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

                               REPORT ON FORM 10-K
(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, 2001 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. 0-20975

                                 TENGASCO, INC.
                (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

         TENNESSEE                                                    87-0267438
(STATE OR OTHER JURISDICTION OF                                 (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION)                               IDENTIFICATION NO.)

               603 MAIN AVENUE, KNOXVILLE, TENNESSEE     37902
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)   (ZIP CODE)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (865) 523-1124.

Securities  registered  pursuant to Section 12(b) of the Act:  NONE.
Securities  registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001
PAR VALUE PER SHARE.

      Indicate  by  checkmark  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 / /

      Indicate by checkmark if disclosure  of  delinquent  filers in response to
Item 405 of Regulation  SK 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-K
or any amendment to this Form 10-K. [ ]

      State issuer's revenues for its most recent fiscal year: $6,953,089

      State the aggregate market value of the voting stock held by nonaffiliates
(based on the closing price on March 1, 2002 of $6.38): $43,111,759.

      State the number of shares outstanding of the registrant's $.001 par value
common stock as of the close of business on the latest  practicable  date (March
1, 2002): 10,656,401

      Documents Incorporated By Reference: None.

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                                        TABLE OF CONTENTS

                                                                            Page
PART I

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

         Item 2.    Description Of Property ................................. 21

         Item 3.    Legal Proceedings ....................................... 28

         Item 4.    Submission of Matters to a Vote of Security Holders ..... 31

PART II

         Item 5.    Market for Registrant's Common Equity and Related
                    Stockholder Matters ..................................... 32

         Item 6.    Selected Financial Data ................................. 34

         Item 7.    Management's Discussion and Analysis of Financial
                    Condition and Results of Operation ...................... 35

         Item 7A.   Quantitative and Qualitative Disclosures About
                    Market Risk ............................................. 44

         Item 8.    Financial Statements and Supplementary Data ............. 45

         Item 9.    Changes in and Disagreements With Accountants on
                    Accounting and Financial Disclosure ..................... 45

PART III

         Item 10.   Directors and Executive Officers of the Registrant ...... 46

         Item 11.   Executive Compensation .................................. 52

         Item 12.   Security Ownership of Certain Beneficial Owners
                    and Management .......................................... 55

         Item 13.   Certain Relationships and Related Transactions .......... 59
PART IV

         Item 14.   Exhibits, Financial Statement Schedules, and Reports
                    on Form 8-K ............................................. 60

SIGNATURES .................................................................. 66

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                           FORWARD LOOKING STATEMENTS

            The information contained in this Report, in certain instances,
includes forward-looking statements. When used in this document, the words
budget, budgeted, anticipate, expects, estimates, believes, goals or projects
and similar expressions are intended to identify forward-looking statements. It
is important to note that the Company's actual results could differ materially
from those projected by such forward-looking statements. Important factors that
could cause actual results to differ materially from those projected in the
forward-looking statements include, but are not limited to, the following:
production variances from expectations, volatility of oil and gas prices, the
need to develop and replace reserves, the substantial capital expenditures
required for construction of pipelines and the drilling of wells and the related
need to fund such capital requirements through commercial banks and/or public
securities markets, environmental risks, drilling and operating risks, risks
related to exploration and development drilling, the uncertainty inherent in
estimating future oil and gas production or reserves, uncertainty inherent in
litigation, competition, government regulation, and the ability of the Company
to implement its business strategy, including risks inherent in integrating
acquisition operations into the Company's operations.


PART I


ITEM 1.    BUSINESS.


OVERVIEW

            The Company is in the business of exploring for, producing and
transporting oil and natural gas in Tennessee and Kansas. The Company leases
producing and non-producing properties with a view toward exploration and
development. Emphasis is also placed on pipeline and other infrastructure
facilities to provide transportation, processing and tieback services. The
Company utilizes state-of-the-art seismic technology to maximize the recovery of
reserves. The Company's activities in the oil and gas business commenced in May
1995 with the acquisition of oil and gas leases in Tennessee.

            Since 1995 the Company has acquired oil and gas leases on a total of
approximately 60,000 acres, located in Hancock, Claiborne, Knox, Jefferson and
Union Counties in Tennessee.

            Effective December 31, 1997, the Company acquired from AFG Energy,
Inc. ("AFG"), a private company, approximately 32,000 acres of leases in the
vicinity of Hays, Kansas (the "Kansas Properties"). Included in the acquisition
which closed on March 5, 1998 were 273 wells, including 208 working wells, of
which 149 are producing oil wells and 59 are producing


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gas wells, a related 50 mile pipeline and gathering system, 3 compressors and 11
vehicles. The total purchase price of these assets was approximately $5.5
million, which consisted of $3 million in cash and seller financing of $2.5
million. The seller financing portion of the purchase price was refinanced by
Arvest United Bank of Oklahoma City, Oklahoma as evidenced by a note dated
November 23, 1999 in the amount of $1,883,650 to be paid in monthly installments
of principal and interest over a three year period. This obligation was
subsequently satisfied from the proceeds of a line of credit received by the
Company from Bank One, N.A. of Houston, Texas ("Bank One"). See, "Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operation."

            The Kansas Properties are currently producing approximately one
million cubic feet of natural gas and 400 barrels of oil per day. Net revenues
from the Kansas Properties at the present time is approximately $315,000 per
month.

            To date, the Company has been drilling primarily on a portion of its
Tennessee leases, the 50,500 acre Swan Creek Field in Hancock County (the "Swan
Creek Field or Leases") focused within the Knox formation, one of the geologic
formations in the Field. It shortly intends to commence drilling in one of the
other geologic formations in the Swan Creek Field. In 2001, the Company had 29
producing gas wells and 6 producing oil wells.

            On November 18, 1999, the Company entered into a contract with
Eastman Chemical Company ("Eastman"), in Kingsport, Tennessee, pursuant to which
Eastman agreed to purchase a minimum of the lesser of 80% of its requirements or
10,000 MMBtu's (MMBTU MEANS ONE MILLION BRITISH THERMAL UNITS) of gas per day,
for twenty years.

            On March 30, 2001, the Company entered into a contract with BAE
Systems ("BAE"), the operator of the Holston Army Ammunition Plant in Kingsport,
Tennessee, pursuant to which BAE agreed to purchase all its gas requirements up
to a maximum of 5,000 MMBtu's per day of gas for twenty years.

            On March 8, 2001, the Company's wholly owned subsidiary, Tengasco
Pipeline Corporation, completed a 65 mile intrastate pipeline from the Swan
Creek Field to Kingsport, Tennessee at a cost to date of approximately $15.3
million through which it delivers its gas to Eastman, BAE and other customers in
East Tennessee.

            Delivery of gas to BAE commenced on April 4, 2001 and to Eastman on
May 24, 2001. Commencing in June, 2001, the Company was producing approximately
5 million cubic feet of gas ("MMcf"are units of one million cubic feet of gas)
per day from its existing wells in the Swan Creek Field. Based upon the
estimated reserves contained in a reserve analysis report as of December 31,
2001 provided to the Company by Ryder Scott Company, L.P. and the initial
production output of the existing wells, the Company anticipated that from
existing wells and new wells to be completed during 2001, it would be able to
produce and sell approximately 10 MMcf of gas per day to Eastman and BAE by the
end of 2001. However, in view of the lack of production history from the wells
or other wells in the area, various technical difficulties and

                                       2
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substantial problems with higher than expected fluids in the wells, led to
significant reductions in the amount of gas produced and the Company was unable
to meet these projected goals. At present, the Company is producing
approximately 3MMcf of gas per day from its Swan Creek Field, a reduction from
the average of 4-5 MMcf produced in the beginning of the second half of 2001.
This reduction is the result of the problems discussed above; the fact that it
was necessary to shut down many of the wells while work to resolve the problems
was being done; and, the fact that the Company has temporarily stopped drilling
any new wells in the Swan Creek Field due to the necessity of devoting its
efforts to the task of improving the production from the existing wells.

            At present, work has been completed on 11 wells to reduce the
adverse effects of the fluid problems on the production of gas. Additional work
to eliminate the fluid problems from the wells, and, in some cases, to drill new
wells to replace troubled wells is ongoing, and the Company expects that
production to increase substantially from the Swan Creek Field by the end of
2002. The Company's efforts will be aided significantly by geological
information of the Knox formation derived from its experience with the wells
already drilled. The Company has now been able to assimilate a detailed
description and location of the primary producing geological structure. This now
allows for enhanced placement and relocation of some wells into the more
productive part of the Knox formation. This approach has been similar to a 3D
seismic acquisition and evaluation without the high cost associated with such a
procedure. As a result, although no assurances can be given, the Company
believes that the amount of fluids in any of the new wells to be drilled in the
Swan Creek Field will be significantly reduced. The Company hopes to commence
drilling of new wells in the Swan Creek Field shortly. The Company will also
continue to conduct exploration and production activities to produce increased
quantities of crude oil and natural gas. See, "Item 7 Management's Discussion
and Analysis of Financial Condition and Results of Operation - Liquidity and
Capital Resources" for discussion regarding funding for development activities.


HISTORY OF THE COMPANY

            The Company was initially organized under the laws of the State of
Utah on April 18, 1916, under the name "Gold Deposit Mining & Milling Company."
The Company subsequently changed its name to Onasco Companies, Inc. The Company
was formed for the purpose of mining, reducing and smelting mineral ores.

            On November 10, 1972, the Company conveyed to an unaffiliated entity
substantially all of the Company's assets and the Company ceased all business
operations.

            From approximately 1983 to 1991, the operations of the Company were
limited to seeking out the acquisition of assets, property or businesses.

            At a special meeting of stockholders held on April 28, 1995, the
Company's stockholders voted:

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            (i)   to approve the execution of an agreement (the "Purchase
Agreement") pursuant to which the Company would acquire certain oil and gas
leases, equipment, securities and vehicles owned by Industrial Resources
Corporation ("IRC")(1), a Kentucky corporation, in consideration of the issuance
of 4,000,000 post-split (as described below) "unregistered" and "restricted"
shares of the Company's common stock and a $450,000 8% promissory note payable
to IRC. The promissory note was converted into 83,799 shares of the Company's
common stock in December 1995;

            (ii)  to amend the Articles of Incorporation of the Company to
effect a reverse split of the Company's outstanding $0.001 par value common
stock on a basis of one share for two, retaining the par value at $0.001 per
share, with appropriate adjustments being made in the additional paid-in capital
and stated capital accounts of the Company;

            (iii) to change the name of the Company from "Onasco Companies,
Inc." to "Tengasco, Inc."; and

            (iv)  to change the domicile of the Company from the State of Utah
to the State of Tennessee by merging the Company into Tengasco, Inc., a
Tennessee corporation, formed by the Company solely for this purpose.

            The Purchase Agreement was duly executed by the Company and IRC,
effective May 2, 1995. The reverse split, name change and change of domicile
became effective on May 4, 1995, the date on which duly executed Articles of
Merger effecting these changes were filed with the Secretary of State of the
State of Tennessee; a certified copy of the Articles of Merger from the State of
Tennessee was filed with the Department of Commerce of the State of Utah on May
5, 1995. Unless otherwise noted, all subsequent computations herein
retroactively reflect this one for two reverse split.

            During 1996, the Company formed Tengasco Pipeline Corporation, a
wholly-owned subsidiary, to manage the construction and operation of its
pipeline, as well as other pipelines planned for the future.


GENERAL

      1.    THE SWAN CREEK FIELD

            Amoco Production Company ("AMOCO") during the late 1970's and early
1980's, after extensive geological and seismic studies, acquired approximately
50,500 acres of oil and gas leases in the Eastern Overthrust in the Appalachian
Basin, an area now referred to as the Swan

----------
(1)   Malcolm E. Ratliff, the Company's Chief Executive Officer and Chairman of
the Board of Directors, is the the sole shareholder of IRC.

                                       4
<PAGE>


Creek Field.

            In 1982 AMOCO successfully drilled two significant natural gas
discovery wells in the Swan Creek Field to the Knox Formation at approximately
5,000 feet of total depth. These wells, once completed, had a high pressure and
volume of deliverability of natural gas; however, in the mid-1980's a
substantial decline in worldwide oil and gas prices occurred and the high cost
of constructing a necessary 23 mile pipeline across three rugged mountain ranges
and crossing the environmentally protected Clinch River from Sneedville to the
closest market in Rogersville, Tennessee was cost prohibitive.

            In 1987, AMOCO farmed out its leases to Eastern American Energy
Company which held the leases until July 1995. The Company became aware of a law
adopted by the Tennessee legislature which enabled the Company to lease all of
AMOCO's prior acreage. The Company filed for a declaratory judgment as to its
right to lease AMOCO's prior acreage. The Company was ultimately successful in
winning all right, title and interest in all of AMOCO's prior leases in a
precedent setting Supreme Court case.

            In July 1995 after completion of the Purchase Agreement with IRC,
the Company acquired the Swan Creek Leases. These leases provide for a landowner
royalty of 12.5%.

            In July 1998 the Company completed the first phase ("Phase I") of
its pipeline in the Swan Creek Field, a 30 mile pipeline made of 6 and 8 inch
steel pipe running from the Swan Creek Field into the main city gate of
Rogersville, Tennessee. With the assistance of the Tennessee Valley Authority
("TVA"), the Company was successful in utilizing TVA's right-of-way along its
main power line grid from the Swan Creek Field to the Hawkins County Gas Utility
District located in Rogersville. The cost of constructing Phase I of the
pipeline was approximately $4,200,000.

            Having completed Phase I of its pipeline, in July 1998 the Company
began selling gas to Hawkins County Utility District which services residential,
municipal and industrial customers in the Hawkins County area, pursuant to a
written contract entered into on September 26, 1996. During the period from
August 1998 through December 31, 1998 the Company delivered 46,776 cubic feet of
gas to Hawkins County Utility District.

            During the period from January 1, 1999 through March 23, 1999
Hawkins County Utility District took only 477 Mcf of gas ("Mcf" are units of one
thousand cubic feet of gas) from the Company. Although Hawkins County Utility
District could take gas in greater quantities, it declined to do so. Pursuant to
its original contract, it was not obligated to purchase any specific amount of
gas. The contract with the Hawkins County Utility District was renegotiated and
an Amendment Agreement was entered into on October 19, 1999 whereby the Hawkins
County Utility District committed to take a minimum of 500 Mcf and a maximum of
4,000 Mcf of gas per day with an option to purchase up to an additional 3,000
MCF per day. Pursuant to this Agreement, the Hawkins County Utility District
began purchasing gas from the Company as of November 2, 1999. Hawkins County has
purchased relatively small quantities of gas which the

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Company was able to blend from certain wells to provide gas which contains less
than 4% nitrogen. Hawkins County's position is that it is not required to
purchase contract volumes unless the nitrogen content is less than 4%, although
the Company has demonstrated that its gas, with a nitrogen content of
approximately 4.5% is interchangeable with 4% gas. Since November 2, 1999,
Hawkins County Utility District has purchased 3,910 Mcf of gas. The Company
stands ready to deliver additional quantities of gas, but there can be no
assurances that Hawkins County will purchase additional quantities of gas.

            On November 18, 1999, the Company entered into an agreement with
Eastman Chemical Company ("Eastman") which provides that the Company will
deliver daily to Eastman's plant in Kingsport a minimum of the lesser of (i)
5,000 MMBtu's (MMBtu means one million British thermal units which is the
equivalent of approximately one thousand cubic feet of gas) or (ii) forty
percent (40%) of the natural gas requirements of Eastman's plant and a maximum
of 15,000 MMBtu's per day. Under the terms of the agreement, the Company has the
option to install facilities to treat the delivered gas so that the total
non-hydrocarbon content of the delivered gas is not greater than two percent
(2%). This will allow the gas to be used in certain processes in the Eastman
plant requiring low levels of non-hydrocarbons. If the Company elects to perform
this option by installing additional facilities, the minimum daily amount of gas
to be purchased by Eastman from the Company will increase to the lesser of
(i)10,000 MMBtu's or (ii) eighty percent (80%) of the natural gas requirements
of Eastman's chemical plant.

            On March 27, 2000, the Company and Eastman signed an amendment to
the agreement permitting the Company a further option with respect to the
allowable level of non-hydrocarbons in the delivered gas. This amendment gives
the Company the further option to tender gas without treatment, at a minimum
volume of 10,000 MMBtu's per day, in consideration of which the Company agrees
to accept a price reduction of five cents per MMBtu for the volumes per day
between 5,000 and 10,000 MMBtu's per day under the pricing structure in place
under the original agreement. To date, none of the gas sold by the Company to
Eastman exceeds the allowable level of non-hydrocarbons permitted under the
agreement and does not require treatment.

            Under the agreement as amended March 27, 2000, Eastman agreed to pay
the Company the index price plus $0.10 for all natural gas quantities up to
5,000 MMBtu's delivered per day, the index price plus $0.05 for all quantities
in excess of 5,000 MMBtu's per day and the index price for all quantities in
excess of 15,000 MMBtu's per day. The index price means the price per MMBtu
published in McGraw-Hill's INSIDE F.E.R.C Gas Market Report equal to the Henry
Hub price index as shown in the table labeled Market Center Spot Gas Prices.
During the six months ended February 28, 2002, the index price has ranged from a
high of $3.19 per MMBtu in August 2001 to a low of $1.86 in October 2001.

            The agreement with Eastman is for a term of twenty years and will be
automatically extended, if the parties agree, for successive terms of one year.
The initial term of the agreement was to commence upon the Company's completion
of construction of Phase II of its pipeline and connection to Eastman's
facilities and once commercial operation of that facility

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was approved. Pursuant to its agreement with Eastman, completion of construction
of Phase II of the pipeline was originally to be made by December 31, 2000.
However, Eastman subsequently agreed to extend the completion date of
construction to March 31, 2001.

            Because the Company is required to enter into hedging agreements in
fiscal 2002 pursuant to its credit facility agreement with Bank One, this may
have an effect on the revenues it receives from actual sales of gas during that
period. Under the credit facility agreement with Bank One, the volume made
subject to the initial hedging agreement was not to be based on the Company's
actual sales volumes. Under its present hedging agreement with Bank One which
terminates on July 31, 2002, if the index price on a theoretical volume of 3,500
MMBtu per day of natural gas ranges between $2.50 and $3.01per MMBtu the
Company's hedging will have no effect. However, if the index price falls below
$2.50 per MMBtu the Company s hedging agreement will result in it actually
receiving from Bank One under the hedge agreement, the difference between the
actual price and $2.50 for the hedged volume of natural gas. If the index price
rises above $3.01 per MMBtu the Company's hedging agreement will result in it
actually paying to Bank One under the hedge agreement, the difference per MMBtu
between the actual price and $3.01 for the hedged volume of natural gas.

            On January 25, 2000, the Company's wholly owned subsidiary, Tengasco
Pipeline Corporation ("Tengasco Pipeline"), signed a franchise agreement to
install and operate new natural gas utility services to residential, commercial
and industrial users in Hancock County, Tennessee for the Powell Valley Utility
District. The Powell Valley District has no existing natural gas facilities and
the system to be installed by Tengasco Pipeline will initially extend to schools
and small customers, and will be gradually expanded over time to serve as many
of the 6,900 residents of the County as is economically feasible. Tengasco
Pipeline will purchase gas from the Company on behalf of the District and it
will be resold at an average retail price of about $8.00 Mcf. Under the
franchise agreement, which has an initial term of ten years and may be renewed
for an additional ten years, Tengasco Pipeline will receive 95% of the gross
proceeds of the sale of gas for its services under the agreement. In June, 2000,
Tengasco Pipeline began installation of the necessary facilities to begin to
serve up to 1,500 residential and industrial consumers in the City of
Sneedville, county seat of Hancock County. The Company's existing eight inch
main line from its Swan Creek Field passes through the city limits of
Sneedville. A one-half mile of interconnecting pipeline from the Company's
existing pipeline was installed, as well as an additional four miles of pipeline
as the initial phase of the distribution system. The construction was completed
and delivery of initial volumes of gas into the system from the Swan Creek field
occurred on December 27, 2000. The cost of construction of these facilities was
approximately $133,000. Upon enactment of initial rate schedules by the Powell
Valley Utility District, initial sales began in January, 2001 to a small number
of residential and small commercial customers. Tengasco Pipeline has contracted
with the City of Sneedville to conduct billing and installation activities in
connection with the day to day operation of this system. On March 11, 2002, the
Company began delivering gas to its first commercial customer in a new
industrial park in Sneedville, Kiefer Built, Inc, an Iowa based manufacturer of
livestock and industrial trailers. The Company hopes to be able to supply gas to
other customers who may move into that industrial park. At this time, no gas
sales agreements for large volume or base load sales have been signed and there
can be no assurances that such agreements will be signed and if

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signed, it is not possible to predict when such sales may begin or what the
overall volumes of gas sold may be.

            On March 17, 2000, the Company announced that it had entered into an
agreement with the University of Tennessee-Knoxville ("UTK") related to its
hydrocarbon exploration activities in eastern Tennessee. Two UTK geological
scientists, Professor Robert D. Hatcher, Jr., a University of Tennessee/Oak
Ridge National Laboratory Distinguished Scientist in structural and Appalachian
geology and now a Director of the Company, and Dr. Richard T. Williams, Ph. D.,
Associate Professor in geophysics, provide the Company with assistance in
interpreting the structure of the Swan Creek Field and geophysical data from
that field. New seismic data will permit better subsurface imaging and more
exact determination of the size of the Swan Creek Field.

            A major outgrowth of the Company's relationship with UTK is a new
graduate fellowship, called the Tengasco Fellowship, to be awarded in UTK's
Department of Geological Sciences to an outstanding graduate student interested
in pursuing a career in the petroleum industry. The fellowship will provide a
living allowance and tuition for the student. Two UTK PH. D. students receiving
financial support from the Company have already provided computer generated 3-D
images of the Swan Creek Field. These images have helped outline the subsurface
shape of the hydrocarbon producing zone to allow the Company to better
understand where additional production might be located.

            The Company and the University of Tennessee have signed a Memorandum
of Agreement concerning cooperation between them in the use of vibreosis seismic
equipment, primarily a large vibrator truck, owned by the University that is to
be used in the Company's exploration program. Under the agreement, the Company
is entitled to use the equipment in exchange for performing required routine
expert maintenance and upkeep on the University's equipment, the cost of which
exceeds the University's available resources. The University-owned truck is
identical to two trucks owned by the Company and used in its seismic exploration
program.

            In April 2000, Tengasco Pipeline commenced construction of Phase II
of the Company's pipeline. When the pipeline was completed on March 8, 2001, an
additional 35 miles of pipeline of 8 and 12 inch pipe had been laid at a cost to
date of approximately $11.1 million extending the Company's pipeline from a
point near the terminus of Phase I and connecting to an existing pipeline and
meter station at Eastman's chemical plant. The completed pipeline extends 65
miles from the Company's Swan Creek Field to Kingsport, Tennessee.

            On March 30, 2001, the Company signed a contract to supply natural
gas to BAE SYSTEMS Ordnance Systems Inc. ("BAE"), operator of the Holston Army
Ammunition Plant in Kingsport, Tennessee for a period of twenty years. Natural
gas is used at the Holston Army ammunition facility to fire boilers and furnaces
for steam production and process operations utilized in the manufacture of
explosives by BAE for the United States military. Under the agreement, BAE's
daily purchases of natural gas will be between 1.8 million and 5 million cubic

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feet, and volume could increase significantly over the life of the agreement as
BAE conducts additional operations at the Holston facility. The contract calls
for a price based on the monthly published index price for spot sales of gas at
the Henry Hub plus five cents per MMBtu in the same manner as the price is
calculated in the contract between the Company and Eastman. The contract with
BAE provides that the Company's obligation to sell gas to BAE is subject to
availability of gas after the Company satisfies its obligation in accordance
with Eastman's needs up to 15 MMcf per day.

            The Company will be the sole supplier of natural gas to BAE under
this agreement and the Company has the only gas pipeline located on the grounds
of the 6,000-acre Holston facility. A portion of the Holston facility is being
developed by BAE as the new Holston Business and Technology Park which will
serve as a location for additional commercial and industrial customers. The
Company's presence at the Holston Business and Technology Park will provide the
availability of gas service to other customers and is considered by BAE to be an
important factor in the development of the Park, as well as the source of
potential new customers for the Company. Although the Company's gas production
from its Swan Creek Field has not been sufficient to supply the quantity of gas
that Eastman has been willing to purchase under its agreement with the Company,
Eastman has not, to date, objected to sales of gas by the Company to BAE and
others.

            During 2001, the Company had 29 producing gas wells and six
producing oil wells in the Swan Creek Field. Miller Petroleum, Inc. and others
had a participating interest in twelve of these wells. See, "Item 2 -
Description of Property - Property Location, Facilities, Size and Nature of
Ownership." In total, the Company has completed 44 wells and two wells are in
the process of being completed in the Swan Creek Field. Of the completed wells,
nine are shut-in or currently not producing because these wells are either not
presently producing commercial quantities of hydrocarbons, or are awaiting
workover or tie-in to the Company's pipeline. However, certain of these wells
may not be tied-in to the Company's pipeline since the expense of connection
over rough terrain may not be justified in view of the expected volumes to be
produced. The majority of these gas wells were drilled prior to the completion
of the pipeline system so only test data was available prior to full production.

            The Company began delivering gas through its pipeline to BAE on
April 4, 2001 and to Eastman on May 24, 2001. June's daily production was
4,936.2 Mcf and July's daily production average increased to 5,497 Mcf per day
and the Company anticipated that it would reach its goal of delivering 10MMcf
per day to Eastman and BAE by the end of 2001. However, the Company was unable
to attain that production target due to the in-flow of substantially more fluids
in the existing wells than expected. These fluids entered the wells from the
boreholes. The fluids obstructed and significantly reduced the flow of gas from
the existing wells and required the Company to perform substantial additional
work and repairs to increase the production from existing wells. First, it was
necessary to install a drip tank system to eliminate the fluids in the pipeline.
Next, the Company had to install mechanical devices in many of the existing
wells to reduce the fluid problems. As a result of this repair work, many of the
existing wells had to be shut down while the repairs were made. In addition, the
Company temporarily ceased drilling new

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wells in order to concentrate its efforts on the repairs. These fluid entry
problems along with natural production declines and suspension of drilling
activity have led to production totals lower than anticipated. The decline
appears to be stabilizing and leveling off at approximately 3MMcf of gas per day
from the Swan Creek Field.

