreed to sell four wells drilled in Eastern Kentucky by the
Company at a cost of approximately $1,000,000 to a non-affiliated oil and gas
company for $300,000. The difference of approximately $700,000 is shown as an
impairment for 1997. The four Eastern Kentucky wells are to be sold in order to
satisfy accounts payable in the oil and gas subsidiary. The Company is presently
engaged in negotiations with creditors of the oil and gas subsidiary to accept
their pro-rata portion of the $300,000 sale price as final compensation for
services rendered regarding the four wells drilled in Eastern Kentucky. In
aggregate the payables total approximately $370,000. The pro-rata payments
therefore equal approximately 80% of the accounts payable. To date the majority
of the creditors have agreed to accept said payments as full and final
settlement of the amounts due.

     In addition, the Company has elected not to proceed with four wells drilled
in Jackson County, Kentucky and will plug or sell the four shut-in wells during
1998. Additional costs related to lease property in central Kentucky will be

abandoned in conjunction with the decision not to proceed in central Kentucky. A
charge of approximately $500,000 in 1997 was taken as a result of these
decisions.

FINANCIAL CONDITION

     As of December 31, 1997 the financial condition of the Company has
continued to deteriorate as compared to December 31, 1996. The working capital
deficit of approximately $1,915,734 as of December 31, 1996 has increased to
deficit of approximately $10,418,676 as of December 31,

                                       24
<PAGE>

1997. A substantial portion of the increased deficit can be attributed to the
following items: (1.) increases in accounts payable, (2.) increases in accrued
expenses and (3.) increases in current maturities of long term debt. The balance
sheet experienced significant deterioration in 1997 as a result of several
primary factors. The factors are as follows: (1.) due to current business
conditions and the fact that if there is a "change of control" the deferred tax
benefit in the amount of $2,885,000 will no longer be available to the Company,
(2.) abandonments and impairments in the oil and gas subsidiary and the
automotive subsidiary in the amount of approximately $3,697,751, (3.) other
non-recurring charges of approximately $1,047,811 and (4.) operating losses of
approximately ($6,000,713) in 1997. The Company experienced a loss in 1997 of
($12,138,042) as compared to a loss of ($11,572,293) in 1996.

     The condition of the balance sheet and the losses sustained by the Company
in fiscal year 1997 have caused the Company to be in violation of loan covenants
with some of the Company's lenders. During the year the Company entered into a
forbearance agreement with First American Bank of Knoxville, Tennessee which in
effect allowed the Company approximately one year to move all loans of the
automotive subsidiary from the bank. Subsequent to the end of the fiscal year
and prior to the release of this report, the forbearance agreement matured and
on March 31, 1998 the bank called all loans of the subsidiary. The Company has
six loans with First American Bank. The loans are secured by real estate owned
by the Company. In aggregate the amount of the notes due First American total
approximately $1,950,000. In addition, subsequent to the end of the fiscal year
and prior to the release of this report, First Citizens Bank of Cleveland,
Tennessee called their loan to the Company's automotive subsidiary. This loan is
also secured by real estate and has balance of approximately $443,000. It is the
belief of management that several other loans secured by real estate of the
Company may be called in the near future due to the financial condition of the
Company.

     The Company is presently engaged in negotiating a loan application to
refinance substantially all of the assets of the automotive subsidiary. A
successful refinance would prevent the foreclosure of the locations effected by
the loans called by both First American Bank and First Citizens Bank. There can
be no assurance that the Company will be able to obtain suitable financing and
prevent the foreclosure of the several of the Company's automotive subsidiary
locations.

     The following Company locations are effected by the called notes: (1.)

Memorial Drive in Stone Mountain, Georgia, (2.) Stone Drive in Kingsport,
Tennessee, (3.) Market Street in Johnson City, Tennessee and (4.) Keith Street
in Cleveland, Tennessee.

     The Company is currently past due on numerous taxes including approximately
$421,000 in payroll taxes, $32,000 in unemployment taxes and various state taxes
totaling approximately $21,500. The Company will attempt to pay a portion these
taxes from the proceeds of a short term loan presently being negotiated and the
balance of the taxes from the proceeds of a loan

                                       25
<PAGE>


being negotiated to refinance the retail locations of the Company. The short
term loan is in the process of being closed at this time. There can be no
assurance that either the short term loan or the refinance of the Company's
retail locations will occur.

     As mentioned above, the Company is presently attempting to close a short
term loan in the amount of $750,000. Said loan is to mature on September 30,
1998 and is to be secured by the common stock of each of the Company's
subsidiaries along with certain assets of the oil and gas subsidiary. The loan
will bear an interest rate of 12% per annum.

EXPANSION AND OTHER ACTIVITIES

     During fiscal year 1997, the Company performed due diligence and evaluated
numerous potential acquisitions. The following is a summary of the events
regarding these potential acquisitions:

     The Company performed due diligence on a U.S. Coast Guard approved barge
terminal and truck loading/unloading facility on the Cumberland River in Celina,
Tennessee. The Company reached an agreement in principle to acquire the facility
for $2,000,000 payable in the common stock of the Company. The facility included
storage capacity for up to 50,000 barrels product and provided direct access to
all major eastern waterways. The primary attraction of the facility to the
Company was in conjunction to a proposed acquisition of an oil refinery located
within the vacinity of the barge facility. The refinery was operating at a
profit and at less than full capacity. By importing crude oil through the barge
facility, the Company was of the opinion that additional profits could have been
realized. Subsequent to the completion of due diligence related to the two
proposed acquisitions, the decision was made that neither the barge facility nor
the refinery were desired investments of the Company. Negotiations ceased and
the pursuit of these two investments ended.

     The Company announced the formation of a new subsidiary, United Trading,
LTD., to be formed in the Cayman Islands to engage in the trading of petroleum
and other products on a worldwide basis. Many contacts were made in locations
such as South America and China. To date the Company has not moved forward with
these plans and there have been no operations in this regard.

     The Company announced the formation of a new division, UCI Entertainment
Group, in anticipation of entering the entertainment industry. The Company

further announced the intent to chance the name of the Company to United
Companies International Corporation or "UCI". The name change is not in effect
at this time as the change would require the approval of a majority vote of
shareholders. The Company entered into a letter of intent to purchase the
following: (1.) Royal Pictures, Inc. which was an existing company formed for
the production of motion pictures

                                                     26

<PAGE>

for domestic and international distribution, (2.) Havana Horse Productions, Inc.
which is a talent agency owned by actor Steven Bauer, (3.) the purchase of an
existing studio used in the production of films and programs for television,
(4.) Compravision Home Shopping Network, SA which is an existing South American
company whose focus is the shop-at-home market. The following is a brief summary
of the present status of each of the potential acquisitions:

     Royal Pictures, Inc. - Due diligence related to the assets of and future
potential of Royal Pictures, Inc. has led the Company to the decision not to
pursue the acquisition further.

     Miami based production studio - Due diligence related to the assets of and
future potential of the studio has led to the decision not to pursue the
acquisition further. A contract to purchase the studio was entered into and a
deposit of $50,000 was placed with the seller. The funds for the deposit came
from the sale of a ten percent (10%) interest in the newly formed subsidiary,
CTV Studios, Inc., which was formed during the year. Due to the decision not to
proceed with the acquisition the Company shall seek the return of the deposit.
No assurance can be given that the deposit will be returned.

     Havana Horse Productions - Due to the decision not to proceed with either
the Royal Pictures, Inc. or the studio acquisitions, the Company has no use for
a talent agency. For this reason the decision was made not to pursue the
acquisition further.

     Compravision Home Shopping Network - Although the Company finds the Spanish
language home shopping concept to be of great interest, due diligence related to
the assets of and the complications of a start-up home shopping network have led
to the decision not to pursue the acquisition further.

     Viatel Shopping Network, SA - The decision not to pursue the Spanish
language home shopping network in general and the due diligence performed by the
Company led to the decision not to pursue the acquisition further.

     The Company further announced the formation of a new division, UCI
Telecommunications Group, in anticipation of entering the telecommunications
industry. During the year the Company entered into a letter of intent to
purchase the Mastec, Inc. teleport located in Miami, Florida. Simultaneously,
the Company entered into a letter of intent with a Florida based long distance
carrier whose business is located in Mexico. The revenues of the Mexican based
operation were approximately $26,000,000 per year. A newly formed subsidiary,
UCI Teleport, Inc., was formed during the year. Capital for the new division was
raised via the sale of a ten percent (10%) interest in the new subsidiary. The

following is a brief summary of the potential acquisitions:

     The Mastec Teleport - Subsequent to extensive due diligence by the Company,
the decision was made to pursue the acquisition. Not only did the acquisition of
the teleport alone have merit

                                       27
<PAGE>

but it was discovered that the teleport could substantially improve the
operating profits of the Mexican long distance carrier as over forty percent
(40%) of it's long distance calls were being terminated in the United States.
These calls were being transmitted via the use of other teleport facilities for
which the charge is significant. The use of one's own teleport could create a
substantial savings. The Company placed a deposit with the owners of the
teleport in the amount of $150,000 with closing anticipated in late 1997. The
funds for the deposit came from the sale of a ten percent (10%) interest in the
newly formed subsidiary as mentioned above. The acquisition of the teleport
would have required additional financing in the amount of approximately
$3,350,000 and would have created the need for working capital on the amount of
approximately $2,000,000. The Company was unable to obtain the necessary capital
for this acquisition.

     Long Distance Carrier - Subsequent to extensive due diligence by the
Company, the decision was made to pursue the acquisition. The long distance
carrier had revenues of approximately $26,000,000 per year and a cash flow of
approximately $3,500,000 per year. It was felt that the operation could be
significantly enhanced and expanded into other countries. The purchase price was
to be approximately $9,000,000 and the need for working capital was estimated to
be approximately $5,000,000. The Company was unable to obtain the necessary
capital for this acquisition.

     Subsequent to the end of the year and prior to the release of this report,
the Company entered in to an agreement to sell the newly created subsidiary, UCI
Teleport, Inc. to a company that was interested purchasing the Mastec Teleport.
The sale was completed in January of 1998. The sale price was $420,000 of which
approximately $153,700 was used to retire in minority interest in the UCI
Teleport, Inc. and the remaining balance of approximately $266,500 was applied
to closing expenses and disbursed to the Company. As a result of the sale, UCI
Teleport, Inc., is no longer a subsidiary of the Company.

CAPITAL REQUIREMENTS

     As shown in the accompanying financial statements, the Company incurred at
net loss of ($12,138,042) in 1997, and as of that date, the Company's current
liabilities exceeded its current assets by $10,418,676. These conditions
resulted primarily from the following: (1.) operating losses of ($6,000,713),
(2.) the write off of the deferred tax benefit in the amount of $2,885,000, (3.)
abandonments and impairments in the amount of $3,697,751 and (4.) other
non-recurring charges of $1,047,811. These factors create an uncertainty as to
the Company's ability to continue as a going concern. The Company's auditors
have qualified their opinion on the December 31, 1997 financial statements based
upon a "going concern" provision. It is apparent that a restructuring of the
Company is required in order for the Company to remain a going concern. There

can be no assurance that such restructuring of the Company will be accomplished.

                                       28
<PAGE>

     As of December 31, 1997 the Company is not committed to any expansion
projects in either the automotive subsidiary or the oil and gas subsidiary.
During 1998, the Company will continue to seek additional sources of capital or
financing for the following reasons:

     (1.) To increase overall balance sheet liquidity of the Company such that
the Company's accounts payable and accrued expenses can be paid on a current
basis and to assure continued operations of the Company in the future. There can
be no assurance that sufficient capital and/or debt financing will be available
to the Company to allow the payment of the accounts payable, the accrued
expenses or to support ongoing operating deficits.

     (2.) To reactivate the Company's drilling programs and to acquire producing
oil and gas properties. Successful drilling programs or successful acquisitions
of producing oil and gas properties are a key element in the Company being able
to achieve a positive cash flow in 1998 and beyond. There can be no assurance
that the Company will locate any attractive oil and gas acquisition candidates
nor is there any assurance that the appropriate capital and/or debt financing
will be available to the Company.

     (3.) Although the focus of the Company will be on the growth of the oil and
gas subsidiary, the Company will continue to look for attractive acquisitions in
the automotive subsidiary. In the event such an opportunity should arise,
capital would be required. There can be no assurance that appropriate equity
and/or debt financing will be available to the Company.

ITEM 7.  FINANCIAL STATEMENTS

     The financial statements and supplementary data commence on page F-1.

ITEM 8.  CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

     Not applicable

                                       29

<PAGE>

PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

     The following table sets forth the name, age and position of each current
director and executive officer of the Company:

         Name, Age and Address                Position

Michael F. Thomas, 45                         CEO, President & Director

Suite N-425, 1111 Northshore Dr.
Knoxville, TN 37919

Dwight S. Thomas, 45                          Secretary, Treasurer & Director
4867 North Broadway
Knoxville, TN 37928

Walter L. Helton, 64                          Director
c/o Tennessee Tech University
P.O. Box 5062
Cookeville, TN 38505

Steven Bauer                                  Director

Eugenio (Rolando) Martinez, 75                Director
Apt. 106
1821 Jefferson
Miami Beach, FL 33139

Antonio Julio Gonalez Gimenez                 Director

L. Douglas Keene, Jr., 44                     Executive Vice President
Suite N-425, 1111 Northshore Dr.
Knoxville, TN 37919

     Michael F. Thomas and Dwight S. Thomas are cousins. There are no other
family relationships between any directors or executive officers of the Company.