            To date, two types of mechanical devices, pump jacks and gas lifts
have been installed in 11 of the Company's existing wells, and act as mechanisms
to remove the fluids and stabilize erratic behavior, such as large swings in
individual well production. These devices have had a variety of effects on
production totals of existing wells. On some individual wells production has
more than doubled, while on others, although production totals have not
increased, the monthly average production volume has become constant and more
predictable. Some of the decline in production from existing wells is also
related to natural fracture production and the associated decline to steadier
flow rates from such a two-part system. The natural storage system for the
formation in the Swan Creek Field to which the Company's existing wells have
been drilled and from which gas is currently being produced, i.e, the Knox
Formation, has both primary and secondary porosity distributed throughout the
dolomite rock that makes up this complex formation. All types of gas wells
experience some type of decline as production takes place. While the natural
fractures enhance production cumulative overall and contribute to longevity, the
initial production declines can be significant. These natural declines were
expected and do not diminish either the shut in pressure or the Company's actual
reserves in the Swan Creek Field. They do, however, suggest the production rates
from some of the smaller wells will be slower, but production will last longer
than expected. The Company is currently considering a plan to customize an
acidizing program for some of its more productive existing wells which might
lead to more rapid recovery and accelerate production. Such a program would be
targeted to 3 or 4 of the existing wells. It is unknown at this time what the
impact such a program might have. The Company also plans to install additional
gas lifts in 5 more of the existing wells and in the other existing wells as
needed, although not all wells have fluid problems.

            In addition to the work on existing wells, the Company intends to
drill several new wells within the Knox formation. Because the Knox formation
has been defined by the accumulation of data from the previously drilled wells,
new locations and new wells are expected to contribute significantly to
achieving increases to production totals. Collecting the geological history from
the existing wells has indicated that the Company has three wells that need to
be relocated to a more productive part of the structure. The Company also has
two existing wells which fluid control methods can only be addressed by
re-drilling both locations. The Company will "twin" one of these wells, turning
the non-productive gas well into a shallow oil well, and re-drill the deeper gas
zone with efforts at controlling production of fluids from the start. The
Company will plug the other existing well because of mechanically damaged pipe
and then "relocate" this well to a more promising location. Re-drilling of the
two existing wells is expected to begin in April. The Company believes that
these five new wells can be strategically located due to the high degree of
information it has developed from its existing wells as to the shape and key
producing horizons of the Knox Formation. The Company is hopeful that production
from these new wells will be in line with the production from its best existing
wells in the Swan Creek Field and will have a noticeable effect on increasing
the total production from the Field.

                                       10
<PAGE>


            The Company expects the repair work to existing wells and the
drilling of the five new wells in the Knox formation to be completed in the next
six months. Although no assurances can be made, the Company believes that, once
this work is completed and the new wells are drilled, production from the Swan
Creek Field will substantially increase by the end of 2002.

            The Company also intends to commence drilling in other formations in
its Swan Creek Field. To date, drilling in the Swan Creek Field has focused on
production of gas primarily from the Knox formation. This is a lower Ordovician
Dolomite, and the heart of the anticline structure at Swan Creek. However,
immediately adjacent to this formation and shallower over these formations are
other formations which the Company believes have a potential for gas production.
The Stones River and Trenton formations hold the possibility for both oil and
gas and have produced some gas to date. These Upper Ordovician formations have
not been a primary target for gas production, but the shallower depths needed
for drilling and the moderate gas production might make a potential subsequent
source for additional gas production. With the completion of only one well in
the Trenton formation which is producing approximately 100Mcf per day, the
impact of these targets is proportional both to an area and an extent that is
yet undefined. The Company also plans to drill a 12,000 to 15,000 feet deep test
well in the Company's Swan Creek field, which the Company believes may have high
potential for significant additional volumes of natural gas. The current wells
in this field are all approximately 5,000 feet deep. Drilling is expected to
commence on or before December 31, 2002. The target of this drilling will be the
Conasauga and Rome formations from the lower and middle Cambrian ages.

            As of the present time the Company does not anticipate that it will
be able to fulfill the maximum delivery requirements under its contracts with
Eastman and BAE from its existing wells. However, based on the reserve analysis
report of the Swan Creek Field, the Company believes that once it continues its
program of drilling new wells in the Swan Creek Field it will eventually produce
sufficient gas to meet these requirements. No assurances, however, can be given
that it will meet these goals.

            Oil production in the Swan Creek Field declined from 47,281 barrels
in 2000 to 30,323 barrels in 2001. This decline was due primarily from the
natural decline process in existing wells and as a result of work on existing
wells to deal with the fluid problems discussed above. The Company is presently
reviewing key areas for drilling of new oil wells in the Swan Creek Field and it
is anticipated that in the fourth quarter of 2002 drilling of new wells to
increase oil production will begin. In addition, chemical treatments to enhance
production from existing wells are presently being studied and may be undertaken
if the Company believes the results of such treatments will be cost effective.

                                       11
<PAGE>


      2.    THE KANSAS PROPERTIES

            The Company, as of December 31, 1997 acquired the Kansas Properties
which presently includes 134 producing oil wells and 51 producing gas wells in
the vicinity of Hays, Kansas and a gathering system including 50 miles of
pipeline. The Company also acquired 37 other wells which now serve as saltwater
disposal wells in the vicinity of Hays, Kansas. Saltwater wells are used to
store saltwater encountered in the drilling process that would otherwise have to
be transported out of the area. These saltwater disposal wells reduce operating
costs by eliminating the need for transport. The aggregate production for the
Kansas Properties at present is approximately one MMcf and 400 barrels of oil
per day. Revenue for the Kansas Properties is approximately $315,000 per month.

            The Company has hired a full time geologist in Kansas to oversee
operations in the Kansas Properties. Recent well workovers in Kansas have
improved production with an estimated $1.80 increase in revenue for every $1.00
in work expense. The Company plans to drill five new wells in Ellis and Rush
Counties, Kansas on its existing leases in response to drilling activity in the
area establishing new areas of production. In 2001 the Company successfully
drilled the Dick No. 7 well in Kansas and completed the well as an oil well. The
Company is also engaged in gathering for a fee the gas produced from wells owned
by others located in Kansas adjacent to the Company's wells and near the
Company's gathering lines. The Company's plans for its Kansas properties include
maintaining the current productive capacity of its existing wells through normal
workovers and maintenance of the wells, performing gathering or sales services
for adjacent producers, and expanding the Company's own production through
drilling these additional wells. Such plans are subject to the availability of
funds to perform the work.

            In addition, there are several capital development projects that are
available with respect to the Kansas Properties which include recompletion of
wells and major workovers to increase current production. These projects when
completed may increase production in Kansas. Management, however, has made the
decision not to perform this work at the present time, as the Company does not
presently have the funds necessary to perform these projects. It will however,
reconsider its decision if such funds become available through the Company's
operations or other sources of financing.


      3.    OTHER AREAS OF DEVELOPMENT

            On August 10, 2001, the Company and Penn Virginia Oil & Gas
Corporation, a subsidiary of Penn Virginia Corporation entered into a joint
operating agreement to explore, drill and develop a certain area of mutual
interest in East Tennessee and southern Virginia. Both companies will share
equally all lease acquisition costs, seismic exploration and analysis costs,
drilling and operating costs, as well as the proceeds from production. Penn
Virginia is named as the initial operator under the joint operating agreement.
Penn Virginia has begun the seismic program and drilling operations will be
based on the results of seismic analysis. No assurances

                                       12
<PAGE>


can be made at this time of the amount of reserves that may be discovered or
produced in the course of this venture.

            The Company is presently exploring other geological structures in
the East Tennessee area that are similar to the Swan Creek structure and which
the Company believes have a high probability of producing hydrocarbons. The
Company has either acquired seismic data on these structures from third-party
sources, or is conducting its own seismic studies with its own trucks and
equipment. The seismic data is being analyzed at the University of Tennessee as
part of the strategic alliance between the Company and the University of
Tennessee. The seismic analysis is continuing and related leasing activities
have begun based on initial analysis of seismic results. The Company plans to
conduct exploration activities in these areas. The first of these locations will
be in Cocke County, Tennessee which is approximately 40 miles southeast of the
Swan Creek Field. The Company, in conjunction with Southeast Gas & Oil Corp. of
Newport, Tennessee, plans to drill an approximately 6,000-foot exploratory well
to the Knox formation. If the well is successful this will lead to additional
wells being drilled for new field evaluation. The Company also expects to
explore one other new structure this year.


GOVERNMENTAL REGULATIONS

            The Company is subject to numerous state and federal regulations,
environmental and otherwise, that may have a substantial negative effect on its
ability to operate at a profit. For a discussion of the risks involved as a
result of such regulations, see, "Effect of Existing or Probable Governmental
Regulations on Business" and "Costs and Effects of Compliance with Environmental
Laws" hereinafter in this section.


PRINCIPAL PRODUCTS OR SERVICES AND MARKETS

            The Company will conduct exploration and production activities to
produce crude oil and natural gas. The principal markets for these commodities
are local refining companies, local utilities and private industry end users,
which purchase the crude oil, and local utilities, private industry end users,
and natural gas marketing companies, which purchase the natural gas.

            Gas production from the Swan Creek field can presently be delivered
through the Company's completed pipeline to the Powell Valley Utility District
in Hancock County, Eastman and BAE in Sullivan County, as well as other
industrial customers in the Kingsport area. The Company has acquired all
necessary regulatory approvals and 100% of necessary property rights for the
pipeline system. The Company's pipeline will not only provide transportation
service for gas produced from the Company's wells, but will provide
transportation of gas for small independent producers in the local area as well.
Direct sales could also be made to some local towns, industries and utility
districts.

                                       13
<PAGE>


            Natural gas from the Kansas Properties is delivered to
Kansas-Nebraska Energy, Inc. in Bushton, Kansas. At present, crude oil is sold
to the National Cooperative Refining Association in McPherson, Kansas, 120 miles
from Hays. National Cooperative is solely responsible for transportation of the
oil it purchases whether by truck or pipeline. There is a limited market in the
area and the only other purchaser of crude oil is EOTT Energy Operations Ltd.

DRILLING EQUIPMENT

            In addition to the drilling equipment and vehicles which it acquired
from IRC, on November 1, 2000, the Company purchased an Ingersoll Rand RD20
drilling rig and related equipment from Ratliff Farms, Inc., an affiliate of
Malcolm E. Ratliff, Chief Executive Officer and Chairman of the Board of
Directors of the Company. See "Certain Relationships and Related Transactions" -
"Transactions with Management and Others." All of this equipment is in
satisfactory operating condition. The Company also receives contract drilling
services from Miller Petroleum, Inc. and Union Drilling in the Swan Creek Field.


DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

            Crude oil is normally delivered to refineries in Tennessee and
Kansas by tank truck and natural gas is distributed and transported via
pipeline.

COMPETITIVE BUSINESS CONDITIONS, COMPETITIVE POSITION IN THE INDUSTRY AND
METHODS OF COMPETITION

            The Company's contemplated oil and gas exploration activities in the
States of Tennessee and Kansas will be undertaken in a highly competitive and
speculative business atmosphere. In seeking any other suitable oil and gas
properties for acquisition, 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. Management does not believe that the Company's
initial competitive position in the oil and gas industry will be significant.

            Its principal competitors in the State of Tennessee are Ashland Oil
and Miller Services. In the area of the Company's pipeline, the Company is in a
favorable position since it owns the only pipeline within a 20 mile radius.
Within that area, the Company owns leases on approximately 50,500 acres. There
are numerous producers in the area of the Kansas Properties. Some are larger and
some smaller than the Company. However, management expects that it will be able
to sell all of the gas and oil that the Kansas Properties produce.

            Management does not foresee any difficulties in procuring drilling
rigs or the

                                       14
<PAGE>


manpower to run them in the area of its operations. The experience of management
has been that in most instances, drilling rigs have only a one or two day
waiting period; however, several factors, including increased competition in the
area, may limit the availability of drilling rigs, rig operators and related
personnel and/or equipment; such an event may have a significant adverse impact
on the profitability of the Company's operations.

            The Company anticipates no difficulty in procuring well drilling
permits which are obtained from the Tennessee Oil and Gas Board. They are
usually issued within one week of application. The Company generally does not
apply for a permit until it is actually ready to commence drilling operations.

            The prices of the Company's products are controlled by the world oil
market and the United States natural gas market; thus, competitive pricing
behaviors are considered unlikely; however, competition in the oil and gas
exploration industry exists in the form of competition to acquire the most
promising acreage blocks and obtaining the most favorable prices for
transporting the product. Management believes that the Company is
well-positioned in these areas because of the transmission lines that run
through and adjacent to the properties leased by the Company and because the
Company holds relatively large acreage blocks in what management believes are
promising areas.


SOURCES AND AVAILABILITY OF RAW MATERIALS
AND NAMES OF PRINCIPAL SUPPLIERS

            Excluding the development of oil and gas reserves and the production
of oil and gas, the Company's operations are not dependent on the acquisition of
any raw materials. See, "Competitive Business Conditions, Competitive Position
in the Industry and Methods of Competition" set forth above.


DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

            The Company is presently dependent upon a small number of customers
for the sale of gas from the Swan Creek Field, principally Eastman and BAE, and
other industrial customers in the Kingsport area with which the Company may
enter into gas sales contracts.

            Natural gas from the Kansas Properties is delivered to
Kansas-Nebraska Energy, Inc. in Bushton, Kansas. At present, crude oil from the
Kansas Properties is being trucked and transported through pipelines to the
National Cooperative Refining Association in McPherson, Kansas, 120 miles from
Hays, Kansas. National Cooperative is solely responsible for transportation of
products whether by truck or pipeline. There is a limited market in the area and
the only other purchaser of crude oil is EOTT Energy Operations Ltd. The
Company, however, anticipates that it will be able to sell all of the oil and
gas produced from the Kansas Properties.

                                       15
<PAGE>


PATENTS, TRADEMARKS, LICENSES, FRANCHISES, CONCESSIONS,
ROYALTY AGREEMENTS OR LABOR CONTRACTS, INCLUDING DURATION

            Royalty agreements relating to oil and gas production are standard
in the industry. The amount of the Company's royalty payments varies from lease
to lease. The amounts of the royalties on each of the Company's leases may be
obtained from the Company.


NEED FOR GOVERNMENTAL APPROVAL OF PRINCIPAL PRODUCTS OR SERVICES

            None of the principal products offered by the Company require
governmental approval; however, permits are required for drilling oil or gas
wells. See, "Effect of Existing or Probable Governmental Regulations on
Business" below in this section.

            The transportation service offered by Tengasco Pipeline is subject
to regulation by the Tennessee Regulatory Authority to the extent of certain
construction, safety, tariff rates and charges, and nondiscrimination
requirements under state law. These requirements are typical of those imposed on
regulated utilities. Tengasco Pipeline has been granted a certificate of public
convenience and necessity to operate as a pipeline utility in Hancock, Hawkins,
and Claiborne counties, Tennessee. In addition, Tengasco Pipeline was authorized
to construct and operate the portion of Phase II of the pipeline to Eastman by
resolution of the City of Kingsport in May, 2000. This resolution was approved
by the Tennessee Regulatory Authority as required by state law. All approvals
for the Company's pipeline have been granted.

            The City of Kingsport, Tennessee has also enacted an ordinance dated
June 6, 2000 granting to Tengasco Pipeline a franchise for twenty years to
construct, maintain and operate a gas system to import, transport, and sell
natural gas to the City of Kingsport and its inhabitants, institutions and
businesses for domestic, commercial, industrial and institutional uses. This
ordinance and the franchise agreement it authorizes also require approval of the
Tennessee Regulatory Authority under state law. Now that the pipeline to Eastman
has been completed, Tengasco Pipeline and the City of Kingsport will initiate
the required approval process for the ordinance and franchise agreement. The
Company is in discussions with the City of Kingsport in preparation for filing
for regulatory approval and anticipates that the filing will be made in the next
sixty days. Although the Company anticipates that regulatory approval will be
granted, there can be no assurances that it will be granted, or that such
approval may be granted in a timely manner, or that such approval may not be
limited in some manner by the Tennessee Regulatory Authority as is expressly
permitted under state law.

            Tengasco Pipeline presently has all required tariffs and approvals
necessary to transport natural gas to all customers of the Company. See, "Effect
of Existing or Probable Governmental Regulations on Business" below in this
section.

                                       16
<PAGE>


EFFECT OF EXISTING OR PROBABLE GOVERNMENTAL REGULATIONS ON BUSINESS

            Exploration and production activities relating to oil and gas leases
are subject to numerous environmental laws, rules and regulations. The Federal
Clean Water Act requires the Company to construct a fresh water containment
barrier between the surface of each drilling site and the underlying water
table. This involves the insertion of a seven-inch diameter steel casing into
each well, with cement on the outside of the casing. The Company has fully
complied with this environmental regulation, the cost of which is approximately
$10,000 per well.

            The State of Tennessee also requires the posting of a bond to ensure
that the Company's wells are properly plugged when abandoned. A separate $2,000
bond is required for each well drilled. The Company currently has the requisite
amount of bonds on deposit with the State of Tennessee.

            As part of the Company's purchase of the Kansas Properties it
acquired a statewide permit to drill in Kansas. Applications under such permit
are applied for and issued within one-two weeks prior to drilling. At the
present time, the State of Kansas does not require the posting of a bond either
for permitting or to insure that the Company's wells are properly plugged when
abandoned. All of the wells in the Kansas Properties have all permits required
and are in compliance with the laws of the State of Kansas.

            The Company's operations are also subject to laws and regulations
requiring removal and cleanup of environmental damages under certain
circumstances. Laws and regulations protecting the environment have generally
become more stringent in recent years, and may in certain circumstances impose
"strict liability," rendering a corporation liable for environmental damages
without regard to negligence or fault on the part of such corporation. Such laws
and regulations may expose the Company to liability for the conduct of
operations or conditions caused by others, or for acts of the Company which were
in compliance with all applicable laws at the time such acts were performed. The
modification of existing laws or regulations or the adoption of new laws or
regulations relating to environmental matters could have a material adverse
effect on the Company's operations. In addition, the Company's existing and
proposed operations could result in liability for fires, blowouts, oil spills,
discharge of hazardous materials into surface and subsurface aquifers and other
environmental damage, any one of which could result in personal injury, loss of
life, property damage or destruction or suspension of operations.

            The Company believes it is presently in compliance with all
applicable federal, state or local environmental laws, rules or regulations;
however, continued compliance (or failure to comply) and future legislation may
have an adverse impact on the Company's present and contemplated business
operations.

            The Company's Board of Directors adopted resolutions to form an
Environmental Response Policy and Emergency Action Response Policy Program. A
plan was adopted which provides for the erection of signs at each well and at
strategic locations along the pipeline

                                       17
<PAGE>


containing telephone numbers of the Company's office and the home telephone
numbers of key personnel. A list is maintained at the Company's office and at
the home of key personnel listing phone numbers for fire, police, emergency
services and Company employees who will be needed to deal with emergencies.

            The foregoing is only a brief summary of some of the existing
environmental laws, rules and regulations to which the Company's business
operations are subject, and there are many others, the effects of which could
have an adverse impact on the Company. Future legislation in this area will no
doubt be enacted and revisions will be made in current laws. No assurance can be
given as to what effect these present and future laws, rules and regulations
will have on the Company's current and future operations. See, "Risk Factors",
below.


RESEARCH AND DEVELOPMENT

            The Company has not expended any material amount in research and
development activities during the last two fiscal years. Research done in
conjunction with its exploration activities will consist primarily of conducting
seismic surveys on the lease blocks. This work will be performed by the
Company's geology and engineering personnel and other employees and will not
have a material cost of anything more than standard salaries.


COST AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS

            See, "Effect of Existing or Probable Governmental Regulations on
Business" set forth above in this section.


NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES

            The Company presently has thirty-nine full time employees and no
part-time employees.


RISK FACTORS

            In addition to the other information in this document, investors in
the Company's common stock should consider carefully the following risks:

            VOLATILE OIL AND GAS PRICES CAN MATERIALLY AFFECT THE COMPANY. The
Company's future financial condition and results of operations will depend upon
the prices received for the Company's oil and natural gas production and the
costs of acquiring, finding, developing and producing reserves. Prices for oil
and natural gas are subject to fluctuations in

                                       18
<PAGE>


response to relatively minor changes in supply, market uncertainty and a variety
of additional factors that are beyond the control of the Company. These factors
include worldwide political instability (especially in the Middle East and other
oil-producing regions), the foreign supply of oil and gas, the price of foreign
imports, the level of drilling activity, the level of consumer product demand,
government regulations and taxes, the price and availability of alternative
fuels and the overall economic environment. A substantial or extended decline in
oil and gas prices would have a material adverse effect on the Company's
financial position, results of operations, quantities of oil and gas that may be
economically produced, and access to capital. Oil and natural gas prices have
historically been and are likely to continue to be volatile. This volatility
makes it difficult to estimate with precision the value of producing properties
in acquisitions and to budget and project the return on exploration and
development projects involving the Company's oil and gas properties. In
addition, unusually volatile prices often disrupt the market for oil and gas
properties, as buyers and sellers have more difficulty agreeing on the purchase
price of properties.

            UNCERTAINTY IN CALCULATING RESERVES; RATES OF PRODUCTION;
DEVELOPMENT EXPENDITURES; CASH FLOWS . There are numerous uncertainties inherent
in estimating quantities of oil and natural gas reserves of any category and in
projecting future rates of production and timing of development expenditures,
which underlie the reserve estimates, including many factors beyond the
Company's control. Reserve data represent only estimates. In addition, the
estimates of future net cash flows from the Company's proved reserves and their
present value are based upon various assumptions about future production levels,
prices and costs that may prove to be incorrect over time. Any significant
variance from the assumptions could result in the actual quantity of the
Company's reserves and future net cash flows from them being materially
different from the estimates. In addition, the Company's estimated reserves may
be subject to downward or upward revision based upon production history, results
of future exploration and development, prevailing oil and gas prices, operating
and development costs and other factors.

            OIL AND GAS OPERATIONS INVOLVE SUBSTANTIAL COSTS AND ARE SUBJECT TO
VARIOUS ECONOMIC RISKS. The oil and gas operations of the Company are subject to
the economic risks typically associated with exploration, development and
production activities, including the necessity of significant expenditures to
locate and acquire producing properties and to drill exploratory wells. In
conducting exploration and development activities, the presence of unanticipated
pressure or irregularities in formations, miscalculations or accidents may cause
the Company's exploration, development and production activities to be
unsuccessful. This could result in a total loss of the Company's investment. In
addition, the cost and timing of drilling, completing and operating wells is
often uncertain.

            SIGNIFICANT CAPITAL REQUIREMENTS. The Company must make a
substantial amount of capital expenditures for the acquisition, exploration and
development of oil and gas reserves. Historically, the Company has paid for
these expenditures with cash from operating activities, proceeds from debt and
equity financings and asset sales. The Company's ability to re-work existing
wells and complete its drilling program in the Swan Creek Field is dependent
upon its ability to fund these costs. Although the Company anticipated that by
this time it would be able

                                       19
<PAGE>


to fund the completion of its drilling program in the Swan Creek Field from
revenues from the sales of gas, it is unable to do so. Further, the Company's
credit facility with Bank One Corp. has been reduced by Bank One, although the
Company vigorously disputes the Bank's actions. At the present time and until
the Company is able to increase its production and sales of gas and to resolve
its dispute with Bank One, it must obtain the necessary funds to complete its
drilling program from other sources such as equity investment, bank loan or a
joint venture with another company. Although the Company believes that it will
be able to procure such financing, there can be no assurances that it will be
able to obtain such funding. In addition, the Company's revenues or cash flows
could be reduced because of lower oil and gas prices or for some other reason.
If the Company's revenues or cash flows decrease and the Company is unable to
procure alternative financing, this would require the Company to reduce
production over time. Where the Company is not the majority owner or operator of
an oil and gas project, it may have no control over the timing or amount of
capital expenditures associated with the particular project. If the Company
cannot fund its capital expenditures, its interests in some projects may be
reduced or forfeited.

            COSTS INCURRED TO CONFORM TO GOVERNMENT REGULATION OF THE OIL AND
GAS INDUSTRY. The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels. The Company has
made and will continue to make large expenditures in its efforts to comply with
the requirements of environmental and other regulations. Further, the oil and
gas regulatory environment could change in ways that might substantially
increase these costs. Hydrocarbon-producing states regulate conservation
practices and the protection of correlative rights. These regulations affect the
Company's operations and limit the quantity of hydrocarbons the Company may
produce and sell. In addition, at the U.S. federal level, the Federal Energy
Regulatory Commission regulates interstate transportation of natural gas under
the Natural Gas Act. Other regulated matters include marketing, pricing,
transportation and valuation of royalty payments.

            COSTS INCURRED RELATED TO ENVIRONMENTAL MATTERS. The Company, as an
owner or lessee and operator of oil and gas properties, is subject to various
federal, state and local laws and regulations relating to discharge of materials
into, and protection of, the environment. These laws and regulations may, among
other things, impose liability on the lessee under an oil and gas lease for the
cost of pollution clean-up resulting from operations, subject the lessee to
liability for pollution damages, and require suspension or cessation of
operations in affected areas.

            The Company maintains insurance coverage, which it believes is
customary in the industry, although it is not fully insured against all
environmental risks. The Company is not aware of any environmental claims
existing as of December 31, 2001, which would have a material impact upon the
Company's financial position or results of operations.

            The Company has made and will continue to make expenditures in its
efforts to comply with these requirements, which it believes are necessary
business costs in the oil and gas industry. The Company has established policies
for continuing compliance with environmental laws and regulations. The costs
incurred by these policies and procedures are inextricably

                                       20
<PAGE>


connected to normal operating expenses such that the Company is unable to
separate the expenses related to environmental matters; however, the Company
does not believe any such additional expenses are material to its financial
position or results of operations.

            The Company does not believe that compliance with federal, state or
local provisions regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, will have a material
adverse effect upon the capital expenditures, earnings or competitive position
of the Company or its subsidiaries; however, there is no assurance that changes
in or additions to laws or regulations regarding the protection of the
environment will not have such an impact.

            INSURANCE DOES NOT COVER ALL RISKS. Exploration for and production
of oil and natural gas can be hazardous, involving unforeseen occurrences such
as blowouts, cratering, fires and loss of well control, which can result in
damage to or destruction of wells or production facilities, injury to persons,
loss of life, or damage to property or the environment. The Company maintains
insurance against certain losses or liabilities arising from its operations in
accordance with customary industry practices and in amounts that management
believes to be prudent; however, insurance is not available to the Company
against all operational risks.

            HEDGING MAY PREVENT THE COMPANY FROM FULLY BENEFITTING FROM PRICE
INCREASES. The Company has entered into hedging activities for the period from
January 1, 2002 through July 31, 2002, that protect against price deterioration.
To the extent that it does so, it may be prevented from realizing the benefits
of price increases above the levels of the hedges. In addition, the Company is
subject to basis risk when it engages in hedging transactions, particularly
where transportation constraints restrict the Company's ability to deliver oil
and gas volumes at the delivery point to which the hedging transaction is
indexed.