                                       30
<PAGE>

Michael F. Thomas

     Mr. Thomas, age 45, received a B.A. Degree in Accounting in 1975 from
Tennessee Technological University in Cookeville, Tennessee. He was the manager
of the finance and billing department for the City of Cookeville from 1975 to
1976, and from 1976 to 1977, he was the department manager for Fleetguard, Inc.,
a manufacturer of heavy duty filters, which is a division of Cummins Engine. As
department manager, he supervised thirty employees and coordinated production.
Mr. Thomas founded Calibur Car Wash Systems as a sole proprietorship until
organizing Calibur Systems, Inc. on October 1, 1992. In 1984, Mr. Thomas also
formed TCS, which designs, manufacturers and sells car wash equipment and
related supplies.

Dwight S. Thomas

     Mr. Thomas, age 45, received an A.S. Degree in Criminology in 1975 and a
B.S. Degree in Sociology in 1977 from Tennessee Technological University in
Cookeville, Tennessee. From June, 1981 until march, 1987, he was location
manager for Calibur Car Wash Systems, responsible for approximately twenty
hourly employees, hiring, dismissals, training, labor, inventory controls, daily
reports, bank deposits, customer relations and quality control. From 1987 to
present, he has been the District manager for Calibur Car Wash Systems,
responsible for fifteen salaried managers, hiring and training managers and

communicating daily with the Company's locations. Mr. Thomas was also
responsible for implementing training programs for all phases of operations,
setting goal incentives for management programs and organizing and implementing
testing for OSHA guidelines.

Walter L. Helton

     Mr. Helton, age 64, is the founder of the geology department at Tennessee
Technological University located in Cookeville, Tennessee and has been a member
of the faculty there since 1966. He earned a Doctorate in Geology from the
University of Tennessee in 1967. He has formerly served as a consultant to other
public companies such as Marathon Oil and as a consultant to numerous private
energy companies including B. Ray Thompson Coal Company. Among his other
accomplishments he is widely published in the energy field and has authored many
university level text books as well as been contracted to perform mapping
services for both the States of Tennessee and Kentucky Geological departments.

 .
Steven Bauer

     Mr. Bauer, a Cuban born movie star who made his film debut as Al Pacino's
right hand man and brother-in-law in "Scarface" in 1983. He has substantial
contacts in the entertainment and film industry

                                       31

<PAGE>

Eugenio (Rolando) Martinez

     Mr. Martinez, age 75, born in Atremisa, Cuba. After opposing both the
Batista and Castro regimes, he came to the United States in 1959 and joined the
Central Intelligence Agency. He is currently a resident of Miami, Florida
engaged in consulting on international trade and finance.

Antonio Julio Gonalez Gimenez

     Mr. Gimenez, President of Hotel Tacarigua, C.A., which owns the Hotel
Inter-Continental in Valencia, Venezula. He has extensive experience in
international business affairs led to his appointment to the board. His contacts
in South America's oil industry are extensive and may prove beneficial to future
business of the Company.

L. Douglas Keene, Jr.

     Mr. Keene, age 44, received a B.S. Degree in Business Administration,
majoring in Banking and Finance, from the University of Tennessee in 1976. Mr.
Keene graduated from the Tennessee School of banking at Vanderbilt University in
1980, where he achieved the highest score in the class. He graduated from the
National Commercial Lending School in Norman, Oklahoma in 1981. Mr. Keene's
banking career began in 1976 with the Citizens Bank in Pikeville, Kentucky. He
remained in the banking industry until April, 1985, when he resigned as Vice
President, Commercial Loans, at First Tennessee Bank in Knoxville, Tennessee, to
establish Keene Financial Corporation. He was the principal of Keene Financial

Corporation from April 1983 to August 1993, which was established to provide
mortgage banking services and financial consultation to entrepreneurs in the
Southeast. Mr. Keene joined the Company in August 1993.

     There is no understanding or arrangement between any director or any other
persons pursuant to which such individual was or is to be selected as a director
or nominee of the Company.

     Directors of the Company hold office for a term of three years, until
successors are elected and qualified or until their earlier resignation or
removal. The officers of the Company are elected by the Board of Directors and
hold office until their successors are elected and qualified, until their death
or until they resign or have been removed from office. All corporate officers
serve at the direction of the Board of Directors.

     During the year, Charles B. Lobetti, resigned as Chief Financial Officer of
the Company effective October 31, 1997. In addition, during November of 1997,
Arthur H. VanBuren, Chief Financial Officer appointed after the resignation of
Charles B. Lobetti and a member of the Board of Directors of the Company,
resigned his position as a Board Member and as an officer of the Company.

                                       32
<PAGE>

     Subsequent to the end of the fiscal year and prior to the release of this
report, Neal S. Melnick, company counsel and a member of the Board of Directors
died unexpectedly.

     Steven Bauer, Antonio Gonzalez Gimenez and Eugenio (Rolando) Martinez were
appointed to the Board of Directors during 1997 to fill vacant seats and were
not elected by shareholders. Their remaining on the Board of Directors beyond
the next annual meeting of shareholders will depend upon their being nominated
for the board positions and their ratification by shareholders. David Olinsky
was also appointed to the Board of Directors in 1997 to fill a vacant seat.
However, he resigned soon after the appointment and never participated in any
board meetings or actions.

ITEM 10.  EXECUTIVE COMPENSATION

     The following table sets forth a summary of all compensation awarded to,
earned by or paid to, the Company's Chief executive Officer for services
rendered in all capacities to the Company and its subsidiaries during fiscal
years ended December 31, 1997, 1996 and 1995. No other executive officer was
paid or accrued compensation in excess of $100,000 per annum for such fiscal
years.

<TABLE>
<CAPTION>

                               Summary Compensation Table

Name/Position                Year     Salary ($)       Bonus ($)      Other Compensation      Options
<S>                         <C>      <C>               <C>            <C>                     <C>  


Michael F. Thomas (1),       1997     $350,000         -0-            $123,780 (2)(3)         1,183,334 (4)
Chief Executive Officer
                             1996     $300,000         -0-            $98,682 (5)             1,183,334 (6)

                             1995     $300,000         -0-            -0-                     -0-
</TABLE>

Footnotes to "Summary Compensation Table"

1. As of December 31, 1997, Mr. Thomas held 2,329,214 restricted shares of the
Company's common stock with an aggregate market value of approximately
$116,460.70 based upon a closing price of $.05 per share.

2. For fiscal years ended December 31, 1997, December 31, 1996 and December 31,
1995, Mr. Thomas was paid the sum of $177,000, $356,000, $324,000, respectively,
which approximates the debt service for the lease of three Calibur retail
locations. See ITEM 12 "Certain Relationships and Related Party Transactions".

3. During the fiscal year ended December 31, 1997 the Company issued Michael F.
Thomas 200,000 restricted shares of the Company's common stock as payment for
services. The shares were issued with an aggregate value of $37,500 which
represented 50% of the market value of the stock as of the date issued. In
addition, during the year the Company issued Mr. Thomas 20,000 shares for his
services related to the Board of Directors. Said shares were issued at market
value as of the date of issuance which was $.25 for an aggregate amount of
$5,000. In addition, during the year the Company paid a fee to Mr. Thomas of
$81,280 which represents a one percent (1%) fee charged to the Company for Mr.
Thomas' personal guaranty of the Company's debt.

                                       33
<PAGE>

4. Represents four (4) options granted to Mr. Thomas. All of which have been
replaced with options having a lower exercise price.

5. Represents a one percent (1%) fee charged to the Company for Mr. Thomas'
personal guaranty of the Company's debt.

6. Represents four (4) options granted to Mr. Thomas. All of which have been
replaced with options having a lower exercise price.

Compensation of Directors

     In January of 1997 replacement options with a lower exercise price of $.26
per share were granted to directors to replace the options granted to directors
in fiscal year 1996. The lower price represents the twenty day average price of
the Company's shares prior to the date of the grant as reported by Nasdaq. The
lower price was granted to all directors with no distinction as to whether the
director was considered inside or outside the Company. The term of the
replacement options remained the same as the options which were replaced. The
replacement options were granted in order to provide the incentive for increased
service to the Company by the option holders, which was negated by the decline
in the market price of the Company's Common Stock.


Employment Agreements

     On January 17, 1997 the Company entered into a five (5) year employment
agreement with Charles B. Lobetti. The agreement provides that Mr. Lobetti will
act as Chief Financial Officer of the Company. Mr. Lobetti resigned in October
of 1997.

     On July 7, 1997 the Company entered into a five (5) year employment
agreement with Arthur Van Buren. The agreement provides that Mr. Van Buren will
act as Controller of the Company. Mr. Van Buren resigned as both an officer and
director of the Company in November of 1997.

     The following table sets forth certain information relating to stock option
grants during fiscal 1997 to the Company's Chief Executive Officer:


<TABLE>
<CAPTION>
                               Option Grants In Last Fiscal Year
                                       Individualized Grants


   Name                    Number of Securities      Percent of Total        Exercise or      Expiration
                           Underlying Options/       Options/SARS            Base Price       Date
                           SAR's                     Granted To              ($, Sh.)
                           Granted (#)               Employees in
                                                     Fiscal 1997
<S>                        <C>                      <C>                      <C>              <C>  
Michael F. Thomas            -0-                           NA                   NA               NA

</TABLE>
                                       34

<PAGE>

     The following table sets forth certain information relating to option
exercises effected during fiscal year 1997, and the value of options held as of
such date by the Company's Chief Executive Officer for 1997:


<TABLE>
<CAPTION>

                   Aggregate Option Exercises For Fiscal 1997
                           and Year End Option Values

Name              Shares Acquired           Value             Number of Securities      Value of Unexercised
                  On Exercise               Realized          Underlying Unexercised    In-The-Money
                                                              Options/SAR's as of       Options/SAR's as of
                                                              December 31, 1997         December 31, 1997
<S>                        <C>              <C>               <C>                       <C>  
Michael F. Thomas      -0-                   -0-               1,183,334/0                     -0-


</TABLE>

     The following table sets forth certain information regarding repricing of
options held by the Chief Executive Officer of the Company during the past
fiscal year.

<TABLE>
<CAPTION>
           Option Repricing During Fiscal Year Ended December 31, 1997

Name              Date     Number of        Market Price      Exercise          New Exercise     Length of
                           Securities       of Stock at       Price at Time     Price ($)        Original Option
                           Underlying       Time of           of Repricing                       Term Remaining
                           Options          Repricing or      or Amendment                       at date of
                           Repriced or      Amendment         ($)                                Repricing or
                           Amended (#)      ($)                                                  Amendment
<S>           <C>          <C>              <C>               <C>               <C>              <C>  
Michael F.     1/22/97       33,334         $ .38             $ 1.00            $ .26            9/7/99
  Thomas                    600,000         $ .38             $ 1.00            $ .26            11/20/00
                            500,000         $ .38             $ 1.00            $ .26            9/18/06
                             50,000         $ .38             $ 1.00            $ .26            12/17/01

</TABLE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information with respect to the
ownership of the Company's Common Stock as of March 31, 1998 by (i) those
persons known by the Company to be the beneficial owners of more than 5% of the
total number of outstanding shares of Common Stock, (ii) each director and
executive officer, and (iii) all officers and directors as a group:

                                       35

<PAGE>


Name and Address of                       Amount of             Approximate
Beneficial Owner                          Beneficial            Percent of Class
                                          Ownership(1)

Michael F. Thomas                         4,162,548(2)            14.1%
Suite N-425  1111 Northshore Dr.
Knoxville, TN 37919

Dwight S. Thomas                          396,384(3)               1.3%
4867 N. Broadway
Knoxville, TN 37918

Walter L. Helton                          118,000(4)            Less than 1%
c/o Tennessee Tech University
P.O. Box 5062
Cookeville, TN 38505


L. Douglas Keene, Jr.                     281,830(5)            Less than 1%
Suite N-425  1111 Northshore Dr.
Knoxville, TN 37919

Eugenio (Rolando) Martinez                175,000(6)            Less than 1%
Apt. no. 106
1821 Jefferson
Miami Beach, Florida 33139

Antonio Julio Gonzalez Gimenez                  0                   NA

Steven Bauer                                    0                   NA

All directors and Officers as             5,133,762(7)            17.4%
a group


Footnotes to "Security Ownership of Certain Beneficial Owners and Management"

1. Unless otherwise stated, all shares of common stock are directly held with
   sole voting and dispositive power.
2. Consists of 2,329,214 shares held directly and options to purchase 
   1,833,334 shares.
3. Consists of 63,050 shares held directly and options to purchase
   333,334 shares.
4. Consists of 68,000 shares held directly and options to purchase
   50,000 shares.
5. Consists of 31,830 shares held directly and options to purchase 
   250,000 shares.
6. Consists of 175,000 shares held directly.
7. Consists of 2,667,094 shares held directly and options to
   purchase 2,466,668 shares.


                                       36

<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     On July 1, 1997 the Company entered into a five year agreement with a
corporation engaged in the manufacturing and distribution of items related to
the Company's automotive subsidiary which is controlled by, Michael F. Thomas,
the Company's President and Chief Executive Officer to purchase exclusively, in
areas served by the related company, its gasoline inventories at a price of $.01
per gallon above the rack price. Purchases under this agreement during 1997 were
approximately $525,000. In 1997 and 1996, transactions between the Company and
the related corporation included equipment sales and certain ongoing
construction activities conducted for the Company by the corporation. Equipment
sales and construction activities totaled approximately $323,271 and $182,603,
in 1997 and 1996, respectively.

     During 1997, the Company sold certain existing locations to its President

and Chief Executive Officer and to a member of its Board of Directors. The
Company recognized a gain of $248,456 on the sale of a retail location to the
board member in exchange for his assumption of related debt of $356,957 and the
payment of $152,385 in cash. The Company recognized a net loss of $38,944 on the
sale of retail locations to the President and Chief Executive Officer. In
exchange for the locations the Company accepted a receivable of $300,000 from
the officer who assumed liabilities of $3,028,744. Subsequent to the end of the
year and prior to the release of this report, the Company collected the
receivable from the officer. For more information on this topic refer to ITEM 6.
- "Management's Discussion and Analysis or Plan of Operations" contained in this
report.

     The Chief Executive Officer leased certain properties to the Company for a
monthly rental of $27,000. By mutual agreement between the Company and the
officer, the leases were terminated effective June 30, 1997. In exchange for
termination of the leases, fees to be paid under the officer's employment
contract were reduced by an annual rate of $100,000 for the remainder of 1997
and in future years. The lease payments on these properties, included on the
income statements among general and administrative expenses, amounted to
approximately $177,000 and $356,000 in 1997 and 1996, respectively. For more
information on this topic refer to ITEM6. - "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in this
report.

     In other lease transactions with the Chief Executive Officer, the Company
rented, under month-to-month operating leases, certain vehicles. Expenses
related to these transactions were approximately 25,000 and $45,000 in 1997 and
1996, respectively.

                                       37
<PAGE>

                                   SIGNATURES

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

                                      UNITED PETROLEUM CORPORATION

                                      (Registrant)

                                        By: /s/ Michael F. Thomas
                                            ------------------------------
                                           Michael F. Thomas, President

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

       Signature                        Title                      Date
/s/ Michael F. Thomas
---------------------               Chief Executive Officer   April 15, 1998
Michael F. Thomas                   and Director



/s/ Dwight S. Thomas
---------------------               Secretary, Treasurer      April 15, 1998
Dwight S. Thomas                    and Director


/s/ Walter L. Helton
----------------------              Director                  April 15, 1998
Walter L. Helton



---------------------               Director                  April 15, 1998
Eugenio Martinez


----------------------              Director                  April 15, 1998
Antonio Julio Gimenez


----------------------              Director                  April 15, 1998
Steven Bauer

                                       38


<PAGE>

PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-k

1. Financial Statements

Balance Sheets
Statement of Income
Statement's of Stockholders' Equity
Statement of Cash Flows

2. Financial Statement Schedules:

Schedule II - Accounts Receivable from
Related Parties,
Underwriters, Promotors,
and Employees other than
Related Parties

Schedule X - Supplementary Income Statement Information

3. Exhibits

      (a) The following documents heretofore filed by the Company with the
Securities and Exchange Commission are hereby incorporated by reference:

      3.1 Initial Articles of Incorporation

      3.2 Bylaws

      (i) from the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1991;

      Exhibit Number and Description

      3.3 Minutes of Special Meeting of Stockholders authorizing 6 for 1 forward
stock split

      3.4 Agreement and Certificate of Merger pursuant to which Inited Petroleum
Delaware merged into the Company.

      3.5  Certificate of Authority to do business in the State of Kentucky

                                         39

<PAGE>

      3.6 Certificate of Amendment authorizing 1 for 10 reverse split

      3.7 Certificate of Withdrawl of authority to do business in the State of
      Kentucky


      3.8 Certificate of Amendment authorizing increase in capitalization to
      50,000,000 shares

      3.9 Amendment to Bylaws

      20 Notice to Stockholders

      (ii) from the Company's Current Report on Form 8-K dated April 22, 1993

      Exhibit Number and Description

      2.1 Agreement and Plan of Merger with following exhibits thereto
               (not numbered in original filing)

               Exhibit A        Calibur Systems Stockholder

               Exhibit B        United Petroleum Audited Financial
                                Statements for the periods ended
                                June 30, 1992 and 1991

               Exhibit C        Exceptions to United Petroleum
                                Financial Statements

               Exhibit D        United Petroleum Corporation Material Contracts

               Exhibit E-1      Calibur Systems Balance Sheet dated October 1, 
                                1992

               Exhibit E-2      Description Schedule listing real and personal
                                property to be assigned by the Calibur Systems
                                Stockholder to Calibur Systems

               Exhibit E-3      Real and personal property which is not being 
                                assigned by the Calibur Systems Stockholder 
                                to Calibur Systems

               Exhibit F        Exceptions to Calibur Systems Financial 
                                Statements

               Exhibit G        Calibur Systems Material Contracts


                                       40

<PAGE>

               Exhibit H        Investment Letter

               Exhibit I        Calibur Systems Compliance Certificate

               Exhibit J        United Petroleum Compliance Certificate

      (iii) from the Company's Transition Report on Form 10-KSB for the period
      June 30, 1993 to December 31, 1993;


      Exhibit Number and Description

      3.1 Certificate of Amendment authorizing 3 for 4 reverse split (referenced
      to in the original filing as number 3)

      16.1 Letter of Rides and Associates regarding change of accountants

      16.2 Letter of Cherry, Beckert & Holland regarding change of accountants

      10.1 Jackson County Gas Purchase Agreement

      10.2 Lease Agreement

      29 Notice

      2.3 Articles of Merger regarding the Plan (referred to in original filing
      as number 30)

      (iv) from the Company's Annual Report on Form 10-KSB for fiscal year
ended December 31, 1993;

      Exhibit Number and Decsription

      10.3 Pennzoil Distributorship Agreement (referred to in original filing
      as number 10)

      20.1 Lease Schedule of Kentucky Leases

      20.2 Engineering Evaluation of the Kentucky Oil and gas Leases

      23 Consent of R.W. Coburn, Registered Petroleum Engineer

      99 October 15 Supplement to Confidential Limited Offering and Exchange
Offer Memorandum

                                       41

<PAGE>

      (v) from the Company's Current Report on Form 8-K (date of report:
December 20, 1994):

      Exhibit Number and Descriptions

      10.4 Drilling and Exploration Agreement between Enron Oil & Gas Company,
      Jackson-United Petroleum Corporation and United Petroleum Corporation 
      dated November 15, 1994 (referred to in original filing as number 10.1)

      (vi) form the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1994;

      Exhibit Number and Description


      4.0 1994 Stock Option and Stock Bonus Plan

      4.1 1995 Amendment to 1994 Stock Option and Stock Bonus Plan

      10.5 License Agreement dated Juine 29, 1993 between TCS Systems, Inc. and
      Calibur Systems, Inc. (referred to in original filing as number 10.1)

      10.6 Lease Modification Agreement dated as of may 1, 1994 between Michael
      F. Thomas and Calibur Systems, Inc. (referred to in original filing as
      number 10.3)

      10.7 Distributor Sales Agreement dated October 26, 1994 between Calibur
      Systems, Inc. and Exxon Company USA (referred to in original filing as
      number 10.3)

      23 Consent of R. W. Coburn, Registered Petroleum Engineer

      99.1 Schedule of Kentucky Leases

      (vii) from the Company's Annual Report on Form 10-KSB for the fiscal 
year ended December 31, 1995;

      Exhibit Number and Description

      99.2 Engineering Evaluation of the Kentucky Oil and gas Leases

      (viii) from the Company's Current Report on Form 8-K (date of rep[ort:
November 18, 1996):


                                       42
<PAGE>


      Exhibit Number and Description

      16.3 Letter dated February 20, 1997 from Morton S. Robson to larry Felts
      of Coopers & Lybrand (referred ta as number 16.1 in original filing)

      16.4 Letter dated February 28, 1997 from Coopers & Lybrand to the
      Securities and Exchange Commission (referred to as number 16.2 in
      original filing)

      (ix) from the Company's Annual Report on Form 10-KSB for fiscal year 
ended december 31, 1996:

      Exhibit Number and Description

      3.10 Certificate of Amendment to the Certificate of Incorporation dated
      March 14, 1997

      10.8 Employment Agreement between the Company and Michael F. Thomas

      10.9 Promissory Note made by Strategic Holdings Corporation to the order

      of the Company in the amount of $10,776,660.90 dated October 18, 1996

      10.9.1 Security Agreement granted by Strategic Holdings Corporation to
      the Company dated December 11, 1996

      10.9.2 Joint Unanimous Written Consent of the Shareholders and Directors
      of Strategic Holdings Corporation authorizing execution of promissory
      note to the order of the Company in the amount of $10,776,660.90

      10.9.3 Escrow Agreement between the Company and Strategic Holdings
      Corporation dated December 11, 1996

      10.10 Consulting Agreement between the Company and Mongoose Investments,
      LLC dated December 18, 1996

      21 List of Subsidiaries

      (b)  the following documents are filed herewith:

      1.0  Letter from Nasdaq to the Company dated October 3, 1997

      11   Schedule Re: Computation of earnings

      23.1 Independents Auditors Consent (Reel & Swafford)


                                       43

                                     
<PAGE>

                          United Petroleum Corporation
                                       and
                                  Subsidiaries

                        Consolidated Financial Statements

                           December 31, 1997 and 1996








                              REEL & SWAFFORD, PLLC
                          Certified Public Accountants


<PAGE>
                  United Petroleum Corporation and Subsidiaries
                        Consolidated Financial Statements
                           December 31, 1997 and 1996

============================================================================



CONTENTS                                                                Page

    Report of Independent Auditors                                         2
    Consolidated Balance Sheets                                            3
    Consolidated Statements of Operations                                  4
    Consolidated Statements of Changes in Stockholders' Equity             5
    Consolidated Statements of Cash Flows                                  6
    Notes to Consolidated Financial Statements                             7


                                  
<PAGE>

                              REEL & SWAFFORD, PLLC
                          Certified Public Accountants

                                                        
Office Address                                          
222 Second Avenue N., Suite 416           American Institute of   
Nashville, Tennessee  37201            Certified Public Accountants      
(615) 242-0100 Telephone               SEC Practice Section-AICPA
                             Tennessee Society of Certified Public Accountants  

                                                                            
                                                                 Mailing Address
                                                               P. O. Box  198664
                                                       Nashville, TN  37219-8664
                                                        (615) 297-5215 Facsimile
                                                                            


                         Report of Independent Auditors


     To the Board of Directors and Stockholders
     United Petroleum Corporation and Subsidiaries

     We have audited the accompanying consolidated balance sheet of United
     Petroleum Corporation and Subsidiaries (the Company) as of December 31,
     1997 and 1996, and the related consolidated statements of operations,
     changes in stockholders' equity and cash flows for the 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 audits.

     We conducted our audits 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 audits
     provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
     in all material respects, the consolidated financial position of United
     Petroleum Corporation and Subsidiaries as of December 31, 1997 and 1996 and
     the results of its operations and its cash flows for the years then ended
     in conformity with generally accepted accounting principles.

     The accompanying 1997 financial statements have been prepared presuming
     that the Company will continue as a going concern. As discussed in Note 18
     to the financial statements, the Company has suffered recurring losses and
     is in violation of certain loan and debenture covenants that raise

     substantial doubt about its ability to continue as a going concern.
     Management's plans in regard to those matters are also described in Note
     18. The accompanying financial statements do not include all adjustments
     that might result from the outcome of this uncertainty.