            GENERAL ECONOMIC CONDITIONS. Virtually all of the Company's
operations are subject to the risks and uncertainties of adverse changes in
general economic conditions, the outcome of pending and/or potential legal or
regulatory proceedings, changes in environmental, tax, labor and other laws and
regulations to which the Company is subject, and the condition of the capital
markets utilized by the Company to finance its operations.


ITEM 2. DESCRIPTION OF PROPERTY

PROPERTY LOCATION, FACILITIES, SIZE AND NATURE OF OWNERSHIP

            The Company's Swan Creek Leases are on approximately 50,500 acres in
Hancock, Claiborne, Knox, Jefferson and Union Counties in Tennessee. The initial
terms of these leases vary from one to five years. Many of them can be extended
at the option of the Company by payment of annual rent. Some of them will
terminate unless the Company has commenced

                                       21
<PAGE>


drilling. However, the Company does not anticipate any difficulty in continuing
the Swan Creek Leases.

            Morita Properties, Inc., an affiliate of Shigemi Morita, a former
Director of the Company, currently has a 25% working interest in nine of the
Company's existing wells, and a 50% working interest and 6% working interest in
two of the Company's other existing wells. All of these wells are located in the
Swan Creek Field and are presently producing wells. In addition, to those
interests, Morita Properties, Inc. previously owned a 25% working interest in
three of the Company's other existing wells and 12.5% working interest in
another of the Company's wells which it subsequently sold.

            An individual who is not an affiliate of the Company purchased 25%
working interests in two other wells, the Stephon Lawson No. 1 and the Patton
No. 1. Both of these wells are located in the Swan Creek Field and are presently
producing wells.

            Another individual has a 29% revenue interest in the Laura Jean
Lawson No. 3 well by virtue of having contributed her unleased acreage to the
drilling unit and paying her proportionate share of the drilling costs of the
well. The Company was obligated to allow that individual to participate on that
basis in accordance with both customary industry practice and the requirements
of the procedures of the Tennessee Oil and Gas Board in a forced pooling action
brought by the Company to require the acreage to be included in the unit so that
the well could be drilled. The forced pooling procedure was concluded by her
contribution of acreage and agreement to pay proportionate share of drilling
costs. This well is also located in the Swan Creek Field and is a presently
producing well.

            The Company also entered into a farmout agreement with Miller
Petroleum, Inc. ("Miller") for ten wells to be drilled in the Swan Creek Field
with the Company having an option to award up to an additional ten future wells.
All locations were to be mutually agreed upon. Net revenues are to be 81.25% to
Miller and the Company's subsidiary Tengasco Pipeline will transport Miller's
gas. The Company reserved all offset locations to wells drilled under the
farmout agreement. All ten wells have been drilled under the farmout agreement.
The Company acquired back from Miller a 50% working interest from Miller in nine
of those ten wells in addition to its rights under the farmout agreement. In
addition, the Company and Miller have drilled two additional wells on a 50-50
basis, although the Company declined to exercise its option for a ten-well
extension of the farmout agreement. Of the wells in which Miller owns an
interest, six are presently producing.

            Other than the working interests described or referred to in this
Item, the Company retains all other working interests in wells drilled or to be
drilled in the Swan Creek Field.

            Working interest owners in oil and gas wells are entitled to market
their respective shares of production to purchasers other than purchasers with
whom the Company has contracted. Absent such contractual arrangements being made
by the working interest owners, the Company is authorized but is not required to
provide a market for oil or gas attributable to working interest

                                       22
<PAGE>


owners' production. At this time, the Company has not agreed to market gas for
any working interest owner to customers other than customers of the Company. If
the Company does agree to market gas for working interest owners to the
Company's customers, the Company will have to agree, at that time, to the terms
of such marketing arrangements and it is possible that as a result of such
arrangements, the Company's revenues from such customers may be correspondingly
reduced. If the working interest owners make their own arrangements to market
their natural gas to other end users along the pipeline which have been served
by East Tennessee Natural Gas, an interstate pipeline, such gas would be
transported through the Company's wholly owned subsidiary Tengasco Pipeline at
published tariff rates. The current published tariff rate is for firm
transportation at a demand charge of five cents per MMBtu per day plus a
commodity charge of $0.80 per MMBtu. If the working interest owners do not
market their production, either independently or through the Company, then their
interest will be treated as not yet produced and will be balanced either when
marketing arrangements are made by such working interest owners or when the well
ceases to produce in accordance with customary industry practice.

            The Kansas Properties contain 138 leases totaling 32,158 acres in
the vicinity of Hays, Kansas. The original term on these leases was from 1 to 10
years and in most cases has expired, however, most leases are still in effect
because they are being held by production. The Company maintains a 100% working
interest in most wells. The leases provide for a landowner royalty of 12.5%.
Some wells are subject to an overriding royalty interest from 0.5% to 9%.

            The Company pays ad valorem taxes on its Kansas Properties. It does
not pay any taxes on its Swan Creek Leases. The Company has general liability
insurance for the Kansas Properties and the Swan Creek Field.

            The Company leases its principal executive offices, consisting of
approximately 5,647 square feet located at 603 Main Avenue, Suite 500,
Knoxville, Tennessee, at a monthly rent of $4,705.83. The Company also leases a
field office in Sneedville, Tennessee at a rental of $500 per month, an office
in Hays, Kansas at a rental of $500 per month and an office in New York City at
a rental of $2,600 per month.


RESERVE ANALYSES

            Ryder Scott Company, L.P. of Houston, Texas ("Ryder Scott") has
performed reserve analyses of all the Company's productive leases. Ryder Scott
and its employees and its registered petroleum engineers have no interest in the
Company or IRC, and performed these services at their standard rates. The net
reserve values used hereafter were obtained from a reserve report dated March
28, 2002 (the "Report") prepared by Ryder Scott as of December 31, 2001. In
substance, the Report used estimates of oil and gas reserves based upon standard
petroleum engineering methods which include production data, decline curve
analysis, volumetric calculations, pressure history, analogy, various
correlations and technical judgment. Information for this purpose was obtained
from owners of interests in the areas involved, state regulatory agencies,
commercial services, outside operators and files of Ryder Scott. The net reserve
values

                                       23
<PAGE>


in the Report were adjusted to take into account the working interests that have
been sold by the Company in various wells in the Swan Creek Field. The Report
provides that the net proved reserves for wells in the Swan Creek Field is
23,006 MMcf of natural gas and 224,745 barrels of oil. According to the Report,
the value of the future gross revenues of the Company's interest in the Swan
Creek Field as of December 31, 2001 is $57,832,005 before production taxes and
$56,097,044 after production taxes. The Report further provides that as of
December 31, 2001 the value of the future net income before income taxes of the
Company's interest in the Swan Creek Field is $41,478,067 and discounting the
future net income by 10% results in a present value of $19,302,590.

            The Report reflects a reduction in the amount of proved natural gas
reserves from 33,576.581 MMcf to 23,006.332 MMcf and proved oil reserves from
284,673 barrels to 224,745 barrels in the Swan Creek Field from the reserves as
provided in the Ryder Scott report dated August 10, 2001 reporting values as of
June 30, 2001. This reduction is a result of the later Report placing greater
emphasis on the initial production figures from the Swan Creek Field during the
period from June to December 2001 which were adversely affected by initial
production problems as described above in "Item 1 Business - General - 1. Swan
Creek". The earlier Ryder Scott report as of June 30, 2001, on the other hand,
was based primarily on volumetric calculations rather than actual production
figures because production from the Swan Creek had just begun. The Company
anticipates that the reserve report will not only stabilize at no less than
current levels of production but increase in future reporting periods when it is
expected that production will increase as a result of ongoing work on existing
wells and the drilling of new wells. The Report also reflects a reduction of
48.8% in the net present value of the oil and gas reserves in the Swan Creek
Field from the values reported in the Ryder Scott reserve report dated June 30,
2001. This reduction occurred not only as a result of the amount of reserves
reported, but in addition, as a result of the much lower oil and gas prices
being received at year end as stated in the Report which were approximately
$7.75 per barrel of oil and $.80 Mcf of gas lower than the prices which served
as the basis for Ryder Scott's earlier June 30, 2001 report.

            The Report reflects a substantial reduction in the amount of proved
natural gas reserves from 44,451.338 MMcf to 23,006.332 MMcf and proved oil
reserves from 376,296 barrels to 224,745 barrels in the Swan Creek Field from
the reserves in an earlier Ryder Scott reported dated March 28, 2001 reporting
values as of December 31, 2000.This results from the fact that the earlier
report was based entirely on volumetric calculations because production had not
yet commenced. In addition, the Report reflects a significant reduction of the
discounted (at 10% per annum compounded monthly) net present value of the
Company's oil and gas reserves in the Swan Creek field from $300,208,036 to
$19,302,590. Although this reduction is based in part on the reduction in
reserves for the reasons stated, a most significant factor in this reported
reduction of net present value is the use of much lower price projections in the
valuation of the reserves. The year-end 2000 report utilized near-record gas
prices of $9.77 per Mcf and oil prices of $24.10 per barrel as opposed to the
$2.13 per Mcf price and $17.24 per barrel price utilized in the current Report
for the year ending December 31, 2001. This represents a 78% reduction in gas
prices, and a 28% reduction in oil prices. Finally, the reduction in net present
value as stated in the Report also occurred in part because the projected life
of the Swan Creek

                                       24
<PAGE>


reserves for the year ending December 31, 2001 is more than doubled (from 26.14
years to 57.67 years) from the report for the year ending December 31, 2000.
This has the arithmetical result of amplifying the effect of the ten percent
(compounded monthly) discount factor used in determining a net present value of
the total future income stream, because the discount factor is applied and
compounding occurs over the longer period of time (56.7 years as opposed to
26.14 years) during which production is projected to occur.

            Ryder Scott also performed a reserve analysis of the Kansas
Properties. The Report provides that the net proved reserves for wells in the
Swan Creek Field is 2,873 MMcf of natural gas and 831,930 barrels of oil.
According to the Report, the value of the future gross revenues of the Company's
interest in the Kansas Properties as of December 31, 2001 is $20,463,797 before
production taxes and $19,586,607 after production taxes. The Report further
provides that as of December 31, 2001 the value of the future net income before
income taxes of the Company's interest in the Kansas Properties is $4,350,410
and discounting the future net income by 10% results in a present value of
$2,431,317.

            The Report reflects a reduction from the earlier Ryder Scott report
as of December 31, 2000 in (i) the number of barrels of oil attributed to the
Company's net interest in the Kansas Properties from 1,438,209 barrels to
831,930 barrels and (ii) the value of the future gross revenues of the Company's
interest in the Kansas Properties from $54,419,609 before production taxes and
$54,307,992 after production taxes as of December 31, 2000 to $20,463,797 before
production taxes and $19,586,607 after production taxes as of December 31, 2001.
These reductions are due primarily to two factors. First, the reduction in the
number of barrels occurred because the Report disregarded the reserves
attributable to approximately thirty wells that are still actually producing
oil, because the calculated operating expenses for those wells matched or
exceeded the theoretical crude oil price being utilized in the Report. Because
the current market price of crude oil has risen from the price used in the
Report, all or a portion of the reserves attributable to these wells would now
be included in an analysis of the Company's reserves, depending upon the level
of price received for crude oil and the relationship of such price to operating
expenses. Second, the Report in determining the value of future gross revenues
from the Kansas Properties used lower prices than utilized in the report ending
December 31, 2000. The Report used a gas price of $2.13 in contrast to the $5.30
price used in 2000, and an oil price of $17.21 in contrast to the $26.46 price
used in 2000. The combination of these factors also resulted in a decrease in
the net present value of the Company's future income from the Kansas Properties
calculated at a discount of 10%, from $14,993,222 as of December 31, 2000 to
$2,431,317 as of December 31, 2001. The Company anticipates that future reports
of the net present value of the Kansas Properties will rise with any increase in
market pricing and the resulting consideration of reserves attributable to all
of the Company's wells, which are still producing in accordance with their
extended production history.

            The Company believes that the reserve analysis reports prepared by
Ryder Scott for the Company for the Swan Creek Field and Kansas Properties
provide an essential basis for review and consideration of the Company's
producing properties by all potential industry partners and all financial
institutions across the country. It is standard in the industry for reserve
analyses such as these to be used as a basis for financing of drilling costs.
Reserve analyses, however, are

                                       25
<PAGE>


at best speculative, especially when based upon limited production; no assurance
can be given that the reserves attributed to these leases exist or will be
economically recoverable. The result of any reserve analysis is dependent upon
the forecast of product prices utilized in the analysis which may be more or
less than the actual price received during the period in which production
occurs.

            The Company has not filed the reserve analysis reports prepared by
Ryder Scott or any other reserve reports with any Federal authority or agency
other than the Securities and Exchange Commission.


PRODUCTION

            The following tables summarize for the past three fiscal years the
volumes of oil and gas produced to the Company's interests, the Company's
operating costs and the Company's average sales prices for its oil and gas. The
information does not include volumes produced to royalty interests or other
working interests.

--------------------------------------------------------------------------------
                                    TENNESSEE
--------------------------------------------------------------------------------
 YEAR ENDED       PRODUCTION          COST OF PRODUCTION  AVERAGE SALES PRICE
DECEMBER 31                              (PER BOE)(2)
--------------------------------------------------------------------------------
                OIL          GAS                           OIL        GAS
               (Bbl)        (Mcf)                         (Bbl)    (PER Mcf)
--------------------------------------------------------------------------------
2001         22,776.21   703,073.56        $0.31         $16.05    $2.55
--------------------------------------------------------------------------------
2000         37,210.67     2,411.00        $0.69         $20.32    $2.86
--------------------------------------------------------------------------------
1999         17,286.06     2,122.00        $0.44(est.)   $12.81    $2.86(est.)
--------------------------------------------------------------------------------

Gas volumes and prices for 1999 and 2000 reflect only the nominal purchases made
by Hawkins County Gas Utility District upon completion of Phase I of Tengasco
Pipeline Company's pipeline system. See Item I, "Business-General-1 Swan Creek
Field."

----------
(2)   A "BOE" is a barrel of oil equivalent. A barrel of oil contains
approximately 6 Mcf of natural gas by heating content. The volumes of gas
produced have been converted into "barrels of oil equivalent" for the purposes
of calculating costs of production.

                                       26
<PAGE>


--------------------------------------------------------------------------------
                                     KANSAS
--------------------------------------------------------------------------------
 YEAR ENDED       PRODUCTION          COST OF PRODUCTION  AVERAGE SALES PRICE
DECEMBER 31                                (PER BOE)
--------------------------------------------------------------------------------
                OIL          GAS                           OIL        GAS
               (Bbl)        (Mcf)                         (Bbl)    (PER Mcf)
--------------------------------------------------------------------------------
2001        112,495.88   278,884.66       $10.72         $23.50      $4.12
--------------------------------------------------------------------------------
2000        111,734.81   291,096.22       $ 9.68         $28.06      $3.75
--------------------------------------------------------------------------------
1999        114,732.28   304,059.81       $ 8.87         $17.23      $2.16
--------------------------------------------------------------------------------


OIL AND GAS DRILLING ACTIVITIES

            The Company's oil and gas developmental drilling for the past three
fiscal years are as set forth in the following tables. During the fiscal years
ending December 31, 1999, 2000 and 2001, the Company did not drill any
exploratory wells. The information should not be considered indicative of future
performance, nor should it be assumed that there is necessarily any correlation
between the number of wells drilled, quantities of reserves found or economic
value.

      GROSS AND NET WELLS

            The following tables set forth for the fiscal years ending December
31, 1999, 2000 and 2001 the number of gross and net development wells drilled by
the Company. The term gross wells means the total number of wells in which the
Company owns an interest, while the term net wells means the sum of the
fractional working interests the Company owns in gross wells.

--------------------------------------------------------------------------------
                             YEAR ENDED DECEMBER 31
--------------------------------------------------------------------------------
                                  2001              2000              1999
--------------------------------------------------------------------------------
                             GROSS     NET     GROSS     NET     GROSS     NET
--------------------------------------------------------------------------------
TENNESSEE
--------------------------------------------------------------------------------
PRODUCTIVE WELLS             19        11.42   9        4.0515   7        4.8125
--------------------------------------------------------------------------------
DRY HOLES                    0         0       0        0        0        0
--------------------------------------------------------------------------------
KANSAS
--------------------------------------------------------------------------------
PRODUCTIVE WELLS             3         2.594   0        0        0        0
--------------------------------------------------------------------------------
DRY HOLES                    0         0       0        0        0        0
--------------------------------------------------------------------------------

                                       27
<PAGE>


      PRODUCTIVE WELLS

            The following table sets information regarding the number of
productive wells in which the Company held a working interest as of December 31,
2001. Productive wells are either producing wells or wells capable of commercial
production although currently shut-in. One or more completions in the same bore
hole are counted as one well.

--------------------------------------------------------------------------------
                                           GAS                     OIL
--------------------------------------------------------------------------------
                                     GROSS        NET        GROSS       NET
--------------------------------------------------------------------------------
TENNESSEE                             34        20.7475       11         5.308
--------------------------------------------------------------------------------
KANSAS                                52        43.4504      134       112.8382
--------------------------------------------------------------------------------


DEVELOPED AND UNDEVELOPED OIL AND GAS ACREAGE

            As of December 31, 2001, the Company owned working interests in the
following developed and undeveloped oil and gas acreage. Net acres refers to the
Company's interest less the interest of royalty and other working interest
owners.


--------------------------------------------------------------------------------
                                  DEVELOPED                  UNDEVELOPED
--------------------------------------------------------------------------------
                           GROSS ACRES   NET ACRES      GROSS ACRES   NET ACRES
--------------------------------------------------------------------------------
TENNESSEE                    1,840.00     1,065.38       62,651.90    54,820.00
--------------------------------------------------------------------------------
KANSAS                       9,666.00     8,080.44       22,711.00    18,995.48
--------------------------------------------------------------------------------


ITEM 3. - LEGAL PROCEEDINGS

            Except as described hereafter, the Company is not a party to any
pending material legal proceeding. To the knowledge of management, no federal,
state or local governmental agency is presently contemplating any proceeding
against the Company which would have a

                                       28
<PAGE>


result materially adverse to the Company. To the knowledge of management, no
director, executive officer or affiliate of the Company or owner of record or
beneficially of more than 5% of the Company's common stock is a party adverse to
the Company or has a material interest adverse to the Company in any proceeding.

            1.    The Company, its Chief Executive Officer, Malcolm E. Ratliff,
and one of its attorneys, Morton S. Robson, have been named as defendants in an
action commenced in the Supreme Court of the State of New York, New York County
entitled MAUREEN COLEMAN, JOHN O. KOHLER, CHARLES MASSOUD, JONATHAN SARLIN, VON
GRAFFENRIED A.G. AND VPM VERWATUNGS A.G., PLAINTIFFS V. TENGASCO, INC., MORTON
S. ROBSON AND MALCOLM E. RATLIFF, DEFENDANTS, INDEX NO. 603009/98. In that
action, the plaintiffs, shareholders of the Company each of which purchased
restricted shares of the Company's Common Stock, allege that although they were
entitled to sell their shares pursuant to SEC Rule 144 in the open market, they
were precluded from doing so by the defendants' purported wrongful refusal to
remove the restrictive legend from their shares. The plaintiffs own in the
aggregate 35,000 shares of the Company's common stock. The plaintiffs are
seeking damages in an amount equal to the difference between the amount for
which they would have been able to sell their shares if the defendants had acted
to remove the restrictive legends when requested and the amount they will
receive on the sale of their shares. The plaintiffs are also seeking punitive
damages in an amount they claim to be in excess of $500,000 together with
interest, costs and disbursements of bringing the action, including reasonable
attorneys fees. This action has been partially settled by the Company agreeing
to remove the restrictive legends on the plaintiffs' stock.

            As for the balance of the action, the Company believes that there
are several substantial factual and legal issues as to the date on which the
shareholders were entitled to sell their stock pursuant to Rule 144. Management
further believes that the Company did not wrongfully withhold its approval of
the removal of the restrictive legends at the times such removal was requested
by the shareholders. However, in the event the Company is found to have
improperly withheld its permission to remove the restrictive legends from the
shares owned by the shareholders, the Company may be held liable for damages to
the shareholders in an amount equal to the difference between the actual sale
price of such shares and the sales price they would have realized on the date
such restrictive legends should have been permitted to be removed. At this time
it is not possible to ascertain with any certainty what such damages would be.
The plaintiffs have not taken any action in this matter for several years.

            2.    TENGASCO PIPELINE CORPORATION V. JAMES E. LARKIN AND KATHLEEN
A. O `CONNOR, No. 4929J in the Circuit Court for Hawkins County, Tennessee. This
is a condemnation proceeding brought by Tengasco Pipeline Corporation to acquire
a temporary construction easement and permanent right of way to maintain and
operate a portion of Phase I of the Company's pipeline in Hawkins County,
Tennessee. The court granted an order of possession to the Company in January,
1998 and the pipeline has been constructed across approximately 3,000 feet of
the property concerned in a rural and very steep locale. The Company has had the
right of way appraised at $4,000. The landowners, Mr. Larkin and Kathleen A. O
Connor who both live on the property, contest the appraised value of the
property and claim incidental damages to

                                       29
<PAGE>


certain fish ponds located on their property. The landowners, despite a lack of
evidence of any fish raising or aquaculture business actually being or having
been operated on the premises or of any actual losses to such business, have
counterclaimed for $867,585 in compensatory damages and $2.6 million in punitive
damages arising from trespass and other legal theories. The Court required the
parties to attempt to mediate this dispute and the mediation occurred in
December, 2000. The parties were unable to reach a mediated settlement and the
matter has been scheduled for trial on May 8, 2002. The discovery conducted to
date has not disclosed any facts that reasonably suggest any likelihood of a
substantial adverse result in this matter, and the Company intends to vigorously
defend the allegations of the counterclaim which appear to be without any
credible basis.

            3.    The Company and its wholly owned subsidiary, Tengasco Pipeline
Corporation ("TPC"), were named as defendants in an action commenced on June 4,
2001 by C.H. Fenstermaker & Associates, Inc. ("Fenstermaker") in the United
States District for the Eastern District of Tennessee entitled C.H. FENSTERMAKER
& ASSOCIATES, INC. V. TENGASCO, INC., No. 3:01-CV-283.

            The action seeks to recover approximately $365,000 in fees and
charges billed to TPC for engineering services Fenstermaker claims it performed
in connection with the planning and construction of Phase II of the Company's
pipeline which runs from Rogersville, TN to Kingsport, TN to serve Eastman
Chemical Company and Holston Army Ammunition Plant.

            On June 25, 2001, the Company and TPC filed an answer to the
complaint denying liability for the billings claimed, and counterclaiming
against Caddum, Inc. ("Caddum"), an unincorporated division of Fenstermaker. The
counterclaim seeks recovery from Caddum of damages for breach of contract and
breach of professional engineering standards caused by the actions of Caddum,
including unauthorized deviations from the pipeline route which caused the
Company to incur significant additional costs. These costs included substantial
fees for concrete capping of the pipeline as a result of the pipeline being
placed to close to the adjoining highway right of way. The counterclaim further
alleges that Caddum damaged the Company by: causing delays in completing the
pipeline; by failing to submit engineering drawings and failing to timely obtain
certain x-rays of the pipeline welds; its unauthorized actions in ordering
supplies and materials; and, overbilling from the agreed contract rate for
engineering services. The counterclaim seeks actual damages from Caddum of
approximately $475,000, treble damages under state law for the overbilling, and
damages to the Company arising from the delay caused by Caddum in the production
from the Swan Creek field all in the aggregate amount of $1.25 million. The
District Court has scheduled the case for a non-jury trial on July 17, 2002
before Judge James H. Jarvis. The Company believes its counterclaims are
meritorious and intends to vigorously prosecute them and anticipates that, at a
minimum, its counterclaims will either fully offset or substantially reduce
exposure to liability for the amounts claimed by Fenstermaker.

            4.    On October 10, 2001 an arbitration hearing was held by the
American Arbitration Association between the Company's wholly owned subsidiary
Tengasco Pipeline Corporation ("TPC") and King Pipeline & Utility Company
("King"), the contractor for the

                                       30
<PAGE>


construction of Phase II of the Company's pipeline. The arbitration was held to
resolve disputes concerning final billings by King for the pipeline
construction. King made four claims, seeking (1) payment for straw matting done
by King on slopes calculated at two dollars per square foot; (2) to retain
payment it had received for clearing and grubbing charges; (3) the release of a
currently retained sum of $46,585, to which TPC made no claim, presently being
held in escrow pending the outcome of ongoing litigation between King and King's
boring subcontractor; and (4) payment of $94,000 billed by King for alleged
extra work it performed in trenching at a depth deeper than called for by the
contract.

            On October 31, 2001 the arbitrator issued his award finding that
King was entitled to recover the sum of $266,390.66 for straw matting work
performed by King, calculated at $2 per square foot as sought by King; that King
was entitled to retain the $72,500 payment made to it by TPC for clearing and
grubbing work, and that the retained sum be released from escrow. The arbitrator
denied all relief sought by King for extra charges in the amount of $94,000 for
deeper trenching, and awarded King its attorneys fees of approximately $14,000.
TPC has filed a motion to vacate the arbitrator's award and King has filed an
opposing motion to confirm the award. The motions are expected to be heard
shortly in the Chancery Court for Knox County, Tennessee. In the event TPC's
motion is denied and King's opposing motion is granted, the Company is examining
the possibility of appealing the award, since the Company believes that the
arbitrator's ruling is not supported by the record presented. However, available
grounds for appeal appear extremely limited and it is therefore unlikely that an
appeal will occur. In the event an appeal is unavailable and payment is made to
satisfy the award, then based on the evidence presented at the arbitration
hearing, the Company and TPC intend to seek recovery of the payments made to
King as an additional element of damages being sought from Caddum, Inc., the
project engineer, in the action now pending in the United States District Court
for the Eastern District of Tennessee entitled C.H. FENSTERMAKER & ASSOCIATES,
INC. V. TENGASCO, INC., No. 3:01-CV-2 discussed above.



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

            None during the fourth quarter of 2001.

                                       31
<PAGE>


PART II


ITEM 5   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


MARKET INFORMATION

The Company's common stock was listed on the OTC Bulletin Board of the NASD from
March 31, 1994 through December 20, 1999 under the symbol TNGO. On December 10,
1999, the American Stock Exchange ("AMEX") approved the application of the
Company to have its common stock listed on the AMEX. Trading of the Company's
common stock on the AMEX commenced on December 21, 1999 under the symbol TGC.

            The range of high and low closing prices for shares of common stock
of the Company during the fiscal years ended December 31, 2000 and December 31,
2001 are set forth below. The prices have been retroactively adjusted by a 5%
reduction to take into account the 5% stock dividend declared by the Company
payable on October 1, 2001 to all shareholders of record as of September 4,
2001.


                                       HIGH        LOW
                                       ----        ---
For the Quarters Ending

March 31, 2001                         14.20       9.69

June 30, 2001                          15.01      11.16

September 30, 2001                     13.69       7.60

December 31, 2001                      10.54       7.39


March 31, 2000                          9.86       6.65

June 30, 2000                           9.26       6.65

September 30, 2000                      9.26       7.60

December 31, 2000                      12.82       7.84

                                       32
<PAGE>


HOLDERS

            As of March 1, 2002 the number of shareholders of record of the
Company's common stock was 375 and management believes that there are
approximately 2,172 beneficial owners of the Company's common stock.


DIVIDENDS

            The Company under its credit agreement with Bank One is presently
restricted from paying dividends without Bank One's consent. On July 30, 2001,
the Company's Board of Directors voted to declare a five percent (5%) stock
dividend on the outstanding shares of the Company's common stock, $.001 par
value which was payable on October 1, 2001 to all shareholders of record as of
September 4, 2001. No fractional shares were issued in connection with the stock
dividend and all such fractional shares were rounded to the next full share. The
Company has no present plans to declare any further dividends with respect to
its common stock.


RECENT SALES OF UNREGISTERED SECURITIES

            Except as previously reported in Quarterly Reports on Form 10-QSB
and Form 10-Q filed by the Company, the following tables sets forth certain
information as to all equity securities, other than the grant of options, which
were sold during the past year, including the sale of common stock upon the
exercise of outstanding options and warrants, that were not registered under the
Securities Act of 1933, as amended,




COMMON STOCK
                                       DATE         NUMBER OF        AGGREGATE
NAME OF OWNER                        ACQUIRED         SHARES       CONSIDERATION
-------------                        --------         ------       -------------
Kenny Securities                      7/13/01         12,000       $      82,500
Kenny Securities                      7/13/01         17,285       $     109,328
Bill L. Harbert                        8/9/01        111,111       $1,000,000.00
Jerome & Lynn Cipponeri              12/31/01         16,000       $  100,000.00


            In addition to the foregoing, on December 20, 2001, the Company
issued 5,000 shares of its common stock to a non-affiliated individual in
payment of $70,000 for services he had performed for the Company.

                                       33
<PAGE>


            Management believes that all of the foregoing persons were either
"accredited investors" as that term is defined under applicable federal and
state securities laws, rules and regulations, or were persons who by virtue of
background, education and experience who could accurately evaluate the risks and
merits attendant to an investment in the securities of the Company. Further, all
such persons were provided with access to all material information regarding the
Company, prior to the offer or sale of these securities, and each had an
opportunity to ask of and receive answers from directors, executive officers,
attorneys and accountants for the Company. The offers and sales of the foregoing
securities are believed to have been exempt from the registration requirements
of Section 5 of the 1933 Act, as amended, pursuant to Section 4(2) thereof, and
from similar state securities laws, rules and regulations covering the offer and
sale of securities by available state exemptions from such registration.


ITEM 6.  SELECTED FINANCIAL DATA

            The following selected financial data have been derived from the
Company's financial statements, and should be read in conjunction with those
financial statements, including the related footnotes.

Years Ended December 31,

<TABLE>
<CAPTION>
------------------------------  -----------   -----------   -----------   -----------   -----------
                                   2001          2000          1999          1998          1997
------------------------------  -----------   -----------   -----------   -----------   -----------
INCOME STATEMENT DATA:
------------------------------  -----------   -----------   -----------   -----------   -----------
<S>                             <C>           <C>           <C>           <C>
Oil and Gas Revenues            $ 6,656,758   $ 5,241,076   $ 3,017,252   $ 2,078,101            --
------------------------------  -----------   -----------   -----------   -----------   -----------
Production Costs and Taxes      $ 2,951,746   $ 2,614,414   $ 2,564,932   $ 1,943,944   $     3,748
------------------------------  -----------   -----------   -----------   -----------   -----------
General and Administrative      $ 2,957,871   $ 2,602,311   $ 1,961,348   $ 1,372,132   $ 1,535,841
------------------------------  -----------   -----------   -----------   -----------   -----------
Interest Expense                $   850,965   $   415,376   $   417,497   $   574,906   $ 1,885,448
------------------------------  -----------   -----------   -----------   -----------   -----------
Net Loss                        $(2,262,787)  $(1,541,884)  $(2,671,923)  $(3,083,638)  $(4,370,570)
------------------------------  -----------   -----------   -----------   -----------   -----------
Net Loss  Available to Common   $(2,653,970)  $(1,799,441)  $(2,791,270)  $(3,083,638)  $(4,370,570)
Stockholders
------------------------------  -----------   -----------   -----------   -----------   -----------
Net Loss  Available to Common
Stockholders Per Share(3)       $     (0.26)  $     (0.19)  $     (0.33)  $     (0.42)  $     (0.71)
------------------------------  -----------   -----------   -----------   -----------   -----------
</TABLE>

----------
(3)   All references in this table to common stock and per share data have been
retroactively adjusted to reflect the 5% stock dividend declared by the Company
effective as of September 4, 2001.

                                       34
<PAGE>


As of December 31,

<TABLE>
<CAPTION>
--------------------------------  ------------   ------------   -----------   -----------   -----------
                                      2001           2000          1999          1998          1997
--------------------------------  ------------   ------------   -----------   -----------   -----------
<S>                               <C>            <C>            <C>           <C>           <C>
BALANCE SHEET DATA:
--------------------------------  ------------   ------------   -----------   -----------   -----------
Working Capital Deficit           $ (6,326,204)  $   (708,317)  $(1,406,263)  $(1,929,215)  $(1,774,571)
--------------------------------  ------------   ------------   -----------   -----------   -----------
Oil and Gas Properties, Net       $ 13,269,930   $  9,790,047   $ 8,444,036   $ 7,747,655   $ 6,872,571
--------------------------------  ------------   ------------   -----------   -----------   -----------
Pipeline Facilities(4)            $ 15,039,762   $ 11,047,038   $ 4,212,842   $ 4,019,209   $ 2,596,967
--------------------------------  ------------   ------------   -----------   -----------   -----------
Total Assets                      $ 32,128,245   $ 25,224,724   $15,182,712   $13,525,777   $14,644,811
--------------------------------  ------------   ------------   -----------   -----------   -----------
Long-Term Debt                    $  3,902,757   $  7,108,599   $ 3,119,293   $ 3,190,930   $ 2,006,293
--------------------------------  ------------   ------------   -----------   -----------   -----------
Redeemable Preferred Stock        $  5,459,050   $  3,938,900   $ 1,988,900   $   800,000   $         0
--------------------------------  ------------   ------------   -----------   -----------   -----------
Stockholder' Equity(5)            $ 14,991,847   $ 10,864,202   $ 7,453,930   $ 7,245,090   $ 6,001,481
--------------------------------  ------------   ------------   -----------   -----------   -----------
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION


RESULTS OF OPERATIONS

            The Company incurred a net loss to holders of common stock of
$2,653,970 ($0.26 per share) in 2001 compared to a net loss of $1,799,441 ($0.19
per share) in 2000 and $2,791,270 ($0.33 per share) in 1999.

            The Company realized oil and gas revenues of $6,656,758 in 2001 as
compared to $5,241,076 in 2000 and $3,017,252 in 1999. The increase from 2000 to
2001 was primarily due to gas sales from the Swan Creek Field of $2,563,935.
However, Kansas oil sales decreased $489,778 from 2001 to 2000 due to price
decreases as the number of barrels produced remained constant. The Kansas
Properties produced 113,758 barrels in 1999, 143,949 barrels in 2000, and
143,291 barrels in 2001. Also oil production decreases and price decreases in
Swan Creek reduced oil revenues from $960,814 in 2000 to $499,641 in 2001. This
was due to the combination of price and volume. Volumes decreased from 47,281
barrels in 2000 to 30,323 barrels in 2001. This was due to the Company's
concentration on drilling new gas wells. The Company's subsidiary, Tengasco
Pipeline, did have pipeline transportation revenues for the first

----------
(4)   During the years ended December 31, 2000, 1999, 1998 and 1997, this
included portions which were under construction.

(5)   No cash dividends have been declared or paid by the Company for the
periods presented.

                                       35
<PAGE>


time in 2001 of $296,331 from the Swan Creek Field.

            The Company's realized oil and gas revenues increased $2,223,824 in
2000 as compared to 1999. The increase in revenues was primarily attributable to
the increase in oil and gas prices in 2000. However, the Kansas properties oil
production increased in 2000 by 30,191 barrels and the Swan Creek oil production
increased by 25,317 barrels in 2000.

            The Company's production costs and taxes have increased each year
from 1999 to 2001 as additional cost has been incurred to maintain the Kansas
wells and also to begin production from the Swan Creek Field for the first time
in 2001. The 2001 increase of $337,332 as compared to 2000 is due primarily to
the commencement of production from the Swan Creek Field. Production costs and
taxes only increased $49,482 from 1999 to 2000.

            Depletion, depreciation, and amortization increased significantly in
2001 over 2000 and 1999 levels. The primary increase is due to significant
increases in depletion expense during 2001 ($1,142,000) as a result of the
following: decreases in reserve estimates on oil and gas properties arising from
declining commodity prices; certain of the Company's gas wells had decreased
production levels at year-end due to problems encountered with liquids in the
wells. This decreased production level at year-end was factored into the
estimated future proved reserves calculation performed as of December 31, 2001,
resulting in a lower future proved reserves estimate. Additionally, the Company
took depreciation on the pipeline for the first time in 2001 ($220,371). The
depletion, depreciation and amortization increased from $233,807 in 1999 to
$371,249 in 2000. The increase was due to depreciation on new equipment
purchased late in the years of 1999 and an increase in depletion expense of
$97,000 due to a change in estimate resulting from changes in reserves.

            General and administrative expenses have increased from $1,961,348
in 1999 to $2,602,311 in 2000, to $2,957,871 in 2001. The increases from 2000 to
2001 are attributable to an increase in insurance (approximately $400,000) to
expand coverage including blowout insurance and the addition of Company
providing medical insurance for employees in 2001. The increase of $640,963 from
1999 to 2000 was due primarily to an increase in additional personnel,
consultants and increased engineering services for reserve evaluations.

            Interest expense for 2001 increased significantly over 1999 and 2000
levels. This increase is due to additional interest cost associated with
financing for the completion of Phase II of the Company's 65 mile pipeline. This
increase was reduced by interest cost of approximately $148,000 which was
capitalized in the first 3 months of 2001 during construction of the pipeline
and $128,000 in 2000. Interest expense remained consistent from 1999 to 2000.

            Public relations cost increased ($187,253) in 2001 as compared to
2000 levels due to cost associated with producing the annual report, the proxy
statement, and press releases. Public relations cost in 2000 was only slightly
higher ($20,134) than 1999 cost.

                                       36
<PAGE>


            Professional fees decreased in 2001 from 2000 levels and are
consistent with 1999 levels due to a charge in 2000 of $242,000 for stock
options issued in 2000 to non-employees.

            Dividends on preferred stock has increased from $119,347 in 1999 to
$257,557 in 2000 to $391,183 in 2001 as a result in the increase in preferred
stock outstanding.


LIQUIDITY AND CAPITAL RESOURCES

            On November 8, 2001, the Company signed a credit facility agreement
(the "Credit Agreement") with the Energy Finance Division of Bank One, N.A. in
Houston Texas ("Bank One") whereby Bank One extended to the Company a revolving
line of credit of up to $35 million. The interest rate on the line of credit is
the Bank One base rate plus one quarter percent which at the time of closing was
5.25%. The initial borrowing base under the Credit Agreement was $10 million.
The initial borrowing base was determined by Bank One according to its own
internal and unspecified formulas. Under the terms of the Credit Agreement, the
initial borrowing base is to be reviewed and updated periodically by Bank One
based on its review, at various specified times, of reserve analyses of the
Company's proved oil and gas reserves, such as the report prepared by Ryder
Scott as of December 31, 2001. See, "Item 2 Description of Property - Reserve
Analysis." No increase will occur beyond the initial borrowing base of $10
million unless the Company's proved oil and gas reserves increase to such a
level that Bank One in its sole discretion according to its own internal
formulas determines that such an increase in the credit facility is warranted.
Conversely, the initial credit base may be decreased if Bank One upon review of
reserve analysis at times as specified in the Credit Agreement in its sole
discretion, according to its own internal formulas, determines that such a
decrease in the credit facility is warranted. In addition, the terms of the
Credit Agreement provides that the calculation of the borrowing base includes an
"equity cushion," in an unspecified amount, intended to protect Bank One from
difficulties in evaluating, liquidating, or collecting against oil and gas
properties stated to be subject to rapid deterioration in value and inherently
incapable of being accurately evaluated.

            On November 9, 2001, funds from the Bank One credit line were used
to (1) satisfy existing indebtedness on the Company's Kansas Properties
($1,427,309.25); (2) repay the internal financing provided by Directors and
shareholders of the Company for the completion of the Company's 65 mile
intrastate pipeline ($3,895,490.83); (3) prepay a note due to Spoonbill, Inc.
for funds borrowed by the Company for working capital ($1,080,833.34); (4)
prepay a note due to Malcolm E. Ratliff, the Company's Chief Executive Officer,
for purchase by the Company of a drilling rig and related equipment
($1,003,844.44); and, (5) prepay the remaining balance of a loan made to the
Company for working capital by Edward W.T.Gray III, a former Director of the
Company, due on December 31, 2001 ($304,444.44). All of these obligations
incurred interest at a rate substantially greater than the rate being charged by
Bank One under the Credit Agreement. Together with attorneys fees, mortgage
taxes in Tennessee and Kansas and related fees the total drawn down on November
9, 2001 from the credit facility was $7,901,776.65. As of the date of this
Report, the principal balance of the loan under the Credit Agreement is
$9,101,776.66.

                                       37
<PAGE>


            On or about April 5, 2002, the Company received a notice from Bank
One stating that it had re-determined and reduced the borrowing base under the
Credit Agreement to $3,101,766.66. The notice did not provide any explanation
why the reduction was made or as to how the reduction was calculated. As a
result of the reduction of the borrowing base, Bank One has demanded that the
Company satisfy the difference between the principal balance of the loan under
the Credit Agreement ($9,101,776.66) and the newly reduced current borrowing
base ($3,101,776.66) within thirty days of the receipt of the notice advising
the Company of the reduction of the borrowing base.

            The Company has notified  Bank One that it strongly  disagrees  that
the  re-determination  of the  borrowing  base was proper under the terms of the
Credit Agreement. It is the contention of the Company that a re-determination of
the  borrowing  base  can only be made in  accordance  with  specific  schedules
provided  for in the Credit  Agreement.  The  Company is  required to submit its
first  analysis of proved  reserves to Bank One by December 1, 2002 for purposes
of  determining  the  borrowing  base.  Thereafter,  reserve  analysis are to be
reviewed  every six  months.  The  schedule of reserve  reports  required by the
Credit  Agreement  upon  which  such  re-determinations  are  to be  based  also
specifically  sets up a procedure  involving  an  automatic  monthly  payment of
$200,000  effective as of February 1, 2002 to be applied  against the  borrowing
base.

            The re-determination of the borrowing base made on April 5, 2002 by
Bank One is not in accordance with the expressed schedule in the Credit
Agreement which provides that the next re-determination date is after December
1, 2002, and which would allow for updated reserve analysis reports reflecting
the attendant adjustments to the Company's proved reserves as new wells come
into production and existing wells are re-worked in its Swan Creek Field before
any re-determination of the borrowing base could be made. Such updated reserve
analysis reports also would reflect the substantial current increases in oil and
gas prices from the substantially lower year-end oil and gas prices used to
evaluate the Company's reserves in the Company's most recent reserve analysis
report prepared by Ryder Scott as of December 31, 2001. The borrowing base
provisions of the Credit Agreement also permit Bank One to require the Company
to provide an analysis by certified engineers on ninety days notice if it has
concerns regarding the status of the reserves of the producing properties. This
was not done. Such a procedure would be the proper way for Bank One to have
proceeded if it had such concerns. Finally, the Company views Bank One's
position under the Credit Agreement to be fully secured by the properties the
Company owns in Kansas and Tennessee. The values of these properties far exceeds
the original initial borrowing base under the Credit Agreement. This fact
further underscores the impropriety of the attempted recent reduction of the
borrowing base and that such action is clearly unjustified by the terms and
intent of the Credit Agreement. The Company is seeking to have Bank One withdraw
its April 5, 2002 re-determination of the borrowing base.

            In an effort to resolve this dispute amicably, alternatively, the
Company has requested Bank One to allow it to reduce the difference between the
principal balance of the loan and the reduced borrowing base over a period of
time. If the Company's request is honored, it is believed that through a
combination of the use of the Company's cash flow and outside equity or

                                       38
<PAGE>


loan financing it will be able to resolve any disputes with Bank One. However,
any substantial increase of the pay down of the loan over the $200,000 per month
presently being paid will significantly impair the Company's ability to repair
its current problem wells and to drill new wells. In the event the Company is
unable to resolve its differences with Bank One, the Company might be held to be
in default of its obligation to Bank One, which would enable Bank One to call
the entire loan. In such event, the Company would vigorously oppose any such
action by Bank One. If Bank One should be successful, the Company believes that
it would be able to procure alternative debt financing and equity funding to
enable to meet its obligation. The Company is hopeful that it will be able to
work out a satisfactory arrangement with Bank One.

            Even if the Company is able to reach an agreement with Bank One as
to the amount of its current borrowing base and the pay-off of any difference
between that borrowing base and the principal balance of the loan, unless the
Company is able to increase production from its Swan Creek Field and as a
result, increase the calculation of proven oil and gas reserves it will not be
able to increase its borrowing base under the Bank One Credit Agreement beyond
the initial $10 million borrowing base. Although the Company is hopeful it will
be able to increase production and its proven reserves, there are no assurances
that the Company will be able to do so to an amount sufficient to allow it to
borrow additional sums from Bank One beyond the current borrowing base. In the
event that the Company is unable to increase the amount of its current borrowing
base under the Bank One Credit Agreement, it will be forced to seek other
options to obtain the funding necessary to meet its obligation to reduce the
Bank One loan and to satisfy all of its current and future cash requirements,
including funds necessary to re-work existing wells and continue the drilling
program in the Swan Creek Field. Such options would include debt financing, sale
of equity interests in the Company, a joint venture arrangement, the sale of oil
and gas interests, etc. The inability of the Company to obtain the necessary
cash funding on a timely basis would have an unfavorable effect on the Company's
financial condition and would require the Company to materially reduce the scope
of its operating and investing activities.

            The Company plans to shortly offer for sale by private placement a
new series of cumulative convertible preferred stock. The additional capital
raised from such offering will be used to provide funds for re-payment to Bank
One of the Loan Excess, to pay for re-working of wells and continuing the
drilling program in the Swan Creek Field to increase production and to provide
working capital. There can be no assurances that the Company will be able to
sell such preferred stock or, if it is able to do so, the proceeds of the sale
of the new series of cumulative convertible preferred stock will be sufficient
to accomplish these purposes.

            As a result of Bank One's reduction of the borrowing base and the
corresponding demand for payment of the difference between the amount of the
balance of the loan and the reduced borrowing base, combined with the fact that
the Company is still in the early stages of its oil and gas operating history
during which time it has a history of losses from operations and has an
accumulated deficit of $24,115,382 and a working capital deficit of $6,326,204
as of December 31, 2001, the Company's independent certified public accountants
have indicated in their report on the Consolidated Financial Statements that
these circumstances contribute to uncertainty over the Company's ability to
continue as a

                                       39
<PAGE>


going concern. The Company's ability to continue as a going concern depends upon
its ability to obtain long-term debt or raise capital to satisfy its cash flow
requirements. See, "Report of Independent Auditors" and "Notes to Consolidated
Financial Statements - Note 2 - Going Concern Uncertainty." Management believes
based upon the Company's substantial assets and proved reserves; its expectation
that production and revenues from its Swan Creek Field will increase by the end
of fiscal 2002; and, the current increase in oil and gas prices, that the
Company will be able to obtain the long-term debt or raise capital to enable it
to continue in business.

            As of December 31, 2001, the Company had total stockholders' equity
of $14,991,847 on total assets of $32,128,245. The Company has a net working
capital deficiency at December 31, 2001 of $6,326,204 as compared to a net
deficiency of $708,317 at December, 2000. This working capital deficiency arises
primarily from the acceleration of $6,000,000 of the credit facility debt
discussed above.

            Net cash used in operating activities decreased from $820,615 in
2000 to $221,176 in 2001. The Company's net loss in 2001 increased to $2,262,787
from $1,541,884 in 2000. The impact on cash used due to the net loss for 2001
was primarily offset by non-cash depletion, depreciation and amortization of
$1,849,963 and non-cash compensation and services paid by issuance of equity
instruments of $92,253. Cash flow from working capital items in 2001 was
$232,338 as compared to $66,020 in 2000. This resulted from increases in
accounts payable of $191,702, and decreases in inventory of 91,981 and accounts
receivable of $3,814, partially offset by a decrease in accrued interest payable
of $2,519 and a decrease in accrued liabilities of $52,640. Net cash used in
operating activities decreased from $2,587,003 in 1999 to $820,615 in 2000. This
was primarily due to the fact that the Company's net loss in 2000 decreased to
$1,541,884 from a net loss in 1999 of $2,671,923. The impact on cash used due to
the net loss for 2000 was partially offset by non-cash depletion, depreciation
and amortization of $371,249 and non-cash compensation and services paid by the
issuance of equity instruments of $284,000. Cash flow from working capital items
in 2000 was $66,020 as compared to uses of cash flow of $353,387 in 1999. This
reflects increases in accounts payable of $364,553 and accrued interest payable
of $135,435, partially offset by an increase in accounts receivable of $301,421,
and a decrease in other accrued liabilities of $140,955.

            Net cash used in investing activities amounted to $9,408,684 for
2001 as compared to $8,936,863 for 2000. The large increase in net cash used for
investing activities during 2001 was primarily attributable to additions to oil
and gas properties of $4,821,883 in 2001 as compared to $1,456,996 in 2000. This
was offset by a reduction in expenditures used for the construction of Phase II
of the pipeline of $4,213,095 due to its completion in 2001 compared to
$6,834,196 in 2000 and a reduction of expenditures used for additions to other
property and equipment of $285,722 in 2001 as compared to $1,276,783 in 2000.

            Net cash used in investing activities amounted to $8,936,863 for
2000 compared to net cash used in the amount of $1,892,294 for 1999. The large
increase in net cash used for

                                       40
<PAGE>


investing activities during 2000 was primarily attributable to the construction
of Phase II of the pipeline of $6,834,196 in 2000 as compared to $193,633 in
1999, additions to oil and gas properties of $1,456,996 in 2000 as compared to
$788,029 in 1999 and additions to other property and equipment of $1,276,783 in
2000 as compared to $256,045 in 1999.

            Net cash provided by financing activities amounted to $8,419,336 in
2001 as compared to $ 10,940,863 in 2000. The primary sources of financing
include proceeds from borrowings of $10,442,068 in 2001 as compared to
$6,493,563 in 2000, private placements of common stock of $3,900,000 in 2001 as
compared to $4,425,713 in 2000, convertible redeemable preferred stock of
$1,591,150 in 2001 as compared to $2,000,000 in 2000 and proceeds from exercise
of options of $2,341,000 in 2001 as compared to $180,013 in 2000. The primary
use of cash in financing activities was the repayment of borrowings of
$8,833,325 in 2001 as compared to $1,720,856 in 2000.

            Net cash provided by financing activities amounted to $10,940,863
for 2000 as compared to $3,896,693 for 1999. The primary sources of financing
include proceeds from borrowings of $6,493,563 in 2000 as compared to $2,119,023
in 1999, private placements of common stock of $4,425,700 in 2000 as compared to
$2,771,722 in 1999 and convertible redeemable preferred stock of $2,000,000 in
2000 as compared to $1,188,900 in 1999. The primary use of cash in financing
activities was the repayment of borrowings of $1,720,856 in 2000 as compared to
$2,383,605 in 1999.


CRITICAL ACCOUNTING POLICIES

            The Company's accounting policies are described in the Notes to
Consolidated Financial Statements in Item 8 of this Report. The Company prepares
its Consolidated Financial Statements in conformity with accounting principles
generally accepted in the United States of America, which requires the Company
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates. The Company
considers the following policies to be the most critical in understanding the
judgments that are involved in preparing the Company's financial statements and
the uncertainties that could impact the Company's results of operations,
financial condition and cash flows.


      CONTINGENCIES

            The Company accounts for contingencies in accordance with Financial
Accounting Standards Board Statement of Financial Accounting Standards ("SFAS")
No. 5, "Accounting Contingencies." SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information available prior to the
issuance of the Company's financial statements indicate that it is probable an
asset has been impaired or a liability has been incurred at the date of the

                                       41
<PAGE>


financial statements and the amount of the loss can be reasonably estimated.
Accounting for contingencies such as environmental, legal and income tax matters
requires management of the Company to use its judgment. While management of the
Company believes that the Company's accrual for these matters are adequate, if
the actual loss from a loss contingency is significantly different from the
estimated loss, the Company's results of operations may be over or understated.
The primary area in which the Company has to estimate contingent liabilities is
with respect to legal actions brought against the Company. See. Item 3 - Legal
Proceedings."


      FULL COST METHOD OF ACCOUNTING

            The Company follows the full cost method of accounting for oil and
gas property acquisition, exploration and development activities. Under this
method, all productive and non-productive costs incurred in connection with the
acquisition of, exploration for and development of oil and gas reserves for each
cost center are capitalized. Capitalized costs include lease acquisitions,
geological and geophysical work, daily rentals and the costs of drilling,
completing and equipping oil and gas wells. The Company capitalized $4,821,883,
$1,456,996 and $788,029 of these costs in 2001, 2000 and 1999, respectively.
Costs, however, associated with production and general corporate activities are
expensed in the period incurred. Interest costs related to unproved properties
and properties under development are also capitalized to oil and gas properties.
Gains or losses are recognized only upon sales or dispositions of significant
amounts of oil and gas reserves representing an entire cost center. Proceeds
from all other sales or dispositions are treated as reductions to capitalized
costs.

      OIL AND GAS RESERVES

            The capitalized costs of oil and gas properties, plus estimated
future development costs relating to proved reserves and estimated costs of
plugging and abandonment, net of estimated salvage value, are amortized on the
unit-of-production method based on total proved reserves. The costs of unproved
properties are excluded from amortization until the properties are evaluated,
subject to an annual assessment of whether impairment has occurred.