     REEL & SWAFFORD, PLLC

     Certified Public Accountants

     Nashville, Tennessee
     April 14, 1998


<PAGE>
                  United Petroleum Corporation and Subsidiaries
                           Consolidated Balance Sheets
                           December 31, 1997 and 1996

===============================================================================
<TABLE>
<CAPTION>


                                                                              1997                1996
                                                                        -----------------   -----------------
<S>                                                                   <C>                 <C> 
ASSETS

Current Assets
    Cash                                                              $          166,180  $           19,759
    Marketable securities                                                             -0-            122,373
    Accounts and notes receivable                                                112,377             472,123
    Inventories                                                                  321,948             634,265
    Other current assets                                                         373,413              71,081
                                                                        -----------------   -----------------

                                                                                 973,918           1,319,601
Property and Equipment
    Gas and oil properties, net                                                4,798,795           8,236,094
    Premises and equipment, net                                                8,519,499          12,875,902
                                                                        -----------------   -----------------

Deferred Tax Assets                                                                   -0-          2,972,100
Intangibles and Other Assets                                                     408,772           1,663,553
                                                                        -----------------   -----------------

                                              Total Assets            $       14,700,984  $       27,067,250
                                                                        =================   =================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
    Accounts payable                                                  $          534,867  $          636,966
    Accrued expenses                                                           1,368,097             678,533

    Bank line of credit                                                          247,829             250,000
    Current maturities of long-term debt                                       9,241,801           1,669,836
                                                                        -----------------   -----------------

                                                                              11,392,594           3,235,335

Long-Term Liabilities
    Long-term debt, less current maturities                                    2,601,686          22,229,143
    Unearned revenue                                                                  -0-            200,000
    Deferred Income Taxes                                                             -0-             87,100
                                                                        -----------------   -----------------

                                            Total Liabilities                 13,994,280          25,751,578
                                                                        -----------------   -----------------

Minority Interest in Consolidated Subsidiaries                                   200,000                  -0-

Stockholders' Equity
     Cumulative convertible preferred stock - $.01 par value
           Series A, 18%                                                              99                  -0-
           Series B,   8%                                                             18                  -0-
    Common stock - $.01 par value, 50,000,000 shares
       authorized, 29,279,515 and 11,828,156 issued                              292,795             118,281
    Additional paid-in capital                                                26,036,305          13,696,878
    Accumulated deficit                                                      (24,635,081)        (11,262,484)
                                                                        -----------------   -----------------

                                                                               1,694,136           2,552,675
    Less: Stockholder note receivable                                         (1,187,432)         (1,237,003)
                                                                        -----------------   -----------------

                                          Total Stockholders' Equity             506,704           1,315,672
                                                                        -----------------   -----------------

                                                                      $       14,700,984  $       27,067,250
                                                                        =================   =================
</TABLE>

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

                                                                F3
<PAGE>

                  United Petroleum Corporation and Subsidiaries
                      Consolidated Statements of Operations
                     Years Ended December 31, 1997 and 1996

==============================================================================

<TABLE>
<CAPTION>


                                                                              1997                1996

                                                                        -----------------   -----------------
<S>                                                                   <C>                 <C>  

Sales                                                                 $        9,720,861  $       13,234,309

Cost of Sales                                                                  7,333,910           9,791,491
                                                                        -----------------   -----------------

    Gross Profit                                                               2,386,951           3,442,818

Operating Expenses
    Selling, general and administrative                                        3,540,740           4,014,670
    Shareholder relations expense                                                101,362             292,014
    Non-recurring charges -
       Loss on transactions with brokers                                              -0-         11,041,671
       Loss on impairment of assets                                            3,697,751                  -0-
       Other                                                                   1,047,811             738,201
                                                                        -----------------   -----------------

                                                                               8,387,664          16,086,556
                                                                        -----------------   -----------------

    Loss from Operations                                                      (6,000,713)        (12,643,738)
                                                                        -----------------   -----------------

Other Income (Expense):
    Lease and other income                                                        73,125              93,666
    Amortization of loan costs                                                  (528,548)           (457,554)
    Interest expense, including amortization of discount
       on convertible debentures of $1,307,229 and $950,418                   (2,796,906)         (2,044,667)
                                                                        -----------------   -----------------

                                                                              (3,252,329)         (2,408,555)
                                                                        -----------------   -----------------

Income (Loss) Before Provision for Income Taxes                               (9,253,042)        (15,052,293)

Provision for Income Taxes
    Current                                                                           -0-                 -0-
    Deferred                                                                   2,885,000          (3,480,000)
                                                                        -----------------   -----------------
                                                                               2,885,000          (3,480,000)
                                                                        -----------------   -----------------

Net Income (Loss)                                                     $      (12,138,042) $      (11,572,293)
                                                                        =================   =================

Basic Earnings (Loss) per Share                                       $            (0.65)              (2.04)
                                                                        =================   =================


Diluted Earnings (Loss) per Share                                     $            (0.65)              (2.04)
                                                                        =================   =================



</TABLE>

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

                                                                F4
<PAGE>
                  United Petroleum Corporation and Subsidiaries
           Consolidated Statements of Changes in Stockholders' Equity
                     Years Ended December 31, 1997 and 1996

==============================================================================
<TABLE>
<CAPTION>


                                             Series A    Series B              Additional                  Stockholder      Total   
                                            Preferred   Preferred    Common     Paid-In     Accumulated        Note
                                              Stock       Stock      Stock      Capital       Deficit       Receivable
                                            ----------  --------- ----------  -----------  -------------   ------------  -----------
<S>                                         <C>          <C>        <C>      <C>          <C>             <C>            <C> 

Balance, January  1, 1996                   $  -0-       $ -0-      $ 46,028 $ 5,681,124  $    309,809    $(1,359,376)   $4,677,585
 Shares issued to effect acquisitions
     of oil and gas properties                                         3,850     951,173                                    955,023
 Shares issued in cancellation of warrants                                23         (23)                                        -0-
 Shares issued for services                                            2,775     544,303                                    547,078
 Shares issued to effect conversion of
     debentures, net of costs of issuance,
     discounts and fees of $3,707,298                                 64,370   6,228,332                                  6,292,702
 Payments received on stockholder note                                                                        122,373       122,373
 Shares issued in payment of interest
     on debentures                                                     1,235     129,369                                    130,604
 Issuance of options to non-employees                                            162,600                                    162,600
 Net loss                                                                                  (11,572,293)                 (11,572,293)
                                            ----------  --------- ----------  ------------ --------------- ------------  -----------

Balance, December 31, 1996                     -0-          -0-      118,281  13,696,878   (11,262,484)    (1,237,003)    1,315,672

 Dividends declared -
    Series A preferred shares at 18%                                                        (1,160,619)                  (1,160,619)
    Series B preferred shares at 8%                                                            (73,936)                     (73,936)
 Issuance of common shares for payment
    of dividends, Series A preferred                                  29,981     717,900                                    747,881
 Issuance of common shares for payment
    of interest on debentures                                         27,700   1,066,146                                  1,093,846
 Issuance of common shares for services                               45,536     778,373                                    823,909
 Conversion of debentures to Series A
    preferred Stock, net of related 
    cost of insurance, discounts and 
    fees of $1,703,962                          99                             8,284,739                                  8,284,838
 Issuance of Series B Preferred stock 
    in settlement of litigation with 
    debenture holder                                         18                      (18)                                        -0-

 Conversion of debentures to common
    stock, net of related cost of issuance,
    discounts and fees of $321,586                                    71,297   1,492,287                                  1,563,584
 Collections on stockholder note receivable                                                                    49,571        49,571
 Net loss                                                                                  (12,138,042)                 (12,138,042)
                                            ----------  --------- ----------  ----------  -------------    -----------  -----------

                                                $ 99       $ 18     $292,795 $26,036,305  $(24,635,081)   $(1,187,432)   $  506,704
                                            ==========  ========= ==========  ==========   ============    ============  ===========

</TABLE>

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

                                                                F5

<PAGE>
                  United Petroleum Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                     Years Ended December 31, 1997 and 1996

==============================================================================
<TABLE>
<CAPTION>

                                                                                 1997                 1996       
                                                                           ---------------    -----------------
<S>                                                                         <C>                 <C> 
Operating Activities                                                       
    Net income (loss)                                                       $ (12,138,042)      $  (11,572,293)
    Adjustments to reconcile net income (loss) to net                      
        cash provided by (used in) operating activities:                   
            Depreciation and amortization                                       1,578,772            2,074,549
            Deferred income taxes                                               2,885,000           (3,480,000)
            Write-downs for asset impairment and loss on sales                  3,697,751                   -0-
            Write-off of receivables                                               12,423           11,041,671
            Write-off of prepaid costs for withdrawn offering                          -0-              45,819
            Stock and options issued for services                                 823,909              671,528
            Stock issued in payment of interest                                 1,093,846              130,604
            Changes in operating assets and liabilities:                   
                Decrease (increase) in -                                   
                    Notes and accounts receivable                                 347,323                1,830
                    Inventories                                                   312,317              (61,457)
                    Other current assets                                         (302,332)             244,402
                Increase (decrease) in -                                   
                    Accounts payable and accrued expenses                         704,173              370,699
                                                                           ---------------    -----------------
                                                                           
                      Net Cash Provided by (Used in) Operating Activities        (984,860)            (532,648)
                                                                           ---------------    -----------------
                                                                           
Investing Activities                                                       
    Acquisition of gas and oil properties                                         (57,452)          (4,289,237)
    Acquisition of other property and equipment                                (1,646,192)          (2,996,983)

    Investment in franchise rights and other                                           -0-             (32,170)
    Sale of minority interest in subsidiary                                       200,000                   -0-
    Proceeds from the sale of fixed assets                                        522,527                   -0-
    Proceeds from the sale of marketable securities                               171,944                   -0-
    Investment in notes receivable                                                     -0-         (11,041,671)
                                                                           ---------------    -----------------
                                                                           
                      Net Cash Used in Investing Activities                      (809,173)         (18,360,061)
                                                                           ---------------    -----------------
                                                                           
Financing Activities                                                       
    Proceeds from issuance of convertible debentures                       
        net of discount of $491,666 and $6,828,500                              1,813,425           20,631,500
    Payment of issuance cost of debentures                                        (63,425)          (2,890,551)
    Proceeds from short-term borrowings                                           100,224              276,000
    Repayments of short-term borrowings                                          (102,395)            (276,000)
    Proceeds from issuance of debt                                                395,895            2,881,549
    Principal payments on debt                                                   (203,270)          (1,747,971)
                                                                           ---------------    -----------------
                                                                           
                      Net Cash Provided by Financing Activities                 1,940,454           18,874,527
                                                                           ---------------    -----------------
                                                                           
Decrease in Cash and Cash Equivalents                                             146,421              (18,182)
                                                                           
Cash and Cash Equivalents, Beginning of Period                                     19,759               37,941
                                                                           ---------------    -----------------
                                                                           
Cash and Cash Equivalents, End of Period                                   $      166,180   $           19,759
                                                                           ===============    =================
</TABLE>                                                                

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

                                                                F6

<PAGE>

================================================================================
                  United Petroleum Corporation and Subsidiaries
                          Notes to Financial Statements
                     Years Ended December 31, 1997 and 1996
================================================================================

Note 1 - Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation - The consolidated
financial statements include the accounts of United Petroleum Corporation and
its wholly owned subsidiaries, Calibur Systems, Inc. and Jackson-United
Petroleum Corporation, and its majority owned subsidiaries, CTV Studios, Inc.
and UCI Teleport, Inc. (the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. Results of operations of
companies purchased are included from the dates of acquisition.


Business Activities - The Company's business activities are conducted through
its subsidiaries and are contained within two primary industry segments. Calibur
Systems, Inc. operates convenience stores, express lube centers, and car washes
providing a variety of car wash and detail services, gasoline, automotive, food
and beverage and related products throughout eastern Tennessee and northern
Georgia. Jackson-United Petroleum Corporation is in the business of developing
gas and oil properties and marketing gas and oil production. The Company's gas
and oil properties are located within the United States, primarily in eastern
Kentucky and western Pennsylvania, and include producing properties and
properties under development. CTV Studios, Inc. and UCI Teleport, Inc. were
formed to conduct activities in the broadcasting industry and had not commenced
operations as of December 31, 1997.

Revenue Recognition - The Company recognizes its ownership interest in gas and
oil sales as revenue. It records revenues on an accrual basis, estimating
volumes and prices for any months for which actual information is not available.
If actual production sold differs from its allocable share of production in a
given period, such differences would be recognized as deferred or accounts
receivable.

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. Actual results
inevitably will differ from those estimates and such differences may be material
to the financial statements.

Cash and Cash Equivalents - The Company considers cash on hand, deposits in
banks, certificates of deposit and investments with original maturities of three
months or less to be cash and cash equivalents.

Marketable Securities - The Company carries marketable securities at current
market value as listed by national securities exchanges.

Inventories - Inventories are stated at the lower of cost or market. Cost of
gasoline sales is determined using the first-in, first-out method. Cost of
convenience store sales is determined using the average retail cost method.

Property and Equipment -

Costs of Development and Expansion Activities When the Company undertakes
significant development and expansion activities to add new retail outlets,
modernize and expand existing locations, acquire additional gas and oil
properties, and continue development of existing gas and oil properties,
additional costs of staffing and overhead is allocated to these assets along
with an estimate of incremental overhead costs. Additionally, it is the
Company's policy to capitalize the cost of the estimated time of employees and
independent contractors that are specifically assigned to these activities,
including the Company's chief executive officer, to the assets



                                       F7

<PAGE>


===============================================================================
                  United Petroleum Corporation and Subsidiaries
                     Notes to Financial Statements-Continued
                     Years Ended December 31, 1997 and 1996

===============================================================================

Note 1 - Summary of Significant Accounting Policies - Continued

    Costs of Development and Expansion Activities (continued) under construction
    or development. These costs totaled $372,284 for 1997 and $818,538 for 1996.

    Retail Operations Property and equipment are recorded at cost including
    direct labor and allocations of overhead for internally constructed and
    developed assets. Expenditures for major renewals and improvements are
    capitalized. Expenditures for maintenance and repairs greater than $1,000
    are capitalized. Other repairs and maintenance expenditures are charged to
    expense as incurred.