            The Company's proved oil and gas reserves as at December 31, 2001
were estimated by Ryder Scott, L.P., Petroleum Consultants. The Company's
discounted present value of its proved oil and gas reserves requires subjective
judgments. Estimates of the Company's reserves are in part forecasts based on
engineering data, projected future rates of production and timing of future
expenditures. The process of estimating oil and gas reserves requires
substantial judgment, resulting in imprecise determinations, particularly for
new discoveries. Different reserve engineers may make different estimates of
reserve quantities based on the same data. The passage of time provides more
qualitative information regarding estimates of reserves and revisions are made
to prior estimates to reflect updated information. Given the volatility of oil
and gas prices, it is also reasonably possible that the Company's estimate of
discounted net cash flows from proved oil and gas reserves could change in the
near term. If oil and gas prices decline

                                       42
<PAGE>


significantly as they did in 2001, this will result in a reduction of the
valuation of the Company's reserves. This past year, Ryder Scott based on
initial production results and the sharp decline of oil and gas prices,
significantly reduced the Company's estimated reserves of gas in the Swan Creek
Field from its reserve report for the year ended December 31, 2000. See, "Item 2
- Description of Property - Reserve Analysis".


NEW ACCOUNTING PRONOUNCEMENTS

            The Company adopted Statement of Financial Accounting Standard
("SFAS") No. 133, "Accounting for Derivatives and Hedging Activities," effective
January 1, 2000. SFAS No. 133 ( as amended, by SFAS No. 137 and No. 138)
requires a company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a fair value hedge, changes in the fair value of
the hedged assets, liabilities or firm commitments are recognized through
earnings. If the derivative is a cash flow hedge the effective portion of
changes in the fair value of the derivative are recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. The adoption of SFAS no. 133, as amended, did not have a
material impact on the Company's consolidated financial statements for the year
ending December 31, 2001.

            In July 2001, the Financial Accounting Standards Board issued SFAS
No. 141, "Business Combinations" and SFAS No.142, "Goodwill and Other Intangible
Assets". SFAS No. 141 addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination and SFAS
No. 142 addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination whether acquired individually or with
a group of other assets. These standards require all future business
combinations to be accounted for using the purchase method of accounting.
Goodwill will no longer be amortized but instead will be subject to impairment
tests at least annually. The Company would have been required to adopt SFAS No.
141 on July 1, 2001, and to adopt SFAS 142 on a prospective basis as of January
1, 2002. The Company has not effected a business combination and carries no
goodwill on its balance sheet; accordingly, the adoption of these standards is
not expected to have an effect on the Company's financial position or results of
operations.

            In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS
143 establishes accounting standards for the recognition and measurement of
legal obligations associated with the retirement of tangible long-lived assets
and requires recognition of a liability for an asset retirement obligation in
the period in which it is incurred. The provisions of this statement are
effective for financial statements issued for fiscal years beginning after June
15, 2002. The adoption of this statement is not expected to have a material
impact on the Company's financial position or results of operations.

                                       43
<PAGE>


            SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, addresses accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 144 establishes a single accounting model for long-lived assets to
be disposed of by sale and expands on the guidance provided by SFAS No. 121 with
respect to cash flow estimations. SFAS No. 144 becomes effective for the
Company's fiscal year beginning January 1, 2002. There will be no current impact
of adoption on its financial position or results of operations.


ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS


COMMODITY RISK

            The Company's major market risk exposure is in the pricing
applicable to its oil and gas production. Realized pricing is primarily driven
by the prevailing worldwide price for crude oil and spot prices applicable to
natural gas production. Historically, prices received for oil and gas production
have been volatile and unpredictable and price volatility is expected to
continue. Monthly oil price realizations ranged from a low of $14.00 per barrel
to a high of $27.73 per barrel during 2001. Gas price realizations ranged from a
monthly low of $1.68 per Mcf to a monthly high of $9.80 per Mcf during the same
period.

            The Company entered into hedge agreements on December 28, 2001 on
notional volumes of oil and natural gas production for the first seven months of
2002 in order to manage some exposure to oil and gas price fluctuations.
Realized gains or losses from the Company's price risk management activities
will be recognized in oil and gas production revenues when earned since the
Company's positions are not considered hedges for financial reporting purposes.
Notional volumes associated with the Company's derivative contracts are 27,000
barrels and 630,000 MMBtu's for oil and natural gas, respectively. As these
activities are not effective until fiscal 2002, no gains or losses were
recognized for the year ended December 31, 2001. The Company does not generally
hold or issue derivative instruments for trading purposes.

            At December 31, 2001, the Company's open natural gas and crude oil
price swap positions are not considered to have a material fair value. Assuming
natural gas production and sales volumes remain consistent at December 2001
levels during the entire year of fiscal 2002, management believes that a 10
percent decrease in unhedged natural gas prices would reduce the Company's
natural gas revenues by approximately $41,610 on an annual basis. Assuming crude
oil production and sales volumes remain consistent at December 2001 levels
during the entire year of fiscal 2002, management believes that a 10 percent
decrease in unhedged crude oil prices would reduce the Company's crude oil
revenues by approximately $208,840 on an annual basis.

                                       44
<PAGE>


INTEREST RATE RISK

            At December 31, 2001, the Company had debt outstanding of
approximately $10.3 million. The interest rate on the revolving credit facility
of $9.1 million is variable based on the financial institution's prime rate plus
0.25%. The remaining debt of $1.2 million has fixed interest rates ranging from
7.5% to 11.95%. As a result, the Company's annual interest costs in 2002 would
fluctuate based on short-term interest rates on approximately 88% of its total
debt outstanding at December 31, 2001. The impact on interest expense and the
Company's cash flows of a 10 percent increase in the financial institution's
prime rate (approximately .5 basis points) would be approximately $45,500,
assuming borrowed amounts under the credit facility remain at $9.1 million. The
Company did not have any open derivative contracts relating to interest rates at
December 31, 2001.


FORWARD-LOOKING STATEMENTS AND RISK

            Certain statements in this report, including statements of the
future plans, objectives, and expected performance of the Company, are
forward-looking statements that are dependent upon certain events, risks and
uncertainties that may be outside the Company's control, and which could cause
actual results to differ materially from those anticipated. Some of these
include, but are not limited to, the market prices of oil and gas, economic and
competitive conditions, inflation rates, legislative and regulatory changes,
financial market conditions, political and economic uncertainties of foreign
governments, future business decisions, and other uncertainties, all of which
are difficult to predict.

            There are numerous uncertainties inherent in estimating quantities
of proved oil and gas reserves and in projecting future rates of production and
the timing of development expenditures. The total amount or timing of actual
future production may vary significantly from reserves and production estimates.
The drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can also affect these risks. Additionally,
fluctuations in oil and gas prices, or a prolonged period of low prices, may
substantially adversely affect the Company's financial position, results of
operations and cash flows.


ITEM 8      FINANCIAL STATEMENTS

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


ITEM 9      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

            Not Applicable

                                       45
<PAGE>


PART III


ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

            The following table sets forth the names of all current directors
and executive officers of the Company. These persons will serve until the next
annual meeting of stockholders (to be held at such time as the Board of
Directors shall determine) or until their successors are elected or appointed
and qualified, or their prior resignations or terminations.

                                                                 Date of Initial
                                     Positions                   Election or
Name                                 Held                        Designation
-------------------                  --------                    -------

Joseph E. Armstrong                  Director                    3/13/97
4708 Hilldale Drive
Knoxville, TN 37914

Benton L. Becker                     Director                    8/31/99
1497 Lacosta Drive East
Pembrook Pines, FL 33027

Bill L. Harbert                      Director                    4/2/02
820 Shaders Creek Pkway
Birmingham, AL 35209

Robert D. Hatcher, Jr                Director                    8/8/00
107 Golden Gate Lane
Oak Ridge, TN 37830

Malcolm E. Ratliff                   Chairman of the             4/21/98
2100 Scott Lane                      Board; Chief Executive
Knoxville, TN 37922                  Officer

Charles Stivers                      Director                    9/28/01
420 Richmond Road
Manchester, KY 40962

Harold G. Morris, Jr                 President                   10/19/99
153 Chuniloti Way
Loudon, TN 37774

                                       46
<PAGE>


Mark A. Ruth                         Chief Financial             12/14/98
9400 Hickory Knoll Lane              Officer
Knoxville, TN 37922

Robert M. Carter                     President Tengasco          6/1/98
760 Prince George Parish Drive       Pipeline Corporation
Knoxville, TN 37931

Cary V. Sorensen                     General Counsel;            07/9/99
509 Bretton Woods Dr.                Secretary
Knoxville, TN 37919

Sheila Sloan                         Treasurer                   12/4/96
121 Oostanali Way
Loudon, TN 37774

Jeffrey R. Bailey                    Chief Geological            3/1/02
2306 West Gallaher Ferry             Engineer
Knoxville, TN 37932


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            In fiscal 2001, Joseph Armstrong and Benton L. Becker, who are
Directors of the Company, each failed to timely file one Form 4 Report each
involving one transaction. Sanford E. McCormick who was a Director of the
Company until March 15, 2001 also failed to timely file one Form 4 Report
involving one transaction in 2001. In addition, Mr. Becker, as well as Robert D.
Hatcher, Jr., also a Director of the Company, each timely filed a Form 5 Report
for December 2001 which each reported one transaction that should have been
reported on an earlier Form 4 Report. Harold G. Morris, Jr., President of the
Company filed a Form 4 Report in 2001 that inadvertently was not filed in 1999
reporting one transaction. Malcolm E. Ratliff, the Company's Chief Executive
Officer and a Director of the Company, recently filed a timely Form 5 Report for
December 2001 which indicated that he failed to timely file eight Form 4 Reports
for 2001 involving 46 transactions. Mr. Ratliff also recently filed a Form 5
Report for December 2000 which should have been filed in 2001 indicating he had
failed to timely file five Form 4 Reports that were to be filed in 2000
involving 26 transactions. These deficiencies have all been cured.


BUSINESS EXPERIENCE

      DIRECTORS

            Joseph Earl Armstrong is 45 years old and a resident of Knoxville,
Tennessee. He is a graduate of the University of Tennessee and Morristown
College where he received a Bachelor of Science Degree in Business
Administration. From 1988 to the present, he has been an

                                       47
<PAGE>


elected State Representative for Legislative District 15 in Tennessee. From 1994
to the present he has been in charge of government relations for the Atlanta
Life Insurance Co. From 1981 to 1994 he was a District Manager for the Atlanta
Life Insurance Co.

            Benton L. Becker is 64 years old. In 1960 he received a B.A. degree
from the University of Maryland. In 1966 he graduated from the American
University Law School in Washington, D.C. He is currently engaged in the private
practice of law in Coral Gables, Florida and Washington D.C., while regularly
serving as a Distinguished Lecturer on constitutional law at the University of
Miami in Coral Gables, Florida. His past positions include serving as a trial
attorney for the U. S. Department of Justice, the Dade County, Florida State's
Attorney Office and a Professor of Law at the University of Miami School of Law.
During his career Mr. Becker has represented the U.S. House of Representatives,
the Republican National Committee and President Gerald R. Ford. In 1976 Mr.
Becker represented Commonwealth Oil and Refining Company of Puerto Rico in a
Federal trial and Appellate action against Texaco, Exxon and Mobil and obtained
a multi-million dollar judgment for Commonwealth Oil. In 1980 he served as Board
Chairman for Appalachian Oil and Gas. From June 5, 1995 to January 30, 1997 he
served as Chairman of the Company's Board of Directors.

            Bill L. Harbert is 78 years old. He earned a B.S. degree in civil
engineering from Auburn University in 1948. In 1949 he was one of the founders
of Harbert Construction Company. He managed that company's construction
operations, both domestic and foreign, and served as its Executive
Vice-President until 1979. From 1979 until July, 1990 he served as President and
Chief Operating Officer and from July 1990 through December 1991 he served as
Vice Chairman of the Board of Harbert International, Inc. He then purchased a
majority of the international operations of Harbert International, Inc. and
formed Bill Harbert International Construction, Inc. He served as Chairman and
Chief Executive Officer of that corporation until retiring from the company in
2000. Mr. Harbert's companies built pipeline projects in the United States and
throughout the world. They also built many other projects including bridges,
commercial buildings, waste water treatment plants, airports, including an air
base in Negev, Israel and embassies for the United States government in, among
other places, Tel Aviv, Hong Kong, and Baku. Mr. Harbert has also served as
president (1979) and Director (1980) of the Pipe Line Contractors Association,
USA and for seven years as Director, Second Vice-President and First
Vice-President (2001-2002) of the International Pipe Line Contractors
Association. Mr. Harbert has been active in service to a variety of business
associations, charities and the arts in the Birmingham area for many years.

            Robert D. Hatcher, Jr. is 61 years old. He earned B.A. and M.S.
degrees from Vanderbilt University in 1961 and 1962, with majors in geology and
chemistry and a minor in mathematics. He earned a Ph.D. degree in 1965 from the
University of Tennessee (Knoxville), in structural geology with a minor in
chemistry. Thereafter, he worked with Humble Oil and Refining Company (now Exxon
USA) for one year. In 1966 he accepted a faculty position at Clemson University
where he taught and conducted research in the Appalachians until 1978. In 1978
Dr. Hatcher moved to Florida State University where he stayed until 1980. He
then taught at the University of South Carolina until 1986. In 1986, Dr. Hatcher
accepted a chair as a University

                                       48
<PAGE>


of Tennessee/Oak Ridge National Laboratory Distinguished Scientist, which
position he currently maintains. He has served on the Council (Board of
Directors) of the Geological Society of America (a not-for-profit corporation)
from 1981-1983 and again from 1992-1994 when he served on the Executive
Committee and as President (1993). He is currently serving on the Board of
Trustees of the Geological Society of America Foundation. He served on the
Executive Committee of the American Geological Institute (a not-for-profit
corporation) from 1995-1997 and as President in 1996. He has also served on the
National Academy of Sciences Board on Radioactive Waste Management and on
several National Research Council, as well as on Federal Advisory Committees for
the Nuclear Regulatory Commission and the Department of the Interior. He served
as Science Advisor to South Carolina Governor Richard Riley for Off-Site
Disposal of Radioactive Waste from 1984 through 1986. He was honored in 1997 by
the I.C. White Award and in 1998 by being made an honorary citizen of West
Virginia, both recognizing his long-term contributions to Appalachian geology.
He is a Fellow in the American Association for the Advancement of Science. Dr.
Hatcher is the author of over 150 journal articles and several texts and
monographs, including a structural geology textbook which has been used in some
85 colleges and universities. He has also served as an Editor of the Geological
Society of America Bulletin.

            Malcolm E. Ratliff is 54 years old. He attended the University of
Mississippi and since 1971 has been involved in the oil and gas business with 30
years of hand-on experience in drilling and development of oil and gas wells,
seismic studies and laying pipe onshore and offshore. Mr. Ratliff holds numerous
oil and gas investments in companies throughout the United States. In April,
1995 he was instrumental in the founding of the Company and served as a
consultant to the Company's Board of Directors. In March, 1997 he became the
Chief Executive Officer of the Company and also acted as interim President of
the Company until he resigned in March, 1998 for health reasons. On April 21,
1998 at the request of the Company's Board of Directors, Mr. Ratliff agreed to
return to the management of the Company as its Chief Executive Officer. He has
served as Chairman of the Company's Board of Directors since June 19, 1998.

            Charles M. Stivers is 39 years old. He is a Certified Public
Accountant with 18 years accounting experience. In 1984 he received a B.S.
degree in accounting from Eastern Kentucky University. From 1983 through July
1986 he served as Treasurer and CEO for Clay Resource Company. From August 1986
through August 1989 he served as a senior tax and audit specialist for Gallaher
and Company. From September 1989 to date he has owned and operated Charles M.
Stivers, C.P.A., a regional accounting firm. The Firm specializes in the oil and
gas industry and has clients in eight states. The oil and gas work performed by
the Firm includes all forms of SEC audit work, SEC quarterly financial statement
filings, oil and gas consulting work and income tax services. The Firm has also
represented oil and gas companies with respect to Federal and State income tax
disputes in 15 states over the past 12 years. In September 2001, he was elected
as a director of the Company and is the chairman of the Company's audit
committee.

      OFFICERS

            Harold G. Morris, Jr. is 53 years old. In 1970 he received a B.S.
Degree in

                                       49
<PAGE>


accounting from St. Peter's College in Jersey City, New Jersey. He is a member
of the National Association of Certified Fraud Examiners. From 1970 to 1975 he
worked in New York, New York for Main LaFrentz & Co., Certified Public
Accountants where he was a senior auditor for the firm's largest client, CPC
International, Inc. He was in charge of International Worldwide Consolidation,
along with the translation of multi-national currencies (Asian, European and
Canadian) into dollars. His experience includes audits of many industries
including the audit of Wall Street brokerage firms. From 1975 to 1980 he worked
for Foster Wheeler Corporate headquarters in Livingston, New Jersey as Chief
Internal Auditor where he assisted in all corporate mergers and acquisitions.
During this time he was promoted to CEO and CFO of Copeland Systems, Inc. and
then Treasurer/Controller of Chemical Separations Corp. in Oak Ridge Tennessee,
both of which were wholly owned subsidiaries of Foster Wheeler. From 1980 to
1983, Mr. Morris was Group Controller of Macawber Engineering's U.S., Japan,
England and Australian operations. From 1985 to 1999 he was Controller/Ass't.
Secretary for W. J. Savage Co., Inc. in Knoxville, Tennessee. He joined the
Company as Vice-President of Finance on October 19, 1999. On August 8, 2000 he
was elected as Executive Vice-President of the Company and on August 1, 2001 he
was elected as President of the Company.

            Mark A. Ruth is 43 years old. He is a certified public accountant
with 21 years accounting experience. He received a B.S. degree in accounting
with honors from the University of Tennessee at Knoxville. He has served as a
project controls engineer for Bechtel Jacobs Company, LLC; business manager and
finance officer for Lockheed Martin Energy Systems; settlement department head
and senior accountant for the Federal deposit Insurance Corporation; senior
financial analyst/internal auditor for Phillips Consumer Electronics
Corporation; and, as an auditor for Arthur Andersen and Company. From December
14, 1998 to August 31, 1999 he served as the Company's Chief Financial Officer.
On August 31, 1999 he was elected as a Vice-President of the Company and on
November 8, 1999 he was again appointed as the Company's Chief Financial
Officer.

            Robert M. Carter is 65 years old. He attended Tennessee Wesleyan
College and Middle Tennessee State College between 1954 and 1957. For 35 years
he was an owner of Carter Lumber & Building Supply Company and Carter Warehouse
in Loudon County, Tennessee. He has been with the Company since 1995 and during
that time has been involved in all phases of the Company's business including
pipeline construction, leasing, financing, and the negotiation of acquisitions.
Mr. Carter was elected Vice-President of the Company in March, 1996, as
Executive Vice-President in April 1997 and on March 13, 1998 he was elected as
President of the Company. He served as President of the Company until he
resigned from that position on October 19,1999. On August 8, 2000 he again was
elected as President of the Company and served in that capacity until July 31,
2001. He has served as President of Tengasco Pipeline Corporation, a wholly
owned subsidiary of the Company, from June 1, 1998 to the present.

            Cary V. Sorensen is 53 years old. He is a 1976 graduate of the
University of Texas School of Law and has undergraduate and graduate degrees
form North Texas State University and Catholic University in Washington, D.C.
Prior to joining the Company in July, 1999, he had been continuously engaged in
the practice of law in Houston, Texas relating to the energy industry

                                       50
<PAGE>


since 1977, both in private law firms and a corporate law department, most
recently serving for seven years as senior counsel with the litigation
department of Enron Corp. before entering private practice in June, 1996. He has
represented virtually all of the major oil companies headquartered in Houston
and all of the operating subsidiaries of Enron Corp., as well as local
distribution companies and electric utilities in a variety of litigated and
administrative cases before state and federal courts and agencies in five
states. These matters involved gas contracts, gas marketing, exploration and
production disputes involving royalties or operating interests, land titles, oil
pipelines and gas pipeline tariff matters at the state and federal levels, and
general operation and regulation of interstate and intrastate gas pipelines. He
has served as Legal Counsel of the Company since July 9, 1999 and as Secretary
of the Company since March 4, 2002.

            Sheila F. Sloan is 46 years old. She graduated from South Lake High
School located in St. Clair Shores, Michigan in 1972. From 1981 to 1985 she
worked as a purchasing agent for Sequoyah Land Company located in Madisonville,
Tennessee. From 1990 to 1995 she managed the Form U-3 Weight Loss Centers in
Knoxville, Tennessee. She has been with the Company since January 1996. On
December 4, 1996 she was elected as the Company's Treasurer.

            Jeffrey R. Bailey is 44 years old. He graduated in 1980 from New
Mexico Institute of Mining and Technology with a B.S. degree in Geological
Engineering. Upon graduation he joined Gearhart Industries as a field engineer
working in Texas, New Mexico, Kansas, Oklahoma and Arkansas. Gearhart Industries
later merged with Halliburton Company. In 1993 after 13 years working in various
field operations and management roles primarily focused on reservoir evaluation,
log analysis and log data acquisition he assumed a global role with Halliburton
as a Petrophysics instructor in Fort Worth Texas. His duties were to teach
Halliburton personnel and customers around the world log analysis, competition
technology and to review anayltical reservoir problems. In this role Mr. Bailey
had the opportunity to review reservoirs in Europe, Latin America, Asia Pacific
and the Middle East developing a special expertise in carbonate reservoirs. In
1997 he became technical manager for Halliburton in Mexico focusing on finding
engineering solutions to the production challenges of large carbonate reservoirs
in Mexico. He joined the Company as its Chief Geological Engineer on March 1,
2002.


COMMITTEES

            The Company's Board has operating stock option, audit, compensation
and frontier exploration committees. In fiscal 2001 Messrs. Stivers, Becker and
Gray comprised the stock option committee. Messrs. Stivers, Hatcher and Gray
comprised the audit committee, Messrs. Armstrong, Becker and Gray were the
members of the compensation committee and Messrs. McCormick, Hatcher and
Armstrong comprised the frontier exploration committee. The Board also formed a
field safety committee consisting of members of the Board and Officers of the
Company. That committee in 2001 consisted of Messrs. Ratliff, Armstrong, Carter,
Sorensen and Jeffrey Brockman, the field supervisor for the Company's drilling
operations.

                                       51
<PAGE>


FAMILY RELATIONSHIPS

            There are no family relationships between any of the present
directors or executive officers of the Company.


INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

            To the knowledge of management, during the past five years, no
present or former director, executive officer, affiliate or person nominated to
become a director or an executive officer of the Company:

            (1)   Filed a petition under the federal bankruptcy laws or any
            state insolvency law, nor had a receiver, fiscal agent or similar
            officer appointed by a court for the business or property of such
            person, or any partnership in which he or she was a general partner
            at or within two years before the time of such filing, or any
            corporation or business association of which he or she was an
            executive officer at or within two years before the time of such
            filing;

            (2)   Was convicted in a criminal proceeding or named subject of a
            pending criminal proceeding (excluding traffic violations and other
            minor offenses);

            (3)   Was the subject of any order, judgment or decree, not
            subsequently reversed, suspended or vacated, of any court of
            competent jurisdiction, permanently or temporarily enjoining him or
            her from or otherwise limiting his or her involvement in any type of
            business, securities or banking activities;

            (4)   Was found by a court of competent jurisdiction in a civil
            action, by the Securities and Exchange Commission or the Commodity
            Futures Trading Commission to have violated any federal or state
            securities law, and the judgment in such civil action or finding by
            the Securities and Exchange Commission has not been subsequently
            reversed, suspended, or vacated.


ITEM  11 EXECUTIVE COMPENSATION

            The following table sets forth a summary of all compensation awarded
to, earned or paid to, the Company's Chief Executive Officer during fiscal years
ended December 31, 2001, December 31, 2000 and December 31, 1999. None of the
Company's other executive officers earned compensation in excess of $100,000 per
annum for services rendered to the Company in any capacity.

                                       52
<PAGE>


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                               -----------LONG TERM AWARDS-----
                           ANNUAL COMPENSATION                                 -----------AWARDS----PAYOUTS
====================================================================================================================================
Name and                  YEAR       SALARY ($)   BONUS ($)   OTHER ANNUAL     RESTRICTED   SECURITIES        PAYOUTS   ALL OTHER
Principal Position                                            COMPENSATION($)  STOCK        UNDERLYING                  COMPEN-
                                                                               AWARDS($)    OPTIONS /SARS(#)            SATION
------------------------------------------------------------------------------------------------------------------------------------
<S>                       <C>        <C>          <C>         <C>               <C>         <C>               <C>       <C>
Malcolm E. Ratliff,       2001       $ 80,000     $-0-        $1,000           -0-          52,500(6)         -0-       -0-
Chief Executive Officer   2000       $ 70,000     $-0-        $  500           -0-          52,500            -0-       -0-
                          1999       $ 60,000     $-0-        $  500           -0-          52,500            -0-       -0-

====================================================================================================================================
</TABLE>

----------
(1)   Number of shares underlying options has been retroactively adjusted for a
5% stock dividend declared by the Company as of September 4, 2001. 1 Number of
shares underlying the unexercised options has been retroactively adjusted for a
5% stock dividend declared by the Company as of September 4, 2001.

                                       53
<PAGE>


OPTION GRANTS FOR FISCAL 2001

            No options were granted during fiscal year ended December 31, 2001
to the Chief Executive Officer. None of the Company's other executive officers
earned compensation in excess of $100,000 per annum for services rendered to the
Company in any capacity during the fiscal year ended December 31, 2001.


AGGREGATE OPTION EXERCISES FOR FISCAL 2001
AND YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                                                         ========================= =========================
                                                         NUMBER OF SECURITIES(7)     VALUE(8) OF UNEXERCISED
                                                         UNDERLYING  UNEXERCISED     IN-THE-MONEY
                                                         OPTIONS / SARS       AT     OPTIONS/SARS AT
                                                         DECEMBER 31, 2001           DECEMBER 31, 2001
======================== ================== ============
         NAME             SHARES ACQUIRED   VALUE ($)      EXERCISABLE/                    EXERCISABLE/
                            ON EXERCISE     REALIZED(9)    UNEXERCISABLE                  UNEXERCISABLE
------------------------ ------------------ ------------ ------------------------- -------------------------
<S>                             <C>             <C>             <C>                       <C>
Malcolm E. Ratliff              -0-             -0-             52,500/-0-                $-0-/-0-
======================== ================== ============ ========================= =========================
</TABLE>


            No options were exercised during fiscal year ended December 31, 2001
by the Chief Executive Officer. None of the Company's other executive officers
earned compensation in excess of $100,000 per annum for services rendered to the
Company in any capacity.

            The Company adopted an employee health insurance plan in August
2001. The Company does not presently have a pension or similar plan for its
directors, executive officers or employees. Management intends to adopt a 401(k)
plan and full liability insurance for directors and executive officers in the
near future.

----------
(7)   Number of shares underlying the unexercised options has been retroactively
adjusted for a 5% stock dividend declared by the Company as of September 4,
2001.

(8)   Unexercised options are in-the-money if the fair market value of the
underlying securities exceeds the exercise price of the option. The fair market
value of the Common Stock was $8.28 per share on December 31, 2001, as reported
by The American Stock Exchange. The exercise price of the unexercised option
granted to Malcolm E. Ratliff, the Chief Executive Officer of the Company, is
$8.69 per share. As a result, the unexercised options have a negative value.

(9)   Value realized in dollars is based upon the difference between the fair
market value of the underlying securities on the date of exercise, and the
exercise price of the option.

                                       54
<PAGE>


COMPENSATION OF DIRECTORS

            The Board of Directors has resolved to compensate members of the
Board of Directors for attendance at meetings at the rate of $250 per day,
together with direct out-of-pocket expenses incurred in attendance at the
meetings, including travel. The Directors, however, have waived such fees due to
them as of this date for prior meetings.

      Members of the Board of Directors may also be requested to perform
consulting or other professional services for the Company from time to time. The
Board of Directors has reserved to itself the right to review all directors'
claims for compensation on an ad hoc basis.


EMPLOYMENT CONTRACTS

            The Company has entered into an employment contract with its Chief
Geological Engineer, Jeffrey R. Bailey for a period of one year through February
28, 2003 at an annual salary of $84,000. There are presently no other employment
contracts relating to any member of management. However, depending upon the
Company's operations and requirements, the Company may offer long term contracts
to directors, executive officers or key employees in the future.


COMPENSATION COMMITTEE INTERLOCKING
AND INSIDER PARTICIPATION

      There are no interlocking relationship between any member of the Company's
Compensation Committee and any member of the compensation committee of any other
company, nor has any such interlocking relationship existed in the past. No
member of the Compensation Committee is or was formerly an officer or an
employee of the Company.


ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

            The following tables set forth the share holdings of the Company's
directors and executive officers and those persons who own more than 5% of the
Company's common stock as of March 1, 2002 with these computations being based
upon 10,656,401 shares of common stock being outstanding as of that date and
assumes the exercise of 383,250 shares vested under options granted by the
Company as of March 1, 2002.

                                       55
<PAGE>


                          FIVE PERCENT STOCKHOLDERS(10)

                                                 NUMBER OF SHARES     PERCENT
NAME AND ADDRESS                  TITLE          BENEFICIALLY OWNED   OF CLASS
----------------                  -----          ------------------   --------
Industrial Resources              Stockholder        2,823,987(11)     26.4%
Corporation
603 Main Ave
Knoxville, TN 37902

Spoonbill, Inc.                   Stockholder          878,198          8.24%
Tung Wai Commercial Bldg
20th Floor
109-111 Gloucester Rd
Wanchai, Hong Kong

Bill L. Harbert                   Stockholder/       1,077,667         10.11%
820 Shaders Creek Pkwy            Director
Birmingham, AL 35209

----------
(10)  Unless otherwise stated, all shares of Common Stock are directly held with
sole voting and dispositive power. The shares set forth in the table reflect the
5% stock dividend declared by the Company for shareholders of record as of
September 4, 2001.

(11)  Malcolm E. Ratliff, the Chief Executive Officer and Chairman of the Board
of Directors of the Company is the sole owner of the outstanding securities and
President of Industrial Resources Corporation (" IRC").Ownership of the IRC
shares was previously transferred from Malcolm E. Ratliff, due to his illness,
to his father, James Ratliff. In December 1999 ownership of the IRC shares was
transferred back to Malcolm E. Ratliff from his father. Malcolm E. Ratliff's
wife, Linda Ratliff, is the Secretary of IRC. Accordingly, IRC may be deemed to
be an affiliate of the Company. James Ratliff, who is the father of Malcolm E.
Ratliff, is the sole shareholder and President of Ratliff Farms, Inc. Malcolm E.
Ratliff is the Vice-President/Secretary of Ratliff Farms. Malcolm E. Ratliff has
voting control of the shares of the Company owned by Ratliff Farms, Inc.
Accordingly, Ratliff Farms, Inc. may also be deemed to be an affiliate of the
Company. The shares listed here for IRC include 2,299,744 shares owned directly
by IRC, 59,171 shares owned directly and an option to purchase 52,500 shares
held by Malcolm E. Ratliff, 381,072 shares owned directly by Ratliff Farms, Inc.
and 31,500 shares owned directly by a trust of which Linda Ratliff is trustee
and the children of Malcolm E. Ratliff are the beneficiaries. The shares listed
here do not include shares of the Company owned directly by James Ratliff.

                                       56
<PAGE>


                           DIRECTORS AND OFFICERS(12)

                                             NUMBER OF SHARES     PERCENT
NAME AND ADDRESS              TITLE          BENEFICIALLY OWNED   OF CLASS
----------------              -----          ------------------   --------
Joseph Earl Armstrong         Director             51,4502         Less than 1%
4708 Hilldale Drive
Knoxville, TN 37914

Benton L. Becker              Director             73,7503         Less than 1%
1497 Lacosta Drive East
Pembrook Pines, FL 33027

Robert D. Hatcher, Jr         Director              52,605(15)     Less than 1%
107 Golden Gate Lane
Oak Ridge, TN 37830

Bill L. Harbert               Director           1,077,667         10.11%
820 Shaders Creek Pkwy
Birmingham, AL 35209

Malcolm E. Ratliff            Chief Executive    2,823,987(16)      26.4%
2100 Scott Lane               Officer; Chairman
Knoxville, TN 37922           of the Board

----------
(12)  Unless otherwise stated, all shares of Common Stock are directly held with
sole voting and dispositive power. The shares set forth in the table reflect the
5% stock dividend declared by the Company for shareholders of record as of
September 4, 2001.

(13)   Consists of 9,450 shares held directly and an option to purchase 42,000
shares.

(14)   Consists of 21,250 shares owned directly and an option to purchase 52,500
shares.

(15)   Consists of 105 shares owned directly and an option to purchase 52,500
shares.

(16)   Malcolm E. Ratliff, the Company's Chief Executive Officer and Chairman of
the Board of Directors, is also the sole shareholder and President of Industrial
Resources Corporation ("IRC"). Ownership of the IRC shares was previously
transferred from Malcolm E. Ratliff, due to his illness to his father, James
Ratliff. In December 1999 ownership of the IRC shares was transferred back to
Malcolm E. Ratliff from his father. Linda Ratliff, Malcolm E. Ratliff's wife, is
the Secretary of IRC.James Ratliff, who is the father of Malcolm E. Ratliff, is
the sole shareholder and president of Ratliff Farms, Inc. Malcolm E. Ratliff is
the Vice-President/Secretary of Ratliff Farms, Inc. Malcolm E. Ratliff has
voting control over the shares of the Company owned by Ratliff Farms, Inc. The
shares listed here include 2,299,744 shares owned directly by IRC, 59,171 shares
owned directly and an option to purchase 52,500 shares held by Malcolm E.
Ratliff, 381,072 owned directly by Ratliff Farms, Inc. and 31,500 shares owned
directly by a trust of which Linda Ratliff is trustee and the beneficiaries are
the children of Malcolm E. Ratliff (the "Ratliff Trust"). The shares listed here
do not include shares of the Company owned directly by James Ratliff.

                                       57
<PAGE>


Charles M. Stivers          Director                   -0-          -0-
420 Richmond Road
Manchester, KY 40962

Harold G. Morris, Jr        President               61,817(17)      Less than 1%
153 Chuniloti Way
Loudon, TN 37774

Robert M. Carter            President               54,946(18)      Less than 1%
760 Prince Georges Parish   Tengasco Pipeline
Knoxville, TN 37922         Corporation

Mark A. Ruth                Chief Financial         36,750(19)      Less than 1%
9400 Hickory Knoll Lane     Officer
Knoxville, TN 37931

Cary V. Sorensen            General Counsel;        31,500(20)      Less than 1%
509 Bretton Woods Dr.       Secretary
Knoxville, TN 37919

Sheila F. Sloan             Treasurer               17,850(21)      Less than 1%
121 Oostanali Way
Loudon, TN 37774

Jeffrey R. Bailey           Chief Geological           -0-          -0-
2306 West Gallaher Ferry    Engineer
Knoxville, TN 37932

All Officers and                                 4,282,322(22)      38.8%
Directors as a group

----------
(17)  Consists of 5,775 shares held directly, 3,542 shares owned by his wife and
an option to purchase 52,500 shares.

(18)  Consists of 7,696 shares held directly and an option to purchase 47,250
shares.

(19)  Consists of shares underlying an option.

(20)  Consists of shares underlying an option.

(21)  Consists of 2,100 shares held directly and an option to purchase 15,750
shares.

(22)  Consists of shares held directly and indirectly by management, shares held
by IRC, shares held by Ratliff Farms, Inc., shares held by the Ratliff Trust and
383,250 shares underlying options.

                                       58
<PAGE>


CHANGES IN CONTROL

            Except as indicated below, to the knowledge of the Company's
management, there are no present arrangements or pledges of the Company's
securities which may result in a change in control of the Company.


ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH MANAGEMENT AND OTHERS

            Except as set forth hereafter, there have been no material
transactions, series of similar transactions or currently proposed transactions,
to which the Company or any of its subsidiaries was or is to be a party, in
which the amount involved exceeds $60,000 and in which any director or executive
officer or any security holder who is known to the Company to own of record or
beneficially more than 5% of the Company's common stock, or any member of the
immediate family of any of the foregoing persons, had a material interest.


            On January 24, 2001, the Stock Option Committee granted an
additional option pursuant to the Tengasco, Inc. Stock Incentive Plan to Shigemi
Morita, who at the time was a Director of the Company (he subsequently resigned
from that position on February 1, 2002 for personal reasons) to purchase 20,000
shares of the Company's common stock for a period of three years at a price of
$14.44 per share.

            On November 8, 2001, the Company signed a credit facility with the
Energy Finance Division of Bank One, N.A. in Houston, Texas whereby Bank One
extended to the Company a revolving credit line of up to $35 million. The
initial borrowing base under the facility was $10 million. The balance of the
borrowing base is to be adjusted upon periodic review by Bank One based upon the
Company's oil and gas reserves. The interest rate is the Bank One base rate plus
one-quarter percent. On November 9, 2001, funds from the initial borrowing base
of $10 million were used by the Company to, among other things, repay the
internal financing provided by Directors and shareholders of the Company to
complete Phase II of the Company's pipeline in the aggregate amount of $3.85
million of which the sum of $500,000 was loaned by Morita Properties, Inc., an
affiliate of Shigemi Morita, who at the time was a Director of the Company,
$1,000,000 was loaned by Edward W.T. Gray III, a Director of the Company and
$250,000 was loaned by Malcolm E. Ratliff, Chairman of the Board of Directors
and Chief Executive Officer of the Company; prepay a purchase money note due to
Malcolm E. Ratliff issued in connection with the Company's purchase of a
drilling rig and related equipment from Mr. Ratliff in the amount of
$1,003,844.44; and, prepay in full the remaining principal of the working
capital loan due December 31, 2001 to Edward W.T.Gray III, a Director of the
Company, in the amount of $304,444.44. All of these obligations incurred
interest at a rate substantially greater than the rate

                                       59
<PAGE>


being charged by Bank One under the Credit Facility. See, "Item 7 - Liquidity
and Financial Condition."

            In January 2001, Ratliff Farms, Inc. transferred 164,000 of its
shares in the Company to James Ratliff, its sole shareholder and President and
who is the father of Malcolm E. Ratliff. Malcolm E. Ratliff is the
Vice-President/Secretary of Ratliff Farms, Inc. and has voting control over the
shares of the Company owned by Ratliff Farms, Inc. He does not have voting
control over the shares of the Company owned by James Ratliff, nor are these
shares included in determining the number of shares controlled by Malcolm E.
Ratliff and/or Industrial Resources Corp. See, "Item 12 - Security Ownership of
Certain Beneficial Owners and Management."


INDEBTEDNESS OF MANAGEMENT

            No officer, director or security holder known to the Company to own
of record or beneficially more than 5% of the Company's common stock or any
member of the immediate family of any of the foregoing persons is indebted to
the Company.


PARENT OF THE ISSUER

            Unless IRC may be deemed to be a parent of the Company, the Company
has no parent.


PART IV

ITEM 14  EXHIBITS AND REPORTS

1.    Financial Statements:
         Consolidated Balance Sheets
         Consolidated Statements of Loss
         Consolidated Statements of Stockholders' Equity
         Consolidated Statements of Cash Flows

2.    Exhibits.

(a) - The following documents heretofore filed by the Company with the
commission are hereby incorporated by reference herein from:

                                       60
<PAGE>


(i)   Registration Statement on Form 10-SB filed with the Commission August 7,
1997 (Registration No. 0-29386)

Exhibit Number and Description

     3.1          Initial Articles of Incorporation
     3.2          Bylaws
     3.3          Articles of Amendment dated April 12, 1966
     3.4          Articles of Amendment dated July 12, 1984
     3.5          Articles of Amendment dated December 18, 1991
     3.6          Articles of Amendment dated September 11, 1992
     3.7          Articles of Incorporation of the Tennessee of wholly-owned
                  subsidiary
     3.8          Articles of Merger and Plan of Merger (taking into account the
                  formation of the Tennessee wholly-owned subsidiary for the
                  purpose of changing the Company's domicile and effecting
                  reverse split)
     5.1          Opinion of Robson & Miller, LLP
     10.1(a)      Purchase Agreement with IRC
     10.1(b)      Amendment to Purchase Agreement with IRC
     10.1(c)      General Bill of Sale and Promissory Note
     10.2(a)      Compensation Agreement - M. E. Ratliff
     10.2(b)      Compensation Agreement - Jeffrey D. Jenson
     10.2(c)      Compensation Agreement - Leonard W. Burningham
     10.3         Agreement with The Natural Gas Utility District of Hawkins
                  County, Tennessee
     10.4         Agreement with Powell Valley Electric Cooperative, Inc.
     10.5         Agreement with Enserch Energy Services, Inc.
     16.1         Letter of David T. Thomson, CPA, Regarding Change in
                  Certifying Accountant
     16.2         Letter of Charles M. Stivers, CPA, Regarding Change in
                  Certifying Accountant
     16.3         Letter of Price-Bednar, LLP, CPA, Regarding Change in
                  Certifying Accountant
     23.1         Consent of Charles M. Stivers, CPA
     23.2         Consent of David T. Thomson, CPA
     23.3         Consent of BDO Seidman, LLP
     23.4         Consent of Robson & Miller, LLP
     99.1         Beech Creek Lease Schedule
     99.2         Wildcat Lease Schedule
     99.3         Burning Springs Lease Schedule
     99.4         Fentress County Lease Schedule
     99.5         Swan Creek Lease Schedule
     99.6         Alabama Lease Schedule
     99.7         Coburn Engineering Report dated June 18, 1997.

                                       61
<PAGE>


(ii)  Amendment No. 1 to the Registration Statement on Form 10-SB filed with the
Commission December 11, 1997 (Registration No. 0-29386)

Exhibit Number and Description

     5.1          Opinion of Robson & Miller, LLP
     23.1         Consent of Charles M. Stivers, CPA
     23.3         Consent of BDO Seidman, LLP
     23.4         Consent of Robson & Miller, LLP
     23.5         Consent of Coburn Petroleum Engineering Co.

(iii) Current Report on Form 8-K, Date of Report, February 27, 1998:

Exhibit Number and Description

     2.1          Plan of Acquisition. Agreement dated December 18, 1997 between
                  AFG Energy, Inc. and Tengasco, Inc. regarding sale of assets
                  of AFG Energy, Inc.

(iii) Current Report on Form 8-KA, Date of Report, February 27, 1998:

Exhibit Number and Description

                  Financial Statements of Business Acquired (AFG Energy, Inc.)
                  Independent auditor's report, statement of revenues and direct
                  operating expenses and notes to financial statements of the
                  properties acquired by Tengasco, Inc. from AFG Energy, Inc.
                  Pro Forma Financial Information Pro forma combined statements
                  of loss for year ended December 31, 1997 for Tengasco, Inc.
                  from AFG Energy, Inc.

     2.1(a)       Exhibit A to Agreement dated December 18, 1997 between AFG
                  Energy, Inc. and Tengasco, Inc. regarding sale of assets of
                  AFG Energy, Inc.

     2.1(a)       Exhibit A to Agreement dated December 18, 1997 between AFG
                  Energy, Inc. and Tengasco, Inc. regarding sale of assets of
                  AFG Energy, Inc.

(iv)  Annual Report on Form 10-KSB, Date of Report, April 10, 1998

Exhibit Number and Description

     10.6         Teaming Agreement between Operations Management International,
                  Inc. and Tengasco, Inc. dated March 12, 1997

     10.7         Agreement for Transition Services between Operations
                  Management
                                       62
<PAGE>


                  International, Inc. and Tengasco, Inc. regarding thEast
                  Tennessee Technology Park


     99.8         Coburn Engineering Report dated February 18, 1997 (Paper copy
                  filed on Form SE pursuant to continuing hardship granted by
                  Office of EDGAR Policy)

     99.9         Columbia Engineering Report dated March 2, 1997 (Paper copy
                  filed on Form SE pursuant to continuing hardship granted by
                  Office of EDGAR Policy)

(v)   Annual Report on Form 10-KSB, Date of Report, April 14, 1999

Exhibit Number and Description

     3.9          Amendment to the Corporate Charter dated June 24, 1998
     3.10         Amendment to the Corporate Charter dated October 30, 1998
     99.10        Coburn Engineering Report dated February 9, 1999 (Paper copy
                  filed on Form SE pursuant to continuing hardship granted by
                  Office of EDGAR Policy)
     99.11        Columbia Engineering Report dated February 20, 1999 (Paper
                  copy filed on Form SE pursuant to continuing hardship granted
                  by Office of EDGAR Policy)

(vi)  Current Report on Form 8-K, Date of Report, October 18, 1999:

Exhibit Number and Description

     10.9         Amendment Agreement dated October 19, 1999 between Tengasco,
                  Inc. and The Natural Gas Utility District of Hawkins County,
                  Tennessee

(vii) Current Report on Form 8-KA, Date of Report, November 18, 1999:

Exhibit Number and Description

     10.10        Natural Gas Sales Agreement dated November 18, 1999 between
                  Tengasco, Inc. and Eastman Chemical Company

(viii) Annual Report on Form 10-KSB, Date of Report, April 12, 2000

Exhibit Number and Description

     3.11         Amendment to the Corporate Charter filed March 17 , 2000
     10.11        Agreement between A.M. Partners L.L.C. and Tengasco, Inc.
                  dated October 6, 1999
     10.12        Agreement between Southcoast Capital L.L.C. and Tengasco, Inc.
                  dated February 25, 2000

                                       63
<PAGE>


     10.13        Franchise Agreement between Powell Valley Utility District and
                  Tengasco, Inc. dated January 25, 2000
     10.14        Amendment Agreement between Eastman Chemical Company and
                  Tengasco, Inc. dated March 27, 2000
     99.12        Coburn Engineering Report dated March 30, 2000 (Paper copy
                  filed on Form SE pursuant to continuing hardship granted by
                  Office of EDGAR Policy)
     99.13        Columbia Engineering Report dated January 31, 2000 (Paper copy
                  filed on Form SE pursuant to continuing hardship granted by
                  Office of EDGAR Policy)

(ix)  Current Report on Form 8-K, Date of Report, August 16, 2000:

Exhibit Number and Description


     10.15        Loan Agreement between Tengasco Pipeline Corporation and
                  Morita Properties, Inc. dated August 16, 2000.

     10.15(a)     Promissory note made by Tengasco Pipeline Corporation to
                  Morita Properties, Inc. dated August 16, 2000.

     10.15(b)     Throughput Agreement between Tengasco Pipeline Corporation and
                  Morita Properties, Inc. dated August 16, 2000.

     10.16        Loan Agreement between Tengasco Pipeline Corporation and
                  Edward W.T. Gray III dated August 16, 2000.

     10.16(a)     Promissory note made by Tengasco Pipeline Corporation to
                  Edward W.T. Gray III dated August 16, 2000.

     10.16(b)     Throughput Agreement between Tengasco Pipeline Corporation and
                  Edward W.T. Gray III dated August 16, 2000.

     10.17        Loan Agreement between Tengasco Pipeline Corporation and
                  Malcolm E. Ratliff dated August 16, 2000.

     10.17(a)     Promissory note made by Tengasco Pipeline Corporation to
                  Malcolm E. Ratliff dated August 16, 2000.

     10.17(b)     Throughput Agreement between Tengasco Pipeline Corporation and
                  Malcolm E. Ratliff dated August 16, 2000.

     10.18        Loan Agreement between Tengasco Pipeline Corporation and
                  Charles F. Smithers, Jr. dated August 16, 2000.


                                       64
<PAGE>


     10.18(a)     Promissory note made by Tengasco Pipeline Corporation to
                  Charles F. Smithers, Jr.

     10.18(b)     Throughput Agreement between Tengasco Pipeline Corporation and
                  Charles F. Smithers dated August 16, 2000.

     10.19        Loan Agreement between Tengasco Pipeline Corporation and Nick
                  Nishiwaki dated August 16, 2000.

     10.19(a)     Promissory note made by Tengasco Pipeline Corporation to Nick
                  Nishiwaki dated August 16, 2000.

     10.19(b)     Throughput Agreement between Tengasco Pipeline Corporation and
                  Nick Nishiwaki dated August 16, 2000.



(x)   S-8 Registration Statement for shares to be purchased pursuant to options
granted pursuant to the Tengasco, Inc. Stock Incentive Plan dated October 25,
2000:

Exhibit Number and Description

     4.1          Tengasco, Inc. Incentive Stock Plan

     5.1          Opinion of Robson Ferber Frost Chan & Essner, LLP

     23.1         Consent of BDO Seidman, LLP

     23.2         Consent of Robson Ferber Frost Chan & Essner, LLP contained in
                  Exhibit No. 5.1


(xi)  Annual Report on Form 10-KSB, Date of Report, April 10, 2001

Exhibit Number and Description

     10.19        Memorandum Agreement between Tengasco, Inc. and The University
                  of Tennessee dated February 13, 2001

     10.20        Natural Gas Sales Agreement between Tengasco, Inc. and BAE
                  SYSTEMS Ordnance Systems Inc. dated March 30, 2001

     99.14        Ryder Scott Report

                                       65
<PAGE>


     99.14(a)     Consent of Ryder Scott Company

(xii) Quarterly Report on Form 10-Q, Date of Report, April 10, 2001

Exhibit Number and Description

     10.21        Reducing Revolving Line of Credit Up to $35,000,000 from Bank
                  One, N.A. to Tengasco, Inc., Tennessee Land & Mineral
                  Corporation and Tengasco Pipeline Corporation dated November
                  8, 2001

The following exhibits are filed herewith:

     99.15        Ryder Scott Report dated March 28, 2002

     99.15(a)     Consent of Ryder Scott Company

     21           List of Subsidiaries



                                   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.

Dated: April 19, 2002

                                      TENGASCO, INC.
                                      (Registrant)

                                      By: s/ MALCOLM E. RATLIFF
                                          ---------------------
                                      Malcolm E. Ratliff,
                                      Chief Executive Officer



                                      By: s/ MARK A. RUTH
                                          ---------------
                                      Mark A. Ruth,
                                      Principal Financial and Accounting Officer


                                       66
<PAGE>


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/ MALCOLM E.  RATLIFF         Chief Executive Officer;           April 19, 2002
------------------------       Chairman of the Board
Malcolm E. Ratliff             of Directors



s/ JOSEPH EARL ARMSTRONG       Director                           April 18, 2002
------------------------
Joseph Earl Armstrong


s/ BENTON L. BECKER            Director                           April 19, 2002
------------------------
Benton L. Becker


s/ BILL L. HARBERT             Director                           April 19, 2002
------------------------
Bill L. Harbert


s/ ROBERT D. HATCHER, JR.      Director                           April 18, 2002
------------------------
Robert D. Hatcher, Jr.


s/ CHARLES M. STIVERS          Director                           April 19, 2002
------------------------
Charles M. Stivers


s/ HAROLD G. MORRIS, JR.       President                          April 19, 2002
------------------------
Harold G. Morris, Jr.


s/ MARK A. RUTH                Principal Financial                April 19, 2002
------------------------       and Accounting Officer
Mark A. Ruth


                                       67
<PAGE>





                                TENGASCO, INC.
                              AND SUBSIDIARIES






                                               CONSOLIDATED FINANCIAL STATEMENTS
                                    YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999







<PAGE>






                                TENGASCO, INC.
                              AND SUBSIDIARIES




--------------------------------------------------------------------------------


                                               CONSOLIDATED FINANCIAL STATEMENTS
                                    YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999






                                                                             F-1
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                                        CONTENTS



--------------------------------------------------------------------------------



          INDEPENDENT AUDITORS' REPORT                                       F-3


          CONSOLIDATED FINANCIAL STATEMENTS

              Consolidated Balance sheets                                  F-4-5

              Consolidated Statements of loss                                F-6

              Consolidated Statements of stockholders' equity              F-7-8

              Consolidated Statements of cash flows                       F-9-10

              Notes to consolidated financial statements                 F-11-37







                                                                             F-2
<PAGE>






Independent Auditors' Report



Board of Directors
  Tengasco, Inc. and Subsidiaries
Knoxville, Tennessee

We have audited the accompanying  consolidated balance sheets of Tengasco,  Inc.
and Subsidiaries as of December 31, 2001 and 2000, and the related  consolidated
statements  of loss,  stockholders'  equity and cash flows for each of the three
years in the period ended December 31, 2001. 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audits 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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Tengasco,  Inc. and
Subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and has an accumulated deficit of $24,115,382.  Additionally,  on April 5, 2002,
the  Company's  lender  reduced its borrowing  base under its revolving  line of
credit  agreement by  $6,000,000,  which amount has become  immediately  due and
payable  resulting in a significant  working  capital  deficiency.  Such matters
raise  substantial  doubt  about the  Company's  ability to  continue as a going
concern.  Management's  plans in regard to these  matters are also  described in
Note 2. The  financial  statements  do not  include any  adjustments  that might
result from the outcome of this uncertainty.