    The Company generally depreciates property and equipment on a straight-line
    basis over the estimated useful lives of the related assets: 15 to 20 years
    for used buildings and improvements, 6 to 10 years for equipment, 3 to 4
    years for vehicles and 40 years for new construction.

    Gas and Oil Properties The Company follows the full cost method of
    accounting for gas and oil properties. Accordingly, all costs associated
    with acquisition, exploration and development of gas and oil reserves,
    including directly related overhead costs, are capitalized.

    All capitalized costs of gas and oil properties, including the estimated
    future costs to develop proved reserves, are amortized on the
    unit-of-production method using estimates of proved reserves. Investments in
    unproved properties and major development projects are not amortized until
    proved reserves associated with the projects can be determined or until
    impairment occurs.

    In addition, the capitalized costs are subject to a "ceiling test," which
    basically limits such costs to the aggregate of the "estimated present
    value," discounted using a 10-percent rate on future net revenues from
    proved reserves, based on current economic and operating conditions, plus
    lower of cost or fair market value of unproved properties.

    Capitalized Interest The Company capitalizes interest on construction in
    progress and expenditures made in connection with exploration and
    development projects that are not subject to current amortization. Interest
    is capitalized only for the period that activities are in progress to bring
    these projects to their intended use and is amortized over the expected life
    of the related asset.

Loan and Debt Issuance Costs - Loan and debt issuance costs related to
financings are stated at cost and are amortized over the life of the obligation
using methods approximating the interest method. Upon retirement of the related
debt, any unamortized loan costs are charged to expense.


Income Taxes - Deferred taxes are provided in accordance with Statement of
Financial Accounting Standards Number 109, Accounting for Income Taxes. Deferred
taxes are provided for accumulated temporary differences due to basis
differences for assets and liabilities for financial reporting and income tax
purposes, including alternative minimum taxes. The Company's temporary
differences are primarily due to different financial reporting and tax 


                                       F8
<PAGE>

methods of accounting for depreciation, intangible drilling costs and net
operating loss carryforwards.

Note 1 - Summary of Significant Accounting Policies - Continued

Stock Options - The Company measures its equity transactions with non-employees
using the fair value based method of accounting prescribed by Statement of
Financial Accounting Standards No. 123. The Company continues to use the
intrinsic value approach as prescribed by APB Opinion No. 25 in measuring equity
transactions with employees. Accordingly, no compensation cost has been
recognized for the stock option plan with employees.

Earnings per Share - In December 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Under SFAS 128,
basic earnings per share is based on the weighted average number of common
shares outstanding during the year, whereas diluted earnings per share also
gives effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares include convertible
debentures, preferred stock and stock option plan shares.



Note 2 - Statements of Cash Flows Supplemental Disclosures



<TABLE>
<CAPTION>
                                                                          1997                  1996
                                                                   -------------------    ------------------
<S>                                                              <C>                    <C>    
Cash paid for:
      Interest                                                   $            757,493   $           986,359
      Interest capitalized                                                     62,505               372,141
      Income taxes                                                                 -0-                   -0-
Noncash transactions:
      Sale of retail outlets under debt
          assumption agreements                                             4,601,931               609,421
      Reduction of stockholder note receivable
      in exchange for marketable securities                                        -0-              122,373
      Prepaid issuance costs recognized through equity accounts                    -0-              137,454
      Issuance of common stock for -
          Debentures (Note 8)                                               9,848,422             6,292,702
          Services, net of amounts capitalized as retail property,
              plant and equipment, oil and gas properties; and
              other assets (Note 11)                                          823,909               671,528
          Payment of interest on debentures                                 1,093,846                    -0-
          Payment of dividends on preferred stock                             747,881                    -0-
          Acquisition of gas and oil properties (Note 3)                           -0-              955,023
          Property, plant and equipment                                            -0-               28,400
          Other assets                                                             -0-                9,750
          Other                                                                    -0-                   23

</TABLE>

                                       F9
<PAGE>


Note 3 - Acquisitions and Arrangements for Oil & Gas Properties

The Company has working and participating interests and a farmout agreement in
various gas and oil properties as follows.

Note 3 - Acquisitions and Arrangements for Oil & Gas Properties - Continued

Penn Virginia - The Company has a farmout agreement with Penn Virginia Oil & Gas
Corporation that permits the Company to drill up to three wells in Eastern
Kentucky on proved undeveloped properties. During 1996, the Company successfully
completed the wells related to this agreement. The cumulative costs of these
wells totaled approximately $796,000. Revenue from production of one of these
wells totaled $31,050 and $16,650 for 1997 and 1996, respectively

Eastern Kentucky - During 1996, the Company acquired a lease in Martin County,
Kentucky and successfully completed one well at an approximate cost of $205,000
which produced revenues for 1997 and 1996 of approximately

$12,000 in 1996.

Central Kentucky - During 1996 the Company participated in the drilling and
completion of a well in Clay County, Kentucky. Cumulative costs for this well
approximated $75,000 and revenue from the well totaled $5,590 and $5,500 for
1997 and 1996.

Pennsylvania - In September 1996, the Company entered into a joint venture
agreement with Kastle Resources Enterprises, Inc. (Kastle) which provides the
Company with a seventy-five percent (75%) ownership of each of the sixteen (16)
wells drilled and completed under the terms of the agreement. The Company's cost
for these wells approximated $3,000,000. The Company is responsible for its pro
rata share of the cost of operations. The wells are located in Crawford County,
Pennsylvania. Revenue from these wells totaled approximately $252,063 and
$58,000 for 1997 and 1996.

Ohio - During 1996, the Company participated in the drilling of three wells in
Ohio under the Kastle joint venture agreement at an approximate cost of
$270,000. No presence of marketable quantities of hydrocarbons was discovered in
these wells.

Missouri - In August 1996, the Company entered into a pilot participation
agreement with Western Engineering, Inc. (Western) related to a water-flood
project on leased properties of Western. The cost to the Company for this
participation interest was approximately $275,000. Under the terms of the
agreement, Western receives the first forty (40) barrels of production per day
and the Company receives the next fifty-five (55) barrels. Production above
these levels are shared equally between Western and the Company. The agreement
grants the Company the production described above for twenty-four (24) months or
until the Company has received $550,000. The agreement further provides that the
Company will be granted the exclusive right to participate in the continued
development of the Western field upon the successful completion of the pilot
project. Revenue realized from this arrangement in 1997 was $3,639.

Fees and costs to brokers and others associated with the acquisitions discussed
above totaling approximately $884,000 in 1996 were paid in 384,982 shares of the
Company's common stock.

                                       F10

<PAGE>

Note 4 - Information About Concentration of Credit Risk

The Company maintains cash on deposit at various financial institutions, each
having federal deposit insurance of $100,000 to benefit the Company and each of
its subsidiaries.

Note 5 - Property and Equipment

The Company periodically reviews the fair value of long-lived assets for
impairment. As discussed in Note 11, the Company incurred write-downs for
impairment of $3,366,730 to its oil and gas properties.


Gas and Oil Properties - The Company's gas and oil properties are located within
the United States and consist of the following:

<TABLE>
<CAPTION>


Costs incurred -                                              1997                1996
                                                         ----------------    ----------------

<S>                                                    <C>                 <C>              
Leasehold properties
    Proved                                             $          10,855   $         478,424
    Unproved                                                          -0-             70,835
Exploration  costs                                                    -0-                 -0-
Development costs                                                 46,597           4,694,210
Amortization                                                    (128,021)            (58,056)
                                                         ----------------    ----------------

                                                                 (70,569)          5,185,413
Write down for impairment                                     (3,366,730)                 -0-
                                                         ----------------    ----------------
    Net increase (decrease)                            $      (3,437,299)  $       5,185,413
                                                         ================    ================

Capitalized Costs -

Proved properties not subject to amortization                  3,055,740   $       4,441,801
Proved properties being amortized                              1,929,132           3,656,514
Unproved properties                                                   -0-            195,835
Less accumulated amortization                                   (186,077)            (58,056)
                                                         ----------------    ----------------

        Total costs incurred                           $       4,798,795   $       8,236,094
                                                         ================    ================
</TABLE>


Initial production from the Company's gas and oil properties commenced in
October 1996, and total revenues for 1997 and 1996 totaled approximately
$292,342 and $91,894, and respective associated production costs were $13,244
and $5,725 for 1997 and 1996.

Premises and equipment - Premises and equipment at December 31, consisted of the
following:

                                      F11

<PAGE>

<TABLE>
<CAPTION>



                                                                   1997                1996
                                                              ----------------    ----------------

<S>                                                         <C>                 <C>              
Land and buildings                                          $       5,578,982   $       8,863,547
Leasehold, paving and other improvements                            1,086,668           1,783,707
Fixtures and equipment                                              4,116,762           6,633,280
Vehicles                                                                   -0-            144,996
Construction in progress                                              473,379             530,538
Less accumulated depreciation and amortization                     (2,763,484)         (5,080,166)
                                                              ----------------    ----------------
                                                            $       8,492,307   $      12,875,902
                                                              ================    ================

</TABLE>

Note 5 - Property and Equipment - Continued

Depreciation expense for the years ended December 31, 1997 and 1996 totaled
$582,369 and $566,091, respectively


Note 6 - Other Assets

Other assets consisted of the following:

<TABLE>
<CAPTION>

                                                                   1997                1996
                                                              ----------------    ----------------

Other Current Assets
<S>                                                         <C>                 <C>
    Investment in UCI Teleport, Inc.                        $         334,413   $              -0-
    Prepaid shareholder relations                                          -0-             26,606
    Other prepaid expenses                                             39,000              44,475
                                                              ----------------    ----------------

                                                            $         373,413   $          71,081
                                                              ================    ================


Intangibles and Other Assets
    Debenture issuance and loan costs, less accumulated
         amortization of $523,205 and $626,200              $         389,646   $       1,568,809
    Franchise costs, less amortization of $18,905 in 1996                  -0-             75,618
    Deposits                                                           19,126              19,126
                                                              ----------------    ----------------

                                                            $         408,772   $       1,663,553
                                                              ================    ================

</TABLE>

Amortization expense for intangibles and other assets totaled $528,548 and
$499,194 in 1997 and 1996, respectively.

Note 7 - Line of Credit

The Company had short-term borrowings of $247,829 and $250,000 at December 31,
1997 and 1996, respectively, on a revolving bank line of credit. The line bears
interest at prime plus 1% and is secured by inventory and receivables. Maximum
borrowings under the line are $250,000.

                                      F12

<PAGE>

Note 8 - Long-Term Debt

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>

                                                                   1997                1996
                                                              ----------------    ----------------

<S>                                                        <C>                   <C>  
Convertible debentures, maturing from February, 1998,
    through September, 1999, with coupon rates ranging
    from 6.0% to 18.0%, net of discount of $782,290.        $       6,165,086   $      14,087,615
</TABLE>


Note 8 - Long-Term Debt -Continued



                                      F13

<PAGE>

<TABLE>
<CAPTION>

                                                                   1997                1996
                                                              ----------------    ----------------
<S>                                                         <C>                 <C>              
Bank installment notes -
    Payable $25,970 monthly including interest
    at rates ranging from 7.4% to 11%.                      $       2,574,232   $       5,402,875

    Payable $41,470 monthly plus interest at rates
    ranging from prime plus .75% to prime plus 3%.                  3,064,556           3,587,436

Note payable to supplier, payable $779 monthly
    including interest at 8%.                                          39,613             417,546

Note payable to stockholder, interest payable monthly
    at 9%.                                                                 -0-            300,000

Obligations under capital leases, payable $3,311
    monthly with an interest rate of 12.45%                                -0-            103,507
                                                              ----------------    ----------------
                                                                    5,678,401           9,811,364
                                                              ----------------    ----------------
                                                                   11,843,487           9,811,364

Less current maturities                                            (9,241,801)         (1,669,836)
                                                              ----------------    ----------------
                                                                    5,678,401   $       9,811,364
                                                            $       2,601,686   $       8,141,528
                                                              ================    ================

</TABLE>


Maturities of Long-term debt are as follows:

<TABLE>
<CAPTION>

              Year Ending
      -----------------------------

<S>                                                                            <C>              
                  1998                                                          $       9,489,630
                  1999                                                                    756,716
                  2000                                                                    634,544
                  2001                                                                    122,568
                  2002                                                                    300,105
               Thereafter                                                                 787,753
                                                                                  ----------------
                                                                                       12,091,316
               Less current maturities:                                                (9,489,630)
                                                                                 ----------------
                      Long-term debt                                            $       2,601,686
                                                                                 ================
</TABLE>


The convertible debentures primarily represent the carrying balance of
debentures in the original face amount of $27,500,000 issued between May and
November 1996 in connection with a Regulation-S offering. Proceeds of the
offering totaled $20,631,500 net of discount, with issuance costs totaling
approximately $2,890,000. Interest on the debentures is due quarterly at rates
ranging from 6% to 18% of the face amount of the debentures and is generally
payable in


                                      F14
<PAGE>

Note 8 - Long-Term Debt -Continued

shares of the Company's common stock. Initial terms of the debentures provided
that holders could request conversion into shares of the Company's common stock
after passage of the statutory holding period (generally forty-five days from
date of issuance), and after one year from date of issuance, the Company could
require conversion of the debentures into common stock. The debentures were
generally convertible at a price determined by the average of the closing bid
prices as quoted by NASDAQ for the five days previous to the election to
convert.