Atlanta, Georgia
March 12, 2002, except for Note 2,
which is as of April 12, 2002






                                                                             F-3
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS



--------------------------------------------------------------------------------





<TABLE>
<CAPTION>
DECEMBER 31,                                                          2001            2000
----------------------------------------------------------------------------------------------

<S>                                                             <C>                <C>
ASSETS (Note 7)

CURRENT
   Cash and cash equivalents                                    $   393,451        $1,603,975
   Investments                                                      150,000                --
   Accounts receivable                                              661,475           684,132
   Participant receivables                                           84,097            65,254
   Inventory                                                        159,364           251,345
----------------------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                              1,448,387         2,604,706

OIL AND GAS PROPERTIES, net (on the basis
   of full cost accounting) (Notes 4, 7 and 15)                  13,269,930         9,790,047

COMPLETED PIPELINE FACILITIES, net (Notes 5 and 7)               15,039,762         4,200,000

PIPELINE FACILITIES UNDER CONSTRUCTION, at cost (Note 5)                 --         6,847,038

OTHER PROPERTY AND EQUIPMENT, net (Notes 6 and 7)                 1,680,104         1,677,432

RESTRICTED CASH (Notes 1 and 8)                                     120,872                --

LOAN FEES, net of accumulated amortization of $21,590               496,577                --

OTHER                                                                72,613           105,501
----------------------------------------------------------------------------------------------












                                                                $32,128,245        $25,224,724
----------------------------------------------------------------------------------------------
                                   SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


                                                                             F-4
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS



--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
DECEMBER 31,                                                         2001              2000
----------------------------------------------------------------------------------------------

<S>                                                             <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

   Current maturities of long-term debt - related party
     (Notes 3 and 7)                                            $        --        $  500,000
   Current maturities of long-term debt (Note 7)                  6,399,831         1,608,486
   Accounts payable - trade                                       1,208,164         1,016,462
   Accrued interest payable                                          54,138            56,657
   Accrued dividends payable                                        112,458            78,778
   Other accrued liabilities                                             --            52,640
----------------------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                         7,774,591         3,313,023
----------------------------------------------------------------------------------------------

LONG-TERM DEBT - RELATED PARTIES, less current
   maturities (Notes 3 and 7)                                            --         4,845,000

LONG TERM DEBT, less current maturities (Note 7)                  3,902,757         2,263,599
----------------------------------------------------------------------------------------------

Total long-term debt                                              3,902,757         7,108,599
----------------------------------------------------------------------------------------------

Total liabilities                                                11,677,348        10,421,622
----------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 2 and 8)

PREFERRED STOCK, $.0001 par value; authorized
  25,000,000 shares (Note 9):

  Series A 8% cumulative, convertible,
    mandatorily redeemable; 28,679 and 29,389
    shares outstanding; redemption value
    $2,867,900 and $2,938,900                                     2,867,900         2,938,900


  Series B 8% cumulative, convertible,
    mandatorily redeemable; 27,550 and 1,000
    shares outstanding; redemption value
    $2,755,000 and $1,000,000, net of related
    commissions                                                   2,591,150         1,000,000
----------------------------------------------------------------------------------------------

TOTAL PREFERRED STOCK                                             5,459,050         3,938,900
----------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY (Notes 10 and 11)


   Common stock, $.001 par value; authorized
     50,000,000 shares; 10,560,605 and 9,295,558
     shares issued, respectively                                     10,561             9,296
   Additional paid-in capital                                    39,242,555        25,941,709
   Accumulated deficit                                          (24,115,382)       (15,086,803)
   Treasury Stock, at cost, 14,500 shares                          (145,887)               --
----------------------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY                                       14,991,847        10,864,202
----------------------------------------------------------------------------------------------

                                                                $32,128,245        $25,224,724
===============================================================================================
                                   SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>




                                                                             F-5
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF LOSS



--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                                       2001                   2000                  1999
------------------------------------------------------------------------------------------------------------------------------------

<S>                                                                        <C>                    <C>                   <C>
REVENUES AND OTHER INCOME
   Oil and gas revenues                                                    $ 6,656,758            $ 5,241,076           $ 3,017,252
   Pipeline transportation revenues                                            296,331                     --                    --
   Interest Income                                                              43,597                 45,905                19,094
------------------------------------------------------------------------------------------------------------------------------------

Total revenues and other income                                              6,996,686              5,286,981             3,036,346
------------------------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES
   Production costs and taxes                                                2,951,746              2,614,414             2,564,932
   Depreciation, depletion and amortization
     (Notes 4 and 5)                                                         1,849,963                371,249               233,807
   General and administrative costs                                          2,957,871              2,602,311             1,961,348
   Interest expense                                                            850,965                415,376               417,497
   Public relations                                                            293,448                106,195                86,061
   Professional fees (Note 11)                                                 355,480                719,320               444,624
------------------------------------------------------------------------------------------------------------------------------------

Total costs and expenses                                                     9,259,473              6,828,865             5,708,269
------------------------------------------------------------------------------------------------------------------------------------

NET LOSS                                                                    (2,262,787)            (1,541,884)           (2,671,923)

Dividends on preferred stock                                                  (391,183)              (257,557)             (119,347)
------------------------------------------------------------------------------------------------------------------------------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS                                  $(2,653,970)           $(1,799,441)          $(2,791,270)
------------------------------------------------------------------------------------------------------------------------------------

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
   Basic and diluted                                                       $     (0.26)           $     (0.19)          $     (0.33)
------------------------------------------------------------------------------------------------------------------------------------

Weighted average shares outstanding                                         10,235,253              9,253,622             8,557,395
------------------------------------------------------------------------------------------------------------------------------------
                                                                        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>






                                                                             F-6
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                        UNAMORTIZED
                                       COMMON STOCK         ADDITIONAL                        COMMON          STOCK
                               ---------------------------     PAID-IN        ACCUMULATED       STOCK        OPTION
                                   SHARES         AMOUNT       CAPITAL          DEFICIT      ISSUABLE        AWARDS
------------------------------ -------------- ------------- -------------- ------------- -------------- -------------
<S>                               <C>           <C>        <C>              <C>             <C>           <C>
BALANCE, January 1, 1999          7,644,212     $7,644     $16,796,038      $(10,496,092)   $ 700,000     $(162,500)

 Net loss                                --         --              --       (2,671,923)           --            --

 Common stock issued on
  conversion of debt                 83,100         83         508,917               --            --            --

 Common stock issued for
 exercised options                   20,000         20           9,980               --            --            --

 Stock option awards and
  amortization, net                      --         --              --               --            --       162,500

 Common stock issued in
  private placements, net
  of related expense                775,802        776       3,471,722               --      (700,000)           --

 Stock issued for services            9,768         10          41,990               --            --            --

 Dividends on convertible
  redeemable preferred stock             --         --              --         (119,347)           --            --

 Other                                   --         --         (95,888)              --            --            --
-----------------------------     ---------     ------     -----------      -----------     ---------     ---------

BALANCE, December 31, 1999        8,532,882      8,533      20,732,759      (13,287,362)           --            --

 Net loss                                --         --              --       (1,541,884)           --            --

 Common stock issued on
  conversion of debt                 73,669         74         449,920               --            --            --

  Common stock issued for
   exercised options                 20,715         21         179,992               --            --            --

  Common stock issued on
   conversion of preferred stock      8,818          9          49,991               --            --            --

  Stock option awards for
   professional services                 --         --         242,000               --            --            --

  Common stock issued in
   private placements, net of
   related expense                  654,098        654       4,245,054               --            --            --

  Stock issued for services           5,376          5          41,993               --            --            --

  Dividends on convertible
   redeemable preferred stock            --         --              --         (257,557)           --            --
-----------------------------     ---------     ------     -----------      -----------     ---------     ---------


Balance, December 31, 2000        9,295,558     $9,296     $25,941,709      $(15,086,803)   $      --     $      --
</TABLE>

<PAGE>


         TREASURY STOCK
 ----------------------------
     SHARES         AMOUNT        TOTAL
 -------------- ------------- --------------
          --     $    --     $  6,845,090

                               (2,671,923)


          --          --          509,000


          --          --           10,000


          --          --          162,500
                             ------------


          --          --        2,772,498

          --                       42,000


          --          --         (119,347)

          --          --          (95,888)
  ----------     -------     ------------

          --          --        7,453,930

          --          --       (1,541,884)


          --          --          449,994


          --          --          180,013


          --          --           50,000


          --          --          242,000



          --          --        4,245,708

          --          --           41,998


          --          --         (257,557)
  ----------     -------     ------------


  $       --     $    --     $ 10,864,202


                                                                             F-7
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999



--------------------------------------------------------------------------------





<TABLE>
<CAPTION>
                                                                                                         UNAMORITIZED
                                      COMMON STOCK          ADDITIONAL                          COMMON          STOCK
                                  --------------------      PAID-IN          ACCUMULATED         STOCK         OPTION
                                   SHARES       AMOUNT       CAPITAL           DEFICIT        ISSUABLE         AWARDS
=====================================================================================================================

<S>                               <C>           <C>        <C>              <C>                  <C>         <C>
BALANCE,
 December 31, 2000,
  brought forward                 9,295,558     $9,296     $25,941,709      $(15,086,803)        $ --        $   --

 Net loss                                --         --              --       (2,262,787)           --            --

 Common stock issued
  with 5% stock
  dividend
  (Note 10)                         498,016        498       6,374,111       (6,374,609)           --            --

 Common stock issued
 on conversion of debt               93,069         93         523,157               --            --            --

 Common stock issued
  for exercised options             274,932        275       2,340,725               --            --            --

 Common stock issued
  on conversion of
   preferred stock                   12,347         13          70,988               --                          --

 Stock option awards
  for services                       10,000         10          69,990               --            --            --

 Common stock issued
  in private placements,
  of related expense                374,733        374       3,899,624               --            --            --

 Common stock issued
  as a charitable
  donation                            1,950          2          22,251               --            --            --

 Treasury stock
  purchased                              --         --              --               --            --            --

 Dividends on
  convertible
  redeemable
  preferred stock                        --         --              --         (391,183)           --            --
=====================================================================================================================

BALANCE,
  December 31, 2001               10,560,605    $10,561    $39,242,555      $(24,115,382)        $ --        $   --
=====================================================================================================================
                                                        SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

<PAGE>


     TREASURY STOCK
    ------------------
    SHARES      AMOUNT        TOTAL
=======================================





       --     $    --     $ 10,864,202

       --          --       (2,262,787)




       --          --               --


       --          --          523,250


       --          --        2,341,000



       --          --           71,001


       --          --           70,000



       --          --        3,899,998



       --          --           22,253


   14,500     (145,887)       (145,887)




       --          --         (391,183)
---------     -------     ------------


   14,500     $(145,887)  $ 14,991,847
=======================================




                                                                             F-8
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                              2001             2000            1999
-----------------------------------------------------------------------------------------------------------------

<S>                                                               <C>              <C>              <C>
OPERATING ACTIVITIES
   Net loss                                                       $(2,262,787)     $(1,541,884)     $(2,671,923)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation, depletion and amortization                     1,849,963          371,249          233,807
       Compensation and services paid in stock options, stock
         warrants, and common stock                                    92,253          284,000          204,500
       Gain on sale of equipment                                     (132,943)              --               --
       Changes in assets and liabilities:
         Accounts receivable                                            3,814         (301,421)        (386,933)
         Inventory                                                     91,981            8,408         (159,455)
         Accounts payable - trade                                     191,702          364,553          300,342
         Accrued interest payable                                      (2,519)         135,435               --
         Accrued liabilities                                          (52,640)        (140,955)        (107,341)
-----------------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                (221,176)        (820,615)      (2,587,003)
-----------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
   Additions to other property and equipment                         (285,722)      (1,276,783)        (256,045)
   Net additions to oil and gas properties                         (4,821,883)      (1,456,996)        (788,029)
   Additions to pipeline facilities                                (4,213,095)      (6,834,196)        (193,633)
   Decrease (increase) in restricted cash                            (120,872)         625,000         (625,000)
   Other                                                               32,888            6,112          (29,587)
-----------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                              (9,408,684)      (8,936,863)      (1,892,294)
=================================================================================================================
</TABLE>




                                                                             F-9
<PAGE>






<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                              2001             2000            1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                               <C>              <C>              <C>

FINANCING ACTIVITIES
   Proceeds from exercise of options                                2,341,000          180,013           10,000
   Proceeds from borrowings                                        10,442,068        6,493,563        2,119,023
   Repayments of borrowings                                        (8,833,325)      (1,720,856)      (2,383,605)
   Net proceeds from issuance of common stock                       3,900,000        4,245,700        2,771,722
   Proceeds from private placements of convertible
     redeemable preferred stock, net                                1,591,150        2,000,000        1,188,900
   Collection of due from stockholder                                      --               --          400,000
   Dividends on convertible redeemable preferred stock               (357,503)        (257,557)        (119,347)
   Purchase of treasury stock                                        (145,887)              --               --
   Payment of loan fees                                              (518,167)              --               --
-----------------------------------------------------------------------------------------------------------------

Net cash provided by financing activities                           8,419,336       10,940,863        3,986,693
-----------------------------------------------------------------------------------------------------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                            (1,210,524)       1,183,385         (492,604)

CASH AND CASH EQUIVALENTS, beginning of year                        1,603,975          420,590          913,194
-----------------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                            $   393,451      $ 1,603,975      $   420,590
-----------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
   FINANCING ACTIVITIES:

     During 2001, the Company issued a 5%                                                    $                $
       stock dividend of 498,016 shares                           $ 6,374,609               --               --

     During 2001 and 2000, the Company converted                                                              $
       preferred stock to common stock                            $    71,000      $    50,000               --
     During 2001, 2000 and 1999, respectively,
       the Company issued common stock on
       conversion of debt                                         $   523,250      $   450,000      $   509,000
     During 2001, 2000 and 1999, respectively, the
       Company issued common stock and stock options
       for services received and charitable contributions
       made                                                       $    92,253      $   284,000      $    42,000

     During 2001, the Company sold equipment                                                 $                $
       for equity investments                                     $   150,000               --               --
=================================================================================================================
                                                     SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>






                                                                            F-10
<PAGE>






                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


1.   SUMMARY OF               ORGANIZATION
     SIGNIFICANT ACCOUNTING   Tengasco,  Inc. (the  "Company"),  a publicly held
     POLICIES                 corporation,  was organized  under the laws of the
                              State of Utah on April 18,  1916,  as Gold Deposit
                              Mining   and   Milling   Company.    The   Company
                              subsequently changed its name to Onasco Companies,
                              Inc.

                              Effective  May  2,  1995,   Industrial   Resources
                              Corporation,   a  Kentucky   corporation  ("IRC"),
                              acquired voting control of the Company in exchange
                              for  approximately  60%  of  the  assets  of  IRC.
                              Accordingly,  the assets acquired,  which included
                              certain oil and gas leases, equipment,  marketable
                              securities  and  vehicles,  were recorded at IRC's
                              historical  cost. The transaction was accomplished
                              through the Company's issuance of 4,000,000 shares
                              of its common stock and a $450,000,  8% promissory
                              note  payable  to IRC.  The  promissory  note  was
                              converted  into 83,799  shares of  Tengasco,  Inc.
                              common stock in December 1995.

                              The Company changed its domicile from the State of
                              Utah to the State of  Tennessee on May 5, 1995 and
                              its name was changed from "Onasco Companies, Inc."
                              to "Tengasco, Inc."

                              The Company's  principal  business consists of oil
                              and  gas   exploration,   production  and  related
                              property  management in the Appalachian  region of
                              eastern Tennessee and in the state of Kansas.  The
                              Company's  corporate  offices  are  in  Knoxville,
                              Tennessee.  The Company operates as one reportable
                              business  segment,  based  on  the  similarity  of
                              activities.

                              During 1996, the Company formed Tengasco  Pipeline
                              Corporation ("TPC"), a wholly-owned subsidiary, to
                              manage the construction and operation of a 65-mile
                              gas  pipeline as well as other  pipelines  planned
                              for   the   future.   During   2001,   TPC   began
                              transmission  of natural gas through its  pipeline
                              to customers of Tengasco.

                              BASIS OF PRESENTATION

                              The consolidated  financial statements include the
                              accounts  of  the   Company,   Tengasco   Pipeline
                              Corporation  and Tennessee Land and Mineral,  Inc.
                              All   significant    intercompany   balances   and
                              transactions have been eliminated.



                                                                            F-11
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              USE OF ESTIMATES

                              The accompanying financial statements are prepared
                              in conformity with accounting principles generally
                              accepted  in the United  States of  America  which
                              require   management   to   make   estimates   and
                              assumptions  that affect the  reported  amounts of
                              assets   and   liabilities   and   disclosure   of
                              contingent  assets and  liabilities at the date of
                              the financial  statements and the reported amounts
                              of  revenues  and  expenses  during the  reporting
                              period. The actual results could differ from those
                              estimates.

                              REVENUE RECOGNITION

                              The  Company  recognizes  revenues  at the time of
                              exchange of goods and services.

                              CASH AND CASH EQUIVALENTS

                              The  Company  considers  all  investments  with  a
                              maturity of three months or less when purchased to
                              be cash equivalents.

                              RESTRICTED CASH

                              At  December  31,  2001  the  Company  had cash in
                              escrow related to an ongoing  pricing dispute with
                              King   Pipeline   Corporation.   The   Company  is
                              disputing  certain amounts billed by King Pipeline
                              Corporation to the Company for construction of the
                              pipeline.  This  cash will be  restricted  until a
                              judgment has been reached in this case.

                              INVESTMENT SECURITIES

                              Investment   securities  available  for  sale  are
                              reported at fair value,  with unrealized gains and
                              losses,  when  material,  reported  as a  separate
                              component  of  stockholders'  equity,  net  of the
                              related tax effect.

                              INVENTORY

                              Inventory consists primarily of crude oil in tanks
                              and is carried at market value.






                                                                            F-12
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              OIL AND GAS PROPERTIES

                              The  Company  follows  the  full  cost  method  of
                              accounting  for oil and gas property  acquisition,
                              exploration and development activities. Under this
                              method,  all  productive and  nonproductive  costs
                              incurred in connection  with the  acquisition  of,
                              exploration  for  and  development  of oil and gas
                              reserves  for each cost  center  are  capitalized.
                              Capitalized  costs  include  lease   acquisitions,
                              geological and geophysical work, delay rentals and
                              the costs of drilling,  completing  and  equipping
                              oil and gas wells.  Gains or losses are recognized
                              only upon  sales or  dispositions  of  significant
                              amounts of oil and gas  reserves  representing  an
                              entire cost center.  Proceeds from all other sales
                              or  dispositions  are  treated  as  reductions  to
                              capitalized costs.

                              The  capitalized  costs of oil and gas properties,
                              plus estimated future  development  costs relating
                              to proved reserves and estimated costs of plugging
                              and abandonment,  net of estimated  salvage value,
                              are  amortized  on the  unit-of-production  method
                              based  on  total  proved  reserves.  The  costs of
                              unproved properties are excluded from amortization
                              until the properties are evaluated,  subject to an
                              annual   assessment  of  whether   impairment  has
                              occurred.  The Company's  proved gas reserves were
                              estimated  by  Columbia  Engineering,  independent
                              petroleum  engineers,  for the Kansas  properties,
                              and  by  Coburn  Petroleum   Engineering  for  the
                              Tennessee  properties in 1999. These reserves were
                              estimated  by  Ryder  Scott   Company,   Petroleum
                              Consultants in 2000 and 2001.

                              The  capitalized   oil  and  gas  property,   less
                              accumulated     depreciation,     depletion    and
                              amortization and related deferred income taxes, if
                              any,  are  generally  limited  to an  amount  (the
                              ceiling  limitation)  equal to the sum of: (a) the
                              present  value of  estimated  future net  revenues
                              computed by applying  current  prices in effect as
                              of the balance sheet date (with  consideration  of
                              price  changes  only  to the  extent  provided  by
                              contractual   arrangements)  to  estimated  future
                              production  of proved oil and gas  reserves,  less
                              estimated  future  expenditures  (based on current
                              costs) to be incurred in developing  and producing
                              the  reserves  using a discount  factor of 10% and
                              assuming   continuation   of   existing   economic
                              conditions;  and (b) the  cost of  investments  in
                              unevaluated  properties  excluded  from the  costs
                              being amortized. No ceiling writedown was recorded
                              in 2001, 2000 or 1999.






                                                                            F-13
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              PIPELINE FACILITIES

                              Pipeline facilities under construction  consist of
                              direct   and    indirect    construction    costs,
                              capitalized  interest  and  capitalized  overhead.
                              Phase I of the pipeline was completed during 1999.
                              Phase II of the pipeline was completed on March 8,
                              2001. Both phases of the pipeline were placed into
                              service upon  completion of Phase II. The pipeline
                              is being  depreciated  over its  estimated  useful
                              life of 30  years,  beginning  at the  time it was
                              placed in service.  Accordingly,  no  depreciation
                              expense  has  been  recorded  for  2000  and  1999
                              relating  to  pipeline  facilities.  During  2001,
                              depreciation  expense  of  $220,371  was  recorded
                              relating to the pipeline.

                              OTHER PROPERTY AND EQUIPMENT

                              Other  property and equipment are carried at cost.
                              The Company  provides  for  depreciation  of other
                              property  and  equipment  using the  straight-line
                              method  over  the  estimated  useful  lives of the
                              assets which range from five to ten years.

                              IMPAIRMENT  OF  LONG-LIVED  ASSETS AND  LONG-LIVED
                              ASSETS TO BE DISPOSED OF

                              Management  believes that carrying  amounts of all
                              of the Company's  long-lived  assets will be fully
                              recovered over the course of the Company's  normal
                              future operations.  Accordingly,  the accompanying
                              financial   statements   reflect   no  charges  or
                              allowances for impairment.

                              DERIVATIVES


                              The Company  uses collar  contracts  to  partially
                              mitigate the effects of  fluctuations in the price
                              of crude oil and natural gas. These  contracts are
                              marked to market with current recognition of gains
                              and losses on such  positions  to be  included  in
                              Other Income since the Company's positions are not
                              considered   hedges   for   financial    reporting
                              purposes.  The  Company's  accounting  for  collar
                              contracts   may  have  the  effect  of  increasing
                              earnings  volatility  in  any  particular  period.
                              Derivative activities entered into on December 28,
                              2001 were not material to the Company's  financial
                              position  or results of  operations  as of and for
                              the year ended December 3,1 2001. The Company does
                              not  hold  or  issue  derivative  instruments  for
                              speculative purposes.






                                                                            F-14
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              INCOME TAXES

                              The Company  accounts  for income  taxes using the
                              "liability  method."  Accordingly,   deferred  tax
                              liabilities and assets are determined based on the
                              temporary   differences   between  the   financial
                              reporting and tax bases of assets and liabilities,
                              using  enacted tax rates in effect for the year in
                              which the  differences  are  expected  to reverse.
                              Deferred  tax  assets  arise  primarily  from  net
                              operating loss carryforwards. Management evaluates
                              the  likelihood of  realization  of such assets at
                              year end  reserving any such amounts not likely to
                              be recovered in future periods.

                              CONCENTRATION OF CREDIT RISK

                              Financial  instruments which  potentially  subject
                              the  Company  to  concentrations  of  credit  risk
                              consist   principally   of   cash   and   accounts
                              receivable.  At  times,  such  cash in banks is in
                              excess of the FDIC  insurance  limit.  At December
                              31,  2001,  the  Company  had  deposits  with  two
                              financial  institutions  in amounts which exceeded
                              the  federally   insured  limit  by  approximately
                              $275,000 and $100,000.

                              The Company's primary business  activities include
                              oil and gas  sales  to  several  customers  in the
                              states of Tennessee and Kansas.  The related trade
                              receivables subject the Company to a concentration
                              of credit risk within the oil and gas industry.

                              The Company has entered  into a contract to supply
                              a chemical  manufacturer with natural gas from the
                              Swan Creek field and through  the  pipeline.  This
                              customer will be the Company's primary customer of
                              natural gas sales. Additionally, the Company sells
                              a  majority  of its  crude  oil  primarily  to two
                              customers,  one  each  in  Tennessee  and  Kansas.
                              Although  management believes that customers could
                              be replaced in the ordinary course of business, if
                              the present customers were to discontinue business
                              with  the  Company,  it could  have a  significant
                              adverse effect on the Company's  projected results
                              of operations.




                                                                            F-15
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              LOSS PER COMMON SHARE

                              Basic loss per share is computed by dividing  loss
                              available to common  shareholders  by the weighted
                              average number of shares  outstanding  during each
                              year.  Shares  issued during the year are weighted
                              for  the  portion  of  the  year  that  they  were
                              outstanding.   Diluted   loss  per  share  is  not
                              calculated  since it is  anti-dilutive.  Basic and
                              diluted  loss per share are based upon  10,235,253
                              shares  for the  year  ended  December  31,  2001,
                              9,253,622  shares for the year ended  December 31,
                              2000  and  8,557,395  shares  for the  year  ended
                              December 31, 1999.  There were 943,005,  1,000,763
                              and  732,967  potential  weighted  average  common
                              shares  outstanding  during  2001,  2000  and 1999
                              related  to common  stock  options  and  warrants.
                              These shares were not included in the  computation
                              of the diluted loss per share  amount  because the
                              Company was in a net loss position and,  thus, any
                              potential  common shares were  anti-dilutive.  All
                              share and per share  amounts have been adjusted to
                              reflect the 5% stock dividend. See Note 10.

                              FAIR VALUES OF FINANCIAL INSTRUMENTS

                              Fair   values   of  cash  and  cash   equivalents,
                              investments and short-term debt  approximate  cost
                              due to the short period of time to maturity.  Fair
                              values  of  long-term  debt are  based  on  quoted
                              market  prices or  pricing  models  using  current
                              market rates, which approximate carrying values.

                              NEW ACCOUNTING PRONOUNCEMENTS

                              The  Company   adopted   Statement   of  Financial
                              Accounting  Standards (SFAS) No. 133,  "Accounting
                              for    Derivative    Instruments    and    Hedging
                              Activities,"  effective  January 1, 2001. SFAS No.
                              133 (as amended by SFAS 137 and SFAS 138) requires
                              a company  to  recognize  all  derivatives  on the
                              balance sheet at fair value.  Derivatives that are
                              not hedges must be adjusted to fair value  through
                              income.  If the  derivative is a fair value hedge,
                              changes in the fair  value of the  hedged  assets,
                              liabilities  or firm  commitments  are  recognized
                              through earnings. If the derivative is a cash flow
                              hedge the effective portion of changes in the fair
                              value of the  derivative  are  recognized in other
                              comprehensive  income  until  the  hedged  item is
                              recognized in earnings. The ineffective portion of
                              a derivative's change in fair value is immediately
                              recognized  in earnings.  The adoption of SFAS No.
                              133, as amended, did not have a material impact on
                              the Company's consolidated financial statements.