On April 30, 1997, the Company and holders of substantially all the remaining
balance of debentures reached an agreement to modify certain terms of the
debentures in settlement of disputes discussed in Note 11. The most significant
modifications in terms provided for the following:

     The election by holders of approximately $15,000,000 of debentures to
     reduce the principal balance of their holdings by 10% in exchange to

     receive interest (and/or dividends on preferred stock) at a rate of 18% for
     a period of one year. After one year, the interest and/or dividend rates
     are to be 7% unless these holders elect by April 25, 1998 to again reduce
     the then remaining principal balance and/or stated liquidation preference
     on preferred stock by 10%. If properly elected, the interest and dividend
     rates will continue at a rate of 18%. Principal reductions as a result of
     those debenture holders making such an election totaled $1,495,680. Such
     reduction is being accounted for prospectively as a modification of terms
     whereby the carrying amount of the debt was unchanged and interest is
     computed using a constant effective rate.

     The immediate conversion of $9,912,000 of the then outstanding balance of
     debentures into 9,912 shares of the Company's preferred stock.

     The immediate conversion of $623,200 of the then outstanding balance of
     debentures into 1,246,400 shares of the Company's common stock.

     The issuance of 860,774 shares of the Company's common stock valued at
     $430,387 in settlement of all accrued and unpaid interest on debentures as
     of April 30, 1997.

     Further restrictions were placed on the conversion rights of debenture
     holders to limit the number of shares any one debenture holder or group of
     debenture holders may hold at one time.

     The price at which most of the remaining debentures may be converted to
     common stock of the Company was modified to include a floor and ceiling
     price of the stock for conversion purposes.

Subsequent to the April 30, 1997 agreement, the Company issued additional
convertible debentures in aggregate face amount of $2,241,666. Proceeds form
these debentures totaled $1,750,000 net of discount, with issuance costs
totaling $63,425. Interest on the newly issued debentures is due quarterly at
rates ranging from 6% to 18% of the face amount and is generally


                                      F15
<PAGE>


Note 8 - Long-Term Debt -Continued

payable in shares of the common stock. The debentures include options for up to
700,000 shares of the Company's common stock at exercise prices ranging from
$0.37 to $1.00.

For the years ended December 31, 1997 and 1996, approximately $1,900,000 and
$10,000,000 face value of debentures was converted into 7,129,676 and 6,436,955
shares of common stock, respectively.

Interest expense associated with the debentures totaled approximately $2,102,000
and $548,000 for the years ended December 31, 1997 and 1996. Payments of accrued
interest in common stock of the Company totaled $1,093,846 and $136,604 for 1997
and 1996 represented by 2,769,992 and 123,545 shares respectively for the years

ended December 31, 1997 and 1996. Amortization of discount on the debentures
totaled $1,307,229 and $950,418 for 1997 and 1996 and is classified in the
statement of operations under the caption interest expense.

In December, 1997, the Company's common stock was delisted from the NASDAQ stock
exchange which represents an event of default under the terms of the debenture
agreements. Accordingly, the principle balance of the debentures has been
classified as current in the 1997 financial statements.

Substantially all of the Company's retail segment assets are pledged as
collateral for long-term borrowings other than the convertible debentures.

Additionally, some of the bank installment notes contain covenants regarding
certain financial statement amounts, ratios and activities of the Company. As
also discussed in Note 16, certain elements of technical default existed at
December 31, 1997, and, on March 31, and April 1, 1998, loans to the Company
totaling $2,352,113 at December 31, 1997, were called by the lenders.

Note 9 - Commitments

The Company leases a portion of its equipment and facilities under operating and
capital leases (Note 8). Rental expense related to operating leases totaled
$278,124 and $733,885 for the years ended December 31, 1997 and 1996,
respectively. Future minimum lease payments under operating leases having
initial or remaining noncancelable lease terms in excess of one year at December
31, 1997, are as follows:



         Year Ending
        -------------
            1998                           $           278,124
            1999                                       278,124
            2000                                       225,015
            2001                                       216,955
            2002                                       189,900
         Thereafter                                  1,042,400
                                             ------------------

                                           $         2,230,518
                                             ==================


                                      F16

<PAGE>

Note 10 - Income Taxes

The provision (benefit) for income taxes is as follows:

<TABLE>
<CAPTION>


                                                               1997                  1996
                                                         ------------------    ------------------
<S>                                                    <C>                   <C>
Current portion
     Federal                                           $                -0-  $                -0-
     State                                                              -0-                   -0-
                                                         ------------------    ------------------

                                                                        -0-                   -0-
                                                         ------------------    ------------------
Deferred
     Federal                                                     2,972,100            (3,457,000)
     State                                                         (87,100)              (23,000)
                                                         ------------------    ------------------

                                                                 2,885,000            (3,480,000)
                                                         ------------------    ------------------

                                                       $         2,885,000   $        (3,480,000)
                                                         ==================    ==================
</TABLE>



A reconciliation of the expected federal tax expense, based on the federal
statutory rate of 34%, to the actual consolidated tax expense for the years
ended December 31, 1997 and 1996, is as follows:


<TABLE>
<CAPTION>
                                                               1997                  1996
                                                         ------------------    ------------------

<S>                                                    <C>                   <C>                 
Expected federal tax expense (benefit)                 $        (3,146,000)  $        (5,118,000)
Increase (decrease) in taxes resulting from:
     Reversal of tax depreciation in excess of book
        depreciation                                               233,680               654,810
     Reversal of intangible drilling costs deducted
        for tax purposes                                            11,183             1,125,352
     Reversal of impairment losses deducted
         for book purposes                                         860,977                    -0-
    Valuation allowance, deferred tax assets                     5,133,718                    -0-
    All other                                                     (208,558)             (142,162)
                                                         ------------------    ------------------

                                                       $         2,885,000   $        (3,480,000)
                                                         ==================    ==================
</TABLE>


The tax effects of temporary differences were as follows:

                                      F17
<PAGE>

<TABLE>
<CAPTION>

Deferred tax assets and liabilities, Federal:                  1997                  1996
                                                         ------------------    ------------------

<S>                                                    <C>                              <C>      
        Depreciation                                   $          (416,753)             (654,810)
        Intangible drilling costs                               (1,136,535)           (1,125,352)
        Net operating loss carryforwards                         6,677,546             4,742,802
        AMT credit carryforwards                                     9,460                 9,460
                                                         ------------------    ------------------

                                                                 5,133,718             2,972,100
Valuation allowance, deferred tax assets                        (5,133,718)                   -0-
                                                         ------------------    ------------------

                                                       $                -0-  $         2,972,100
                                                         ==================    ==================

</TABLE>


Note 10 - Income Taxes - Continued

<TABLE>
<CAPTION>



Deferred tax assets and liabilities, State:                    1997                  1996
                                                         ------------------    ------------------

<S>                                                    <C>                    <C>                   
        Depreciation                                   $           (83,000)   $         (130,962)
        Intangible drilling costs                                 (227,000)             (225,070)
        Net operating loss carryforwards                           310,000               268,932
                                                         ------------------    ------------------

                                                       $                -0-   $          (87,100)
                                                         ==================    ==================

</TABLE>


As discussed in Notes 11 and 18, management's plans affecting future revenue
streams are such that it is more likely than not that estimated benefits of net
operating loss carryforwards will not be realized. Accordingly, a reserve has
been established for deferred tax assets. The Company has available net
operating loss carryforwards to offset future taxable income totaling
approximately $6,000,0000, $16,000,000, $83,000 and $284,000 from the years
December 31, 1997, 1996, 1995 and 1994, respectively. The carryforwards expire
fifteen years from the year incurred.

Note 11 - Non-Recurring Charges

For the years ended December 31, 1997 and 1996, the Company had the following
non-recurring expenses which were charged to operations:

In June, 1996, the Company engaged TAJ Global Equities (TAJ) to act as the
underwriter for a planned $20,000,000 offering of the Company's common stock.
TAJ and Strategic Holdings, Inc. (Strategic) also acted as consultants to the
Company in connection with the offering and sale of the debentures discussed in
Note 8. The planned $20,000,000 offering was subsequently withdrawn due to the
events explained in the following five paragraphs, and costs of approximately
$100,000 associated with the planned offering were charged to operations for
1996 as a non-recurring charge and included under the caption "Other" in the
statement of operations.

During the last two quarters of 1996, unusual and significant short selling
occurred in the Company's stock. This activity caused the Company to believe
that purchasers of the debentures were involved in short sales in violation of
the terms of the subscription agreements executed with the Company. The short
sales activity caused the Company's stock prices to fall significantly. The
Company's Board of Directors therefore authorized the purchase in the open
market of up to one million (1,000,0000) shares of the Company's common stock in

an attempt to protect shareholders' interests.

The Company engaged TAJ for this purpose and initially remitted approximately
$1,800,000 to TAJ for acquiring shares. The Company believes 117,000 shares at
an approximate cost of $300,000 were initially purchased by TAJ for the Company,
but the trade was soon thereafter canceled with the Company ultimately having no
position in its stock. However, the Company learned that TAJ did purchase a
significant number of shares (estimated at approximately

                                      F18
<PAGE>

Note 11 - Non-Recurring Charges - Continued

3,200,000 shares) for either its own account or customers' accounts and the
Company believes some portion of those shares were subsequently resold by TAJ.

It is the Company's position that TAJ acted without authority in the timing and
volume of the share acquisitions. Strategic is one of the customers for which
TAJ acquired shares. Strategic advised the Company that TAJ was not expressly
authorized to acquire the Company's shares on its behalf. The Company was also
advised that TAJ's acquisitions of the Company's shares were placed through its
clearing broker, National Financial Service Corporation (National) and were not
paid for. National advised the Company that if it did not advance to TAJ and
Strategic the funds necessary to cover the unpaid trades, that it would
liquidate its position in the Company's shares, therefore causing a tremendous
fall in the price of the Company's stock and severe loss to shareholders. In
response to National's communication, the Company advanced an additional
$1,617,959 and $7,382,703 as payment for the TAJ and Strategic shares
respectively.

The total cost to the Company for these transactions was $11,041,671. The
Company obtained eight percent (8%) notes from Strategic totaling $10,876,600
which are presently unsecured.

The Company is vigorously pursuing litigation against TAJ and National as
discussed in Note 16. Because of the uncertainty of the Company's potential for
recovery, the entire cost of $11,041,671 was charged to operations for the year
ended December 31, 1996.

The sharp decline in the market value of the Company's shares along with falling
prices for natural gas limited the Company's ability to obtain sufficient
financing to further develop its gas and oil properties. Accordingly, the
Company suspended development activities in its energy products business segment
and has abandoned certain properties and agreed to sell a group of wells.
Additionally, because of the change in circumstances, the Company has reviewed
for impairment purposes the fair value of other properties it intends to hold.
The effect of these matters in the aggregate resulted in a charge to operations
of $3,697,751 for 1997 which has been classified as a non-recurring charge under
the caption "Loss on impairment of assets."

In its efforts to obtain additional capital for its operations, the Company
engaged brokers, investment bankers, and other consultants to assist in
obtaining financing and pursuing mergers and acquisitions. Expenses associated

with these activities totaled $966,531 and $541,600 for the years ended December
31, 1997 and 1996 and are included in the statement of operations as a
non-recurring charge under the caption "Other." A portion, $823,909, of the 1997
expenses were paid in 4,553,625 shares of the Company's common stock. The
Company issued 214,000 shares of its common stock and granted options to acquire
an additional 1,300,000 shares in payment of the expenses for 1996.

During the years ended December 31, 1997 and 1996, the Company's chief executive
officer agreed to guarantee certain debts of the Company. The majority of this
debt has now either been retired or called by the lending institutions. The
Company paid the officer guarantee fees of $81,280 and $98,682 which were
charged to operations as a non-recurring charge under the caption "Other" for
the years ended December 31, 1997 and 1996, respectively.


                                      F19


<PAGE>

===============================================================================
                 United Petroleum Corporation and Subsidiaries
                    Notes to Financial Statements-Continued
                     Years Ended December 31, 1997 and 1996

===============================================================================

Note 12 - Stockholders' Equity

In March, 1997, the Company amended its charter to authorize up to 10,000,000
shares of $.01 par value preferred stock. The Company has designated two
classes, Series A and Series B preferred stock, each having liquidation
preference of $1,000 per share. In 1997, 9,912 shares of Series A preferred
stock and 1,833 shares of Series B preferred stock were issued in connection
with conversions of debentures and in settlement of litigation with a debenture
holder (see Note 16). At December 31, 1997, the total of liquidation preference
on which cumulative dividends are computed is $9,912,000 for Series A shares at
18% and $1,833,333 for Series B shares at 8% (see also Note 8).

The preferred shares are convertible into shares of the Company's common stock
based on the preference amount at the rate of one-thirteenth for Series A and
one fifteenth for Series B per month based on the commencement date of July 1,
1997. The price at which the conversions to common shares may be effected is
the greater of the average closing bid price for the five previous trading days
or the "floor price" ($2.00 per share at December 31, 1997), not to exceed the
"ceiling price," generally $3.00. The floor price becomes $0.50 for Series A
and $1.00 on April 1, 1998. At December 31, 1997, approximately $4,575,000 of
Series A and $733,000 of Series B of liquidation preference of preferred shares
were convertible at the floor price per share.

The Company may convert the preferred shares into common shares based on the
remaining preference amount by giving notice between October 1, and October 10,
1999 at a price equal to the average of the closing bid prices for the five
previous trading days.


Preferred shareholders have voting rights equal to those which they would have
if they converted their preferred shares to common stock at the then conversion
price, provided that no preferred shareholder or group of affiliated preferred
shareholders may vote at any one time more than 4.99% of the total stock
entitled to vote.

The April 30, 1997 agreement discussed in Note 8 provides that the preferred
shareholders will vote their shares for the continuation of the current
management and shall not participate in any proxy contests as long as the
Company is not in default with respect to any of the provisions of the
agreement, the preferred shares or the debenture.

As also discussed in Note 8, the Company has issued debentures that are
convertible into common stock on terms similar to those for preferred stock. At
December 31, 1997, $1,175,000 face value of the debentures were convertible at
a price of $0.05.

In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share." Under SFAS 128, basic earnings per
share is based on the weighted average number of common shares outstanding
during the year, whereas diluted earnings per share also gives effect to all
dilutive potential common shares that were outstanding during the period.
Dilutive potential common shares include convertible debentures, preferred
stock and stock option plan shares.

                                      F20
<PAGE>

Note 12 - Stockholders' Equity - Continued

The Company has 50,000,000 shares of its common stock authorized of which
29,279,515 and 11,828,156 were issued at December 31, 1997 and 1996. Shares
issued for each year were as follows: 

<TABLE>
<CAPTION>

                                                                           1997                  1996
                                                                     ------------------   -------------------

<S>                                                                <C>                  <C>                    
To effect acquisitions                                             $                -0- $            384,982
In cancellation of warrants                                                         -0-                2,334
In payment of services                                                       4,553,625               277,500
Conversions of debentures                                                    7,129,676             6,437,000
In payment of interest                                                       2,769,992               123,500
In payment of dividends                                                      2,998,066
                                                                     ------------------   -------------------

    Total issuances                                                         17,451,359             7,225,316
Balance,  January 1                                                         11,828,156             4,602,840
                                                                     ------------------   -------------------


Balance, December 31                                               $        29,279,515  $         11,828,156
                                                                     ==================   ===================
</TABLE>

Basic and diluted earnings per share are based on the weighted average number
of common shares outstanding, 18,812,739 in 1997 and 5,671,698 for 1996. For
the years 1997 and 1996, the effect of convertible securities is anti-dilutive.

Note 13 - Stock Options

The Company has a stock option plan (Plan) that provides for the granting of
incentive and non-qualified options to purchase shares of the Company's common
stock. The Plan's coverage extends to selected key employees, officers,
directors and consultants.

The Plan provides for the granting of incentive stock options that may be
exercised at prices equal to or exceeding fair market value at the date of
grant and permits granting of non-qualified options at prices below fair
market value at the date of grant. Options granted employees are
non-transferable and are for both active shares and restricted shares that
carry continuing legal restrictions on transfer upon exercise of the options.
Options granted to employees during 1997 and 1996 were at exercise prices that
equaled or exceeded fair market value of the underlying shares at date of
grant. Generally, the options are exercisable upon grant date with expiration
dates ranging from five to ten years from date of grant.

Options under the Plan granted to and exercised by the Company's public
relations firm during 1995 totaled 607,334 shares. The shares represented
consideration to the public relations firm to retain their services for a two
year period expiring March 1997. Compensation expense related to the public
relations firm totaled $26,606 and $159,672 for 1997 and 1996 respectively, and
is included in the consolidated statements of income under the caption
"Shareholder relations." 


                                      F21
<PAGE>

Included in the 1996 consolidated balance sheet under the caption "Other
current assets" is $26,606 representing the prepaid portion of the firm's
services at December 31, 1996.

Note 13 - Stock Options - Continued

In addition to the above, the public relations firm is indebted to the Company
in the amount of $1,187,432 and $1,237,000 at December 31, 1997 and 1996,
reflected in the consolidated financial statements under the caption
"Stockholder note receivable." This represents the balance of the amount owed
for 375,000 shares of the Company's common stock. The Company holds a demand
note from the public relations firm for the balance due and has received
assignments of collateral consisting primarily of equity securities of small
public companies. The amount due from the public relations firm is treated as a
reduction of equity in the consolidated financial statements pending collection
in cash or other assets readily convertible to cash.


As discussed in Note 11, in 1996 the Company granted to investment bankers
options to acquire 1,300,000 shares of its common stock at exercise prices
ranging from $1 to $2.25 per share. At December 31, 1997, none of the options
had been exercised.

As discussed in Note 8, the Company granted options to debenture holders to
purchase up to 300,000 and 400,000 shares of its common stock at exercise
prices of $1.00 and $0.37, respectively.

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
employee option plan. Had compensation cost for the Company's stock option plan
been determined based on the fair value at the grant date for awards in 1997
and 1996 consistent with the provisions of SFAS No. 123, the Company's net
earnings and earnings per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>

                                                                           1997                  1996
                                                                     ------------------   -------------------

<S>                                                                <C>                  <C>                  
Net income (loss) - as reported                                    $       (12,138,042) $        (11,572,293)
Net income (loss) - pro forma                                              (12,299,542)          (11,674,527)
Earnings (loss) per share - as reported                            $             (0.65)                (2.04)
Earnings (loss) per share - pro forma                                            (0.65)                (2.06)

</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted -average
assumptions used for grants in 1997 and 1996: 40% volatility, four-year life,
zero dividend yield, and risk-free interest rate of 5.56% for 1997 and 6.19%
for 1996.


                                      F22
<PAGE>

Note 13 - Stock Options - Continued

Information regarding the option plan for 1997 is as follows:

<TABLE>
<CAPTION>

                                       1997                                       1996
                                  ------------------------------------       ------------------------------------
                                                     Weighted Average                           Weighted Average

                                                         Exercise                                   Exercise
                                      Shares              Price                  Shares              Price
                                  ----------------   -----------------       ----------------   -----------------
<S>                               <C>              <C>                       <C>              <C>                  
Options outstanding, beginning
  of year                               2,200,004  $                2.47             800,004  $                3.56
Options canceled                         (383,336)                  0.26                  -0-
Options exercised                              -0-                                        -0-
Options granted                         1,200,000  $                0.47           1,400,000  $                2.05
                                  ----------------                           ----------------
Options outstanding,
     end of year                        3,016,668  $                0.34           2,200,004  $                2.60
                                  ================                           ================

Options exercisable,
     end of year                        3,016,668  $                               2,100,004  $                2.47
                                  ================                           ================

Option price range,
    end of year                   $0.26 to $1.00                             $2.04 to $4.06
Option price range for
    exercised shares                    na                                                na
Options available for
    grant at end of year                4,369,332                                    869,332
Weighted average fair
    value of options granted
    during the year             $            0.04                           $            0.10

</TABLE>

The weighted average grant date fair value of options granted during 1997 and
1996, all of whose exercise prices exceeded market value of the stock at date
of grant, is $20,000 and $33,869, respectively.

Note 14 - Related Party Transactions

On July 1, 1997 the Company entered into an five-year agreement with a
corporation engaged in manufacturing and distribution and controlled by the
Company's chief executive officer. The agreement provides for the Company to
purchase exclusively, in areas served by the related company, its gasoline
inventories at a price $.01 per gallon above rack price. Purchases under this
agreement during 1997 were approximately $525,000. In 1997 and 1996,
transactions between the Company and the related corporation also included
equipment sales and certain 


                                      F23
<PAGE>

ongoing construction activities conducted for the Company by the corporation.
Equipment sales and construction activities totaled approximately $323,271
and $182,603, in 1997 and 1996, respectively.



Note 14 - Related Party Transactions - Continued

In 1997, the Company also engaged in wholesale transfer activities with another
related corporation controlled by its chief executive officer. Transfers to
this related corporation were approximately $778,000, and transfers from the
related corporation approximated $714,000 during the year.

During 1997, the Company sold certain existing locations to its chief executive
officer and to a member of its board of directors. The Company recognized a
gain of $248,456 on the sale of a retail location to the board member in
exchange for his assumption of related debt of $356,957 and the payment of
$152,385 in cash. The Company recognized a net loss of $38,944 on the sale of
retail locations to the chief executive officer. In exchange for the locations
the Company accepted a receivable of $300,000 from the officer, who also
assumed liabilities of $3,028,744.

Also in 1997, as discussed in Note 11, the Company paid the officer a fee of
$81,280, approximating 1% of Company debt for which he serves as guarantor.

As of June 30, 1997, the Company abandoned leasehold improvements on property
the Company leased from the chief executive officer. The Company recognized a
loss of $236,577 on the abandonment.

At December 31, 1997, there were no outstanding balances owing to or from the
chief executive officer and the Company. Net indebtedness of related companies
controlled by the officer at December 31, 1997, was approximately $52,003 and
is included in the balance sheet under the caption "Accounts receivable," in
the amount of $63,857 and, in the amount of $11,854, under the caption
"Accounts payable." In January 1997, the Company received payment settling
substantially all of this outstanding balance.

During 1996 the Company sold at net book value a planned retail outlet
undergoing construction to its chief executive officer in exchange for his
assumption of $286,000 of related debt and the recognition of a receivable of
$323,421. Also the Company borrowed from the officer $300,000 in 1996, and the
Board of Directors authorized payment to the officer of approximately $99,000
as a 1% fee for his guarantee of Company debt.

In 1996 the chief executive officer leased certain properties to the Company
for a monthly rental of $27,000. By mutual agreement between the Company and
the officer, the leases were terminated effective June 30, 1997. In exchange
for termination of the leases, fees to be paid under the officer's employment
contract were reduced by an annual rate of $100,000 for the remainder of 1997
and in future years. The lease payments on these properties, included on the 
income statements among general and administrative expenses, amounted to
approximately $177,000 and $356,000 in 1997 and 1996, respectively.

Net indebtedness to the officer by the Company at December 31, 1996 as a result
of these and other transactions in the ordinary course of business was
approximately $18,049. Receivables in the amount of $281,951 are included in
the balance sheet under the caption "Accounts


                                      F24

<PAGE>

Note 14 - Related Party Transactions - Continued

Receivable" at December 31, 1996. A $300,000 note payable to the officer is
included in the balance sheet under the caption "Notes Payable" at December 31,
1996.

In other leasing transactions with the chief executive officer, the Company
rented, under month-to-month operating leases, certain vehicles. Expenses
related to these transactions were approximately $25,000 and $45,000 in 1997
and 1996, respectively.

Note 15 - Business Segments

The retail segment is comprised of the Company's convenience store, express
lube, and car wash operations. The energy products segment is comprised of gas
and oil properties that are currently producing or under development and
located within the United States. Corporate amounts represent general and
administrative expenses which are not allocated to the other business segments.

In determining operating income (loss) by business segment, none of the
following have been added or deducted: interest expense, income taxes, and
other income and expense.

Segment information is outlined in the following summary:

<TABLE>
<CAPTION>
                                                                             1997                    1996
                                                                      --------------------    -------------------

<S>                                                                <C>                     <C>

Net Sales -
Retail                                                              $           9,428,519   $         13,142,415
Energy products                                                                   292,342                 91,894
Corporate                                                                              -0-                    -0-
                                                                     ---------------------    -------------------
                                                                    $           9,720,861   $         13,234,309
                                                                      ====================    ===================
Operating income (loss)

Retail                                                              $            (129,944)  $            826,195
Energy products                                                                (3,339,528)               (24,816)
Corporate                                                                      (2,531,241)              (100,085)
                                                                      --------------------    -------------------
                                                                    $          (6,000,713)  $            701,294
                                                                      ====================    ===================

</TABLE>

                                      F25
<PAGE>


Note 15 - Business Segments - Continued
<TABLE>
<CAPTION>

                                                                             1997                    1996
                                                                      --------------------    -------------------
<S>                                                                <C>                     <C>   

Identifiable assets -

Retail                                                              $           9,178,715   $         14,031,214
Energy products                                                                 4,872,010              8,443,495
Corporate                                                                         650,259              4,592,541
                                                                      --------------------    -------------------
                                                                    $          14,700,984   $         27,067,250
                                                                      ====================    ===================
Capital expenditures -

Retail                                                              $           1,637,814   $          3,067,303
Energy products                                                                    57,452              5,244,260
Corporate                                                                           8,378                    -0-
                                                                      ====================    ===================
                                                                    $           1,703,644   $          8,311,563
                                                                      ====================    ===================

</TABLE>


Note 16 - Contingencies and Subsequent Events

The Company is subject to extensive and evolving federal, state and local
environmental laws and regulations that have been enacted in response to
technological advances and the public's increased concern over environmental
issues. As a result of changing governmental attitudes in this area, management
anticipates that the Company will continually modify or replace facilities and
alter methods of operation. The majority of the expenditures necessary to
comply with the environmental laws and regulations are made in the normal
course of business.

The Company participates in a Superfund established to clean up environmental
problems associated with petroleum caused contamination. Coverage under the
Superfund is conditional on the Company's continued compliance with all federal
and state regulations regarding the sale and underground storage of petroleum
products. Under the terms of the Superfund program, the Company's liability is
limited to $20,000 per incident, per location. The Company carries no insurance
with respect to environmental claims not covered by the Superfund. To the best
of its knowledge, the Company is in compliance in all material respects with
laws and regulations affecting its operations.

As a consequence of its divestiture program (Note 16), the Company remains
contingently liable for debt assumed by its chief executive officer,
approximating $138,000 at December 31, 1997, pending the final pay-off of loans
called by the lending institution (See Note 8).


A shareholder derivative action against the Company, certain directors and
officers of the Company, and three former directors was filed in Delaware in
1996. The court dismissed this action in 1997 on grounds that the Delaware
Chancery Court lacked jurisdiction over the defendants.

In May, 1997, a claim was brought against the Company by a supplier in the
approximate amount of $73,000. The company expects to obtain a favorable
judgment in the case. However, the ultimate outcome of this litigation is
unknown at the present time. Accordingly, no provision for any liability that
might result has been made in the accompanying financial statements. In the 


                                      F26
<PAGE>

opinion of management, the existing litigation is not considered to be
material in relation to the Company's financial position.

Note 16 - Contingencies and Subsequent Events - Continued

As a result of the matters discussed in Note 11, the Company has filed a civil
action against TAJ Global Equities and National Financial Services and certain
individuals alleging conspiracy to engage in a course of misconduct intended to
defraud the Company, conversion, unjust enrichment, breach of fiduciary duty
and associated causes of action claiming compensatory and punitive damages in
excess of one hundred million dollars ($100,000,000). Recovery for the Company
from this lawsuit is uncertain and, accordingly, no gain that may result from
this action has been recorded in these financial statements.

Additionally, the Company is a party to various other legal proceedings
generally incidental to its business and primarily related to employee matters.
The Company does not believe that any of these lawsuits will have a materially
adverse effect on its financial position or results of operations.

The Company is currently delinquent on payroll taxes approximating $415,000.
The Company has accrued estimated interest of $18,000 on the liability, but no
provision has been made for any penalties that might be assessed. Current law
permits penalties up to 100% of a portion of the tax liability. Management is
seeking waivers and relief from the assessment of penalties. The amount of
penalty, if any, that might be assessed. is unknown at the present time.
Accordingly, no provision for any liability that might result has been made in
the accompanying financial statements.

Subsequent to December 31, the Company entered into an agreement to sell one of
its subsidiaries in the broadcasting industry (See Note 1). Sales price is to
approximately $420,000, and the Company plans to use $150,000 of the sales
proceeds to retire the minority interest in that subsidiary.

As discussed in Note 8 certain elements of technical default on debt
instruments existed at December 31, 1997, and, on March 31, and April 1, 1998,
loans to the Company totaling $2,352,113 at December 31, 1997, were called by
the lenders.


Note 17 - Fair Value of Financial Instruments

The Company has a number of financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1997 and 1996, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.


                                      F27
<PAGE>

Note 18 - Business Condition

As shown in the accompanying financial statements, the Company has incurred net
losses of $12,138,042 and $11,572,293 for the years ended December 31, 1997 and
1996, and, as of December 31, 1997, current assets are exceeded by current
liabilities by approximately $10,400,000, or a ratio of 1 to 11.6. These
conditions developed primarily from the loss on the Strategic notes (See Note
11) as well as from the resultant loan and debenture covenant violations which
that loss triggered (See Note 8). Further, as a result of the loan and covenant
violations, access to capital markets became tenuous, and the Company's
capacity to pursue its plans for development of its gas and oil properties was
compromised. These this changes in circumstances caused the Company to consider
the fair value of its Energy Products segment, which resulted in an impairment
write-down in 1997, based on discounted future cash-flows, of $3,366,730.

As an additional result of its inability to participate in capital markets, the
Company began to focus its efforts on divestiture of individual retail
properties. This program, in the aggregate, resulted in the recognition of
losses on the disposal of several retail locations of $330,021 during 1997.

These factors create an uncertainty as to the Company's ability to continue as
a going concern. The Company is presently engaged in negotiations with holders
of the majority of both the Company's convertible preferred stock and
convertible debentures. To date no definitive agreement has been reached.
Strategies being considered, alone or in combination, include a reverse split,
a conversion of all convertible debentures into common stock, a conversion of
all preferred stock into common, capital infusion, short-term financings, and
acquisition or merger with an asset or entity with surplus annual cash flow.

The ability of the Company to continue as a going concern is dependent upon the
success of these strategies and negotiations, otherwise, there exists a
substantial doubt as to the Company's ability to continue its business.

Note 19 - Supplemental Gas and Oil Information (Unaudited)

The Company's proved gas and oil reserves are located in the United States.
Proved reserves are those quantities of natural gas and crude oil which, upon

analysis of geological and engineering data, demonstrate with reasonable
certainty to be recoverable in the future from known gas and oil reservoirs.
Proved developed (producing and non-producing) reserves are those proved
reserves that can be expected to be recovered through existing wells with
existing equipment and operating methods. Proved undeveloped gas and oil
reserves are proved reserves that are expected to be recovered from new wells
on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion.

                                      F28
<PAGE>

Financial Data - The Company's activities related to the exploration and
development of gas and oil represent a valuable aspect of the Company's
business. The following costs include all such costs incurred during each
period and capitalized cost at December 31, 1997 and 1996:

Note 19 - Supplemental Gas and Oil Information (Unaudited) - Continued

<TABLE>
<CAPTION>

                                                                         1997                 1996
                                                                   ------------------   -----------------
<S>                                                              <C>                  <C>               

Costs incurred -

Leasehold properties
    Proved                                                       $            10,855  $          478,424
    Unproved                                                                      -0-             70,835
Exploration  costs                                                                -0-                 -0-
Development costs                                                             46,597           4,694,210
Amortization                                                                (128,021)            (58,056)
                                                                   ------------------   -----------------

                                                                             (70,569)          5,185,413
Write-down for impairment                                                 (3,366,730)                 -0-

                                                                   ------------------   -----------------
    Net increase (decrease)                                      $        (3,437,299) $        5,185,413
                                                                   ==================   =================


Capitalized Costs

Proved properties not subject to amortization                    $         3,055,740  $        4,441,801
Proved properties being amortized                                          1,929,132           3,656,514
Unproved properties                                                               -0-            195,835
Less accumulated amortization                                               (186,077)            (58,056)
                                                                   ------------------   -----------------
 
        Net capitalized costs                                    $         4,798,795  $        8,236,094
                                                                   ==================   =================

</TABLE>

Estimated Quantities of Proved Gas and Oil Reserves - The estimates of proved
developed and undeveloped reserves in Kentucky were provided by independent
petroleum engineers, Coburn Petroleum Engineering, Tulsa, Oklahoma (Coburn).
The estimates of proved developed reserves in Pennsylvania for 1997 were
provided by independent engineers Wright & Company, Inc. of Nashville,
Tennessee and in 1996 were provided by independent petroleum engineers,
Netherland, Sewell & Associates, Inc., of Houston, Texas. Proved reserves
cannot be measured exactly and the estimation of reserves involves numerous
judgmental and arbitrary determinations. Accordingly, reserve estimates must be
continually revised as a result of new information obtained from drilling and
production history or as a result of changes in economic conditions.

Estimated quantities of proved gas and oil net reserves are as follows:

                                      F29
<PAGE>

Note 19 - Supplemental Gas and Oil Information (Unaudited) - Continued

<TABLE>
<CAPTION>

                                                           Natural Gas (MCF)                   Oil (BBL)
                                                            (In Thousands)                   (In Thousands)
                                                   ----------------------------------   -------------------------
                                                         1997              1996            1997          1996
                                                   -----------------   --------------   -----------   -----------

<S>                                                       <C>                 <C>             <C>            <C>
Proved developed and undeveloped reserves
    Beginning of period                                      88,319           85,366            18            -0-
    Other revisions                                         (81,204)            (209)           63            -0-
    Revisions of previous estimates to give                                                                   -0-
        effect to drilling arrangements                          -0-              -0-                         -0-
    Extensions, discoveries and other additions                  -0-           3,212                          18
    Production                                                 (128)             (50)           (4)           -0-
                                                   -----------------   --------------   -----------   -----------

    End of period                                             6,987           88,319            77            18
                                                   =================   ==============   ===========   ===========

Proved developed reserves

      Beginning of period                                     4,086            1,134            18            -0-
                                                   =================   ==============   ===========   ===========

      End of period                                           2,862            4,086            77            18
                                                   =================   ==============   ===========   ===========
</TABLE>


Estimated quantities of proved gas and oil reserves do not include any natural

gas liquids for the years ended December 31, 1997 and 1996.

Reserves of wells that have performance history were estimated through analysis
of production trends and other appropriate performance relationships. Where
production and reservoir data were limited, the volumetric method was used
which is more susceptible to subsequent revisions.

Standardized Measure of Discounted Future Net Cash Flows - The standardized
measure of discounted future net cash flows is based on criteria established by
Financial Accounting Standards Statement Number 69, Accounting for Oil and Gas
Producing Activities and is not intended to be a "best estimate" of the fair
value of the Company's gas and oil properties. For this to be the case,
forecasts of future economic conditions, varying price and costs estimates,
varying discounts rates and consideration of other than proved reserves (i.e.,
probable reserves) would have to be incorporated into the valuations.

Future net cash inflows are based on the future production of proved reserves
of natural gas, natural gas liquids, crude oil and condensate as estimated by
petroleum engineers by applying current prices of gas and oil (with
consideration of price changes only to the extent fixed and determinable and
with consideration of the timing of gas sales under existing contracts or spot

                                      F30
<PAGE>

market sales) to estimated future production of proved reserves. Prices used in
determining future cash inflows for Pennsylvania properties for 1997 and 1996
for natural gas were $3.10 and $2.75 and for oil were $15 and $20 per BBL-oil.
Prices used in determining future cash inflows for Kentucky properties for 1997
and 1996 for natural gas were $2.14 and $3.00 and for oil was $14 per BBL-oil
(1997). These rates reflect respective year end spot prices for oil and natural
gas, as adjusted for BTU levels. Future net cash flows are then calculated by
reducing such


                                      F31
<PAGE>

Note 19 - Supplemental Gas and Oil Information (Unaudited) - Continued

estimated cash inflows by the estimated future expenditures (based on current
costs) to be incurred in developing and producing the proved reserves and by
the estimated future income taxes. Estimated future income taxes are computed
by applying the appropriate year-end tax rate to the future pretax net cash
flows relating to the Company's estimated proved gas and oil reserves. The
estimated future income taxes give effect to permanent differences and tax
credits and allowances. The underlying assumption taken into consideration by
the Coburn engineering report at December 31, 1996 was that the Company
complete ten dually completed wells into the coniferous and knox geological
zones per year for a period of five years. The drilling of these fifty wells
would have required a substantial amount of capital to be raised by the
Company. The Company has been unsuccessful in raising sufficient capital to
implement the assumed fifty well drilling program previously assumed.
Accordingly, the Coburn report for 1997 assumes a drilling program of one well

per year for a period of five years. No assurance can be given that the
required capital for the five wells assumed to be drilled over the next five
year period can be raised by the Company.

Presented below is the Company's estimated standardized measure of discounted
future net cash flows and reconciliation of the changes during the years ended
December 31, 1997 and 1996 The calculations take into consideration the Coburn
report's assumed drilling program for a lesser number of wells than previously
used.

<TABLE>
<CAPTION>


                                                                        1997                     1996
                                                                ---------------------    ---------------------

<S>                                                           <C>                      <C>                   
Future cash inflows                                           $           16,340,588   $          254,543,440
Future development and production costs                                   (2,814,995)             (15,315,984)
Future income taxes                                                       (4,057,678)             (71,768,237)
                                                                ---------------------    ---------------------

Future net cash flow                                                       9,467,915              167,459,219
10% annual discount                                                       (6,100,221)            (104,432,384)
                                                                ---------------------    ---------------------

Standardized measure of discounted future
    net cash flows                                            $            3,367,694   $           63,026,835
                                                                =====================    =====================
</TABLE>

                                      F32
<PAGE>

<TABLE>
<CAPTION>

                                                                        1997                     1996
                                                                ---------------------    ---------------------

<S>                                                           <C>                      <C>                   
Balance, beginning of period                                  $           63,026,871   $           53,917,288
Net change due to extensions, discoveries
     and other additions                                                          -0-              15,318,557
Net change due to revision in
     planned drilling program                                            (84,995,067)                      -0-
Net change in sales and transfer pricing                                  (4,952,834)                      -0-
Net change in estimated future development
     costs                                                                 4,720,505                 (524,763)
Net change in income taxes                                                25,568,219               (5,684,211)
Standardized measure of discounted future
                                                                ---------------------    ---------------------
    net cash flows, end of period                             $            3,367,694   $           63,026,871

                                                                =====================    =====================

</TABLE>

                                      F33