                                                                            F-16
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              In July 2001, the Financial  Accounting  Standards
                              Board issued  Statement  of  Financial  Accounting
                              Standard (SFAS) No. 141,  "Business  Combinations"
                              and SFAS No.142,  "Goodwill  and Other  Intangible
                              Assets".   SFAS  No.  141  addresses  the  initial
                              recognition  and measurement of goodwill and other
                              intangible   assets   acquired   in   a   business
                              combination and SFAS No. 142 addresses the initial
                              recognition and  measurement of intangible  assets
                              acquired outside of a business combination whether
                              acquired  individually  or with a group  of  other
                              assets.   These   standards   require  all  future
                              business  combinations  to be accounted  for using
                              the purchase  method of accounting.  Goodwill will
                              no longer be amortized but instead will be subject
                              to impairment tests at least annually. The Company
                              would have been  required to adopt SFAS No. 141 on
                              July  1,  2001,   and  to  adopt  SFAS  142  on  a
                              prospective  basis  as of  January  1,  2002.  The
                              Company  has not  effected a business  combination
                              and  carries no  goodwill  on its  balance  sheet;
                              accordingly,  the  adoption of these  standards is
                              not  expected  to have an effect on the  Company's
                              financial position or results of operations.

                              In June 2001, the Financial  Accounting  Standards
                              Board  approved  the  issuance  of SFAS  No.  143,
                              "Accounting  for  Asset  Retirement  Obligations."
                              SFAS 143 establishes  accounting standards for the
                              recognition and  measurement of legal  obligations
                              associated   with  the   retirement   of  tangible
                              long-lived  assets and requires  recognition  of a
                              liability  for an asset  retirement  obligation in
                              the period in which it is incurred. The provisions
                              of this  statement  are  effective  for  financial
                              statements issued for fiscal years beginning after
                              June 15, 2002.  The adoption of this  statement is
                              not  expected  to have a  material  impact  on the
                              Company's   financial   position   or  results  of
                              operations.

                              SFAS No. 144,  Accounting  for the  Impairment  or
                              Disposal   of   Long-Lived    Assets,    addresses
                              accounting  and  reporting  for the  impairment or
                              disposal  of  long-lived  assets.   SFAS  No.  144
                              supersedes  SFAS  No.  121,   Accounting  for  the
                              Impairment of Long-Lived Assets and for Long-Lived
                              Assets to be Disposed Of. SFAS No. 144 establishes
                              a single accounting model for long-lived assets to
                              be disposed of by sale and expands on the guidance
                              provided by SFAS No. 121 with respect to cash flow
                              estimations.  SFAS No. 144 becomes  effective  for
                              the  Company's  fiscal year  beginning  January 1,
                              2002.  There will be no current impact of adoption
                              on  its   financial   position   or   results   of
                              operations.




                                                                            F-17
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              RECLASSIFICATIONS

                              Certain prior year amounts have been  reclassified
                              to conform with current year presentation.


2.   GOING CONCERN            The accompanying consolidated financial statements
     UNCERTAINTY              have been prepared in conformity  with  accounting
                              principles generally accepted in the United States
                              of America, which contemplate  continuation of the
                              Company   as  a  going   concern   which   assumes
                              realization  of  assets  and the  satisfaction  of
                              liabilities in the normal course of business.  The
                              Company continues to be in the early stages of its
                              oil  and  gas  related  operating  history  as  it
                              endeavors  to expand its  operations  through  the
                              continuation  of  its  drilling   program  in  the
                              Tennessee  Swan  Creek  Field.  Accordingly,   the
                              Company has  incurred  continuous  losses  through
                              these  operating  stages  and  has an  accumulated
                              deficit  of  $24,115,382  and  a  working  capital
                              deficit of  $6,326,204 as of December 31, 2001. On
                              April 5, 2002,  the  Company  was  informed by its
                              primary lender that  $6,000,000 of its outstanding
                              credit  facility  was due and  payable  within  30
                              days, as provided for in the Credit Agreement (see
                              Note 7).  These  circumstances  raise  substantial
                              doubt about the Company's ability to continue as a
                              going concern.

                              The Company has  disputed its  obligation  to make
                              this  payment  and is  attempting  to resolve  the
                              dispute  or  to  obtain  alternative   refinancing
                              arrangements  to repay  this  current  obligation.
                              There can be no assurance that the Company will be
                              successful  in its plans to obtain  the  financing
                              necessary to satisfy their current obligations.


3.     RELATED PARTY          During 2001,  the Company repaid all principal and
       TRANSACTIONS           interest  due  to  related   parties,   using  the
                              proceeds  from the line of  credit  with Bank One.
                              Interest  incurred to related parties was $546,026
                              for the year ended December 31, 2001.


                              During  2001,   the  Company   converted  debt  of
                              $200,000  payable to a director into 42,017 shares
                              of common stock.

                              No  consulting   fees  or  commissions  on  equity
                              transactions were paid to related parties in 2001.


                                                                            F-18
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              During 2000,  the Company  acquired debt financing
                              in the amount of  $3,850,000  from two  members of
                              the board of  directors,  one  affiliate,  and two
                              shareholders in order to complete  construction of
                              its  pipeline  from Swan Creek to  Kingsport  (see
                              Note  5).  The  directors   will  also  receive  a
                              throughput fee once  production  begins,  and will
                              continue  to  receive  such fees until the debt is
                              repaid.  The  throughput fee is 10 cents per MMBtu
                              delivered  through the pipeline in  proportion  to
                              the  director's  proportion  of  total  debt.  The
                              volume  delivered shall be calculated on a monthly
                              basis.  The throughput fee was $82,373 in 2001. No
                              throughput  fees were  incurred in 2000 or 1999 as
                              the pipeline was not yet operational.

                              During 2000, the Company  incurred debt to a major
                              officer/stockholder  in the amount of  $995,000 in
                              order  to  purchase  a  drilling   rig  from  that
                              officer/stockholder (see Note 7).

                              During  2000,   the  Company  paid   approximately
                              $270,000 in  consulting  fees and  commissions  on
                              equity  transactions  to a member  of the Board of
                              Directors.

                              Interest   expense  incurred  to  related  parties
                              during 2000 was $135,435.

                              In December  1999,  the Company sold for aggregate
                              consideration  of $625,000 a 25% working  interest
                              in two wells and a 50% working interest in a third
                              well,  located  in  the  Swan  Creek  Field,  to a
                              related party company  affiliated with a member of
                              the Board of Directors.

                              During  1999,  the Company  converted  $250,000 of
                              debt  together  with  accrued   interest   thereon
                              payable  to a  major  officer/stockholder  of  the
                              Company  into 54,000  shares of common  stock.  In
                              addition,   the  Company  converted   $163,800  of
                              non-interest  bearing  accounts  payable  to  this
                              officer/stockholder  into 16,800  shares of common
                              stock.

                              During 1999, the Company converted $22,000 of debt
                              payable  to a  company  owned by a  member  of the
                              Board of Directors  for  consulting  services into
                              5,625 shares of common stock.

                              During  1999,   the  Company  paid   approximately
                              $218,000 in  consulting  fees and  commissions  on
                              equity  transactions  to a member  of the Board of
                              Directors.




                                                                            F-19
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

4.     OIL AND GAS            The   following   table  sets  forth   information
       PROPERTIES             concerning the Company's oil and gas properties:




<TABLE>
<CAPTION>
                              DECEMBER 31,                                         2001               2000
                              -----------------------------------------------------------------------------

<S>                                                                         <C>                <C>
                              Oil and gas properties, at cost               $15,117,224        $10,295,341
                              Accumulation depreciation,
                                  depletion and amortization                 (1,847,294)          (505,294)
                              -----------------------------------------------------------------------------

                              Oil and gas properties, net                   $13,269,930       $  9,790,047
                              -----------------------------------------------------------------------------
</TABLE>

                              During the years ended December 31, 2001, 2000 and
                              1999, the Company  recorded  depletion  expense of
                              $1,342,000,  $197,000 and  $92,000,  respectively.
                              Significant  increases in  depletion  expense were
                              incurred  during 2001 as a result of decreased oil
                              and gas estimated proved reserves.


5.     PIPELINE FACILITIES    In  1996,  the  Company  began  construction  of a
                              65-mile gas pipeline (1) connecting the Swan Creek
                              development  project  to a gas  purchaser  and (2)
                              enabling  the Company to develop gas  distribution
                              business  opportunities in the future.  Phase I, a
                              30-mile portion of the pipeline,  was completed in
                              1998.  Phase II of the pipeline  was  completed in
                              March  2001.  The  estimated  useful  life  of the
                              pipeline  for  depreciation  purposes is 30 years.
                              The  Company  used  the  half-life  convention  to
                              calculate depreciation on the pipeline in 2001 and
                              recorded  approximately  $220,000 in  depreciation
                              expense.

                              In  January  1997,  the  Company  entered  into an
                              agreement  with  the  Tennessee  Valley  Authority
                              ("TVA") whereby the TVA allows the Company to bury
                              the pipeline  within the TVA's  transmission  line
                              rights-of-way.  In  return  for  this  right,  the
                              Company paid $35,000 and agreed to annual payments
                              of  approximately   $6,200  for  20  years.   This
                              agreement  expires  in  2017  at  which  time  the
                              parties  may renew the  agreement  for  another 20
                              year   term   in    consideration    of    similar
                              inflation-adjusted payment terms.






                                                                            F-20
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

6.     OTHER PROPERTY         Other  property  and  equipment  consisted  of the
       AND EQUIPMENT          following:




<TABLE>
<CAPTION>
                              DECEMBER 31,                                           2001             2000
                              -----------------------------------------------------------------------------

<S>                                                                            <C>              <C>
                              Machinery and equipment                          $1,737,189       $1,689,128
                              Vehicles                                            610,510          522,854
                              Other                                                63,739           63,734
                              -----------------------------------------------------------------------------

                                                                                2,411,438        2,275,716

                              Less accumulated depreciation                      (731,334)        (598,284)
                              -----------------------------------------------------------------------------

                              Other property and equipment - net               $1,680,104       $1,677,432
                              -----------------------------------------------------------------------------
</TABLE>




                                                                            F-21
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

7.   LONG TERM DEBT           Long-term debt to unrelated  entities consisted of
                              the following:

<TABLE>
<CAPTION>
                              DECEMBER 31,                                         2001               2000
                              -----------------------------------------------------------------------------
<S>                           <C>                                            <C>                         <C>

                              Revolving  line of  credit  with a bank.
                              Initial  borrowing base of  $10,000,000.
                              The   loan   agreement    provides   for
                              increases or decreases to the  borrowing
                              base as  changes  in proved  oil and gas
                              reserves  or  other  production   levels
                              arise.  The line of  credit  expires  in
                              November 2004,  unless  extended by both
                              parities.  Borrowings  bear  interest at
                              the bank's  prime rate plus 0.25% (5% at
                              December 31,  2001).  Collateralized  by
                              the  oil  and  gas  properties  and  the
                              related  operations  and  revenues.  The
                              Company is subject to certain  financial
                              (ratio)  covenants and  restrictions  on
                              indebtedness,     dividend     payments,
                              financial      guarantees,      business
                              combinations, reporting requirements and
                              other related items.  As of December 31,
                              2001,  the Company is not in  compliance
                              with all  covenants,  however,  the bank
                              has waived its rights to accelerate  the
                              debt  or  exercise  other  rights  as  a
                              result  of  these  covenant  violations.
                              Subsequent to year end, the bank reduced
                              the borrowing base to
                              $3,101,777.  See Note 2.                       $9,101,777 $               --

                              Note  payable to a bank,  with $95,000
                              principal    payments    due   monthly
                              commencing  on January 1, 2001 through
                              February   1,   2003.    Interest   is
                              payable monthly  commencing January 1,
                              2001  at  prime   plus  1%  (5.75%  at
                              December  31,  2001)  per  annum.  The
                              note   is   guaranteed   by  a   major
                              shareholder  and  is  collatalized  by
                              certain  assets  of the  Company.  The
                              note was repaid in 2001.                               --          2,469,989
                              -----------------------------------------------------------------------------

                              Balance carried forward                        $9,101,777         $2,469,989
                              -----------------------------------------------------------------------------
</TABLE>



                                                                            F-22
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                              DECEMBER 31,                                         2001               2000
                              -----------------------------------------------------------------------------

<S>                                                                          <C>                <C>
                              Balance brought forward                        $9,101,777         $2,469,989
                              -----------------------------------------------------------------------------

                              Note  payable  to an  institution,  with
                              $65,000 principal payments due quarterly
                              beginning  January  1,  2000;  remaining
                              balance due October 2003;  with interest
                              payable monthly at 8% per annum. Note is
                              convertible  into  common  stock  of the
                              Company  at a rate of $6.25 per share of
                              common stock.
                              Note is unsecured.                                720,000            975,000

                              Note payable to an  institution,  with
                              $1,773.28   principal   payments   due
                              monthly   beginning  January  7,  2002
                              through December 7, 2006.  Interest is
                              payable monthly  commencing on January
                              7,  2002 at 7.5%  per  annum.  Note is
                              guaranteed       by      a       major
                              shareholder/director       and      is
                              collateralized  by  certain  assets of
                              the Company.                                       87,500                 --

                              Thirteen    individual    vehicle    and
                              equipment notes bearing  interest at the
                              rate  of  3.9%  to   11.95%   per  annum
                              collateralized by vehicles and equipment
                              with monthly payments including interest
                              of approximately
                              $10,000 due 2001 to 2006.                         393,311            427,096
                              -----------------------------------------------------------------------------

                              Total long term debt due to  unrelated
                              entities                                       10,302,588          3,872,085

                              Less current maturities                        (6,399,831)        (1,608,486)
                              -----------------------------------------------------------------------------

                              Long  term   debt  due  to   unrelated
                              entities, less current maturities            $  3,902,757        $ 2,263,599
                              -----------------------------------------------------------------------------
</TABLE>



                                                                            F-23
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              Long-term   debt  to   related   parties
                              consisted of the following:

<TABLE>
<CAPTION>
                              DECEMBER 31,                                         2001               2000
                              -----------------------------------------------------------------------------
<S>                                                                          <C>                <C>

                              Note payable to a related party;  entire
                              principal  balance  due  December  2001,
                              with  interest  payable  quarterly at 8%
                              per  annum.  Note  is  convertible  into
                              common stock of the Company at a rate of
                              $5.00 per share of common
                              stock.                                         $       --         $  500,000

                              Note  payable to a related  party  (Note
                              2);   entire   principal   balance   due
                              November  2005,  with  interest  payable
                              quarterly  at  8%  per  annum.  Note  is
                              convertible  into  common  stock  of the
                              Company at a rate of $7.10 per share
                              of common stock.  Note is unsecured.                   --            995,000

                              Note payable to related  parties (Note
                              2);  entire   principal   balance  due
                              August  2005,  with  interest  payable
                              quarterly  at 10.75% per  annum.  Note
                              is collateralized by the Pipeline.                     --          3,850,000
                              -----------------------------------------------------------------------------

                              Total long term debt due to related
                                parties                                              --          5,345,000
                              Less current maturities                                --           (500,000)
                              -----------------------------------------------------------------------------

                              Long term debt due to related parties,
                                less current maturities                      $       --        $ 4,845,000
                              -----------------------------------------------------------------------------
</TABLE>

                              All  long-term  debt to related  parties
                              was repaid in November 2001.






                                                                            F-24
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              The  aggregate  maturities of long term debt as of
                              December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                       Year                                                          Amount
                              -----------------------------------------------------------------------------

<S>                                    <C>                                                      <C>
                                       2002                                                     $6,399,831
                                       2003                                                        390,793
                                       2004                                                      3,426,107
                                       2005                                                         59,200
                                       2006                                                         26,657
                              -----------------------------------------------------------------------------

                                                                                               $10,302,588
                              -----------------------------------------------------------------------------
</TABLE>


8.     COMMITMENTS            The Company is a party to lawsuits in the ordinary
       AND CONTINGENCIES      course of its business.  While the damages  sought
                              in some of these actions are material, the Company
                              does  not  believe  that it is  probable  that the
                              outcome  of  any  individual  action  will  have a
                              material adverse effect, or that it is likely that
                              adverse  outcomes  of  individually  insignificant
                              actions will be significant  enough,  in number or
                              magnitude,  to have a material  adverse  effect in
                              the aggregate.

                              In the ordinary course of business the Company has
                              entered into various  equipment  and office leases
                              which have terms  ranging  from one to five years.
                              Approximate  future  minimum lease  payments to be
                              made under noncancellable  operating leases are as
                              follows:

<TABLE>
<CAPTION>
                                       Year                                                          Amount
                              -----------------------------------------------------------------------------

<S>                                    <C>                                                        <C>
                                       2002                                                       $  99,155
                                       2003                                                          60,158
                                       2004                                                          59,210
                                       2005                                                          56,970
                                       2006                                                             500
                              -----------------------------------------------------------------------------

                                                                                                   $275,993
                              -----------------------------------------------------------------------------
</TABLE>

                              Office  rent  expense was  approximately  $91,228,
                              $86,120  and  $52,590  for each of the three years
                              ended December 31, 2001, respectively.






                                                                            F-25


<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9.     CONVERTIBLE            In December 1998, the Company's Board of Directors
       REDEEMABLE             authorized  the  issuance  of  100,000  shares  of
       PREFERRED STOCK        Series A Convertible  Redeemable  Preferred  Stock
                              ("Series A Preferred  Stock").  In December  1999,
                              the Company's  Board of Directors  authorized  the
                              issuance of 100,000 shares of Series B Convertible
                              Redeemable  Preferred  Stock  ("Series B Preferred
                              Stock").

                              Shares of both Series A and B of  Preferred  Stock
                              are or will be immediately convertible into shares
                              of Common Stock. Each $100 liquidation  preference
                              share of preferred  stock is convertible at a rate
                              of  $7.00  for the  Series A per  share of  common
                              stock.  For the Series B, the  conversion  rate is
                              the average  market price of the Company's  common
                              stock for 30 days  before the sale of the Series B
                              preferred stock with a minimum conversion price of
                              $9.00 per share. The conversion rate is subject to
                              downward  adjustment  if the Company  subsequently
                              issues  shares of common  stock for  consideration
                              less than  $7.00 and $9.00 for the Series A and B,
                              respectively,  per share.  The  conversion  prices
                              will be adjusted prospectively for stock dividends
                              and splits.

                              In 2000, the Company issued 1,000 shares of Series
                              A Preferred Stock for $1,000,000, which netted the
                              Company approximately  $960,000 after commissions.
                              In the same year,  the Company issued 1,000 shares
                              of Series B  Preferred  Stock for  $1,000,000.  No
                              commissions  were paid on the  Series B  Preferred
                              Stock.  In April 2000, one holder  converted 5,000
                              shares of Series A  Preferred  Stock  into  Common
                              Stock.  No additional  consideration  was given to
                              the Company for this conversion.

                              In conjunction  with the issuances of the Series B
                              Preferred  Stock  described   above,  the  Company
                              granted the purchasers  detachable  stock warrants
                              which  enable  the  holders to obtain up to 11,111
                              shares  of  the  Company's   common  stock  at  an
                              exercise price of $9 per share.

                              In 2001, the Company issued 1,755 shares of Series
                              B Preferred Stock for $1,755,000, which netted the
                              Company     approximately     $1,591,000     after
                              commissions.  In June 2001,  one holder  converted
                              710 shares of Series A Preferred Stock into Common
                              Stock.  No additional  consideration  was given to
                              the Company for this conversion.




                                                                            F-26
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              The  holders  of both the  Series  A and  Series B
                              Preferred  Stock  are  entitled  to  a  cumulative
                              dividend of 8% per quarter.  However,  the payment
                              of the  dividends on the Series B Preferred  Stock
                              is  subordinate  to that of the Series A Preferred
                              Stock. In the event that the Company does not make
                              any  two of  six  consecutive  quarterly  dividend
                              payments,  the  holders of the Series A  Preferred
                              Stock may  appoint  those  directors  which  would
                              constitute  of majority of the Board of Directors.
                              In such a scenario,  the holders of the  Preferred
                              Shares  would be  entitled  to elect a majority of
                              the  Board of  Directors  until  all  accrued  and
                              unpaid dividends have been paid.

                              The  Company may redeem both of the Series A and B
                              Preferred  Shares  upon  payment of $100 per share
                              plus any  accrued and unpaid  dividends.  Further,
                              with  respect  to the  Series A  Preferred  Stock,
                              commencing   on   October  1,  2003  and  at  each
                              quarterly  date  thereafter  while  the  Series  A
                              Preferred  Stock is  outstanding,  the  Company is
                              required  to redeem  one-twentieth  of the maximum
                              number of Series A  Preferred  Stock  outstanding.
                              With respect to the Series B Preferred  Stock,  on
                              the fifth anniversary after issuance,  the Company
                              is  required  to redeem all  outstanding  Series B
                              Preferred Stock.


10.  STOCK DIVIDEND           On August 1,  2001,  the  Company  paid a 5% stock
                              dividend  distributable  on  October  1,  2001  to
                              shareholders  of  record of the  Company's  common
                              stock on September 4, 2001. Based on the number of
                              common shares  outstanding on the record date, the
                              Company issued 498,016 new shares.  All references
                              in the  accompanying  financial  statements to the
                              number of common  shares and per share amounts are
                              based on the  increased  number of  shares  giving
                              retroactive effect to the stock dividend.


11.  STOCK OPTIONS            In  October  2000,  the  Company  approved a Stock
                              Incentive  Plan.  The  Plan  is  effective  for  a
                              ten-year period commencing on October 25, 2000 and
                              ending on October 24, 2010.  The aggregate  number
                              of shares of Common Stock as to which  options and
                              Stock  Appreciation   Rights  may  be  granted  to
                              Employees   under  the  plan   shall  not   exceed
                              1,000,000.  Options  are  not  transferable,   are
                              exercisable   for   3   months   after   voluntary
                              resignation   from  the  Company   and   terminate
                              immediately upon involuntary  termination from the
                              Company.  The purchase  price of shares subject to
                              this  Nonqualified  Stock  Option  Plan  shall  be
                              determined  at the time the options  are  granted,
                              but are not  permitted  to be less than 85% of the
                              Fair  Market  Value of such  shares on the date of
                              grant.  Furthermore,  an  employee in the plan may
                              not,   immediately   prior


                                                                            F-27
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              to  the  grant  of  an   Incentive   Stock  Option
                              hereunder,  own stock in the Company  representing
                              more than ten percent of the total voting power of
                              all classes of stock of the Company unless the per
                              share option price  specified by the Board for the
                              Incentive  Stock Options granted such and Employee
                              is at least 110% of the Fair  Market  Value of the
                              Company's  stock  on the  date of  grant  and such
                              option, by its terms, is not exercisable after the
                              expiration  of 5 years  from the date  such  stock
                              option is granted.

                              Stock  option  activity in 2001,  2000 and 1999 is
                              summarized below:

<TABLE>
<CAPTION>
                                         2001                         2000                      1999
                               -------------------------     ------------------------  ------------------------
                                                 WEIGHTED                     WEIGHTED                   WEIGHTED
                                                  AVERAGE                      AVERAGE                    AVERAGE
                                                 EXERCISE                     EXERCISE                   EXERCISE
                                      SHARES        PRICE         SHARES         PRICE       SHARES         PRICE
-------------------------------------------------------------------------------------------------------------------

<S>                                <C>               <C>            <C>          <C>           <C>           <C>
          OUTSTANDING,
            beginning
            of year                1,017,450         8.54           530,250      $6.91         393,750       5.80
          Granted                     78,750        12.39           855,451       8.69         498,750       6.90
          Exercised                 (256,772)        8.69           (21,751)      8.69         (21,000)      5.00
          Expired/canceled          (323,400)        7.85          (346,500)      6.91        (341,250)      5.66
                                   ----------                     ---------                   --------

          OUTSTANDING,
            end of year              516,028         9.23         1,017,450       8.54         530,250       6.91
--------------------------------------------------------------------------------------------------------------------

          EXERCISABLE,
            end of year              474,889         9.21           930,258      $8.49         246,687       5.50
--------------------------------------------------------------------------------------------------------------------
</TABLE>

                              The  share  information  disclosed  above has been
                              adjusted to reflect the 5% stock dividend declared
                              during 2001. See Note 10.




                                                                            F-28
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              The following table summarizes  information  about
                              stock options outstanding at December 31, 2001:


<TABLE>
<CAPTION>
                                                                         OPTIONS                         OPTIONS
                                                                       OUTSTANDING                     EXERCISABLE
                                                        ------------------------------------------   ----------------
                                                                                       WEIGHTED
                                                            WEIGHTED                    AVERAGE
                                                             AVERAGE                  REMAINING
                                                            EXERCISE                CONTRACTUAL
                                                               PRICE        SHARES  LIFE (YEARS)           SHARES
                                        ----------------------------------------------------------   ----------------

<S>                                     <C>                    <C>          <C>            <C>             <C>
                                                                8.69       437,278         1.83           403,804
                                                               14.44        21,000         2.08            21,000
                                                               11.05        47,250         2.25            47,250
                                                               12.70        10,500         2.67             2,835
                                                                      --------------                 ----------------

                                        Total                   9.23       516,028                        474,889
                                        =============================================================================
</TABLE>

                              The weighted average fair value of options granted
                              during  2001,  2000 and 1999 is  $3.62,  $3.41 and
                              $2.88    respectively,    calculated   using   the
                              Black-Scholes Option-Pricing model.

                              The  amount of  compensation  expense  related  to
                              stock    options    included    in   general   and
                              administrative    costs   in   the    accompanying
                              consolidated  statements of loss was approximately
                              $162,500 for the year ended  December 31, 1999. No
                              compensation  expense related to stock options was
                              incurred  in  2001 or  2000.  The  Company  issued
                              70,715 options to non-employees  and non-directors
                              in 2000. The expense of $242,000 for these options
                              has been  included in  professional  fees  expense
                              because the options  were issued to  providers  of
                              such services.  The expense was calculated using a
                              fair  market  value  of the  options  based on the
                              Black-Scholes   option-pricing  model  assumptions
                              discussed below.

                              Statement of Financial  Accounting  Standards  No.
                              123,  ("SFAS 123"),  "Accounting  for  Stock-Based
                              Compensation"  was implemented in January 1996. As
                              permitted by SFAS 123,  the Company has  continued
                              to account for stock  compensation to employees by
                              applying the  provisions of Accounting  Principles
                              Board Opinion No. 25. If the accounting provisions
                              of SFAS  123 had been  adopted,  net loss and loss
                              per share would have been as follows:


                                                                            F-29


<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                         2001                2000                1999
                      -----------------------------------------------------------------------------------------------

<S>                                                               <C>                 <C>                 <C>
                      Net loss available to common
                      shareholders
                          As reported                             $(2,653,970)        $(1,799,441)        $(2,791,270)
                          Pro forma                                (2,911,298)         (4,052,452)         (3,529,395)
                      -----------------------------------------------------------------------------------------------

                      Basic and diluted loss per share
                          As reported                         $       (0.26)      $        (0.19)    $         (0.33)
                          Pro forma                                   (0.28)               (0.44)              (0.41)
                      -----------------------------------------------------------------------------------------------
</TABLE>

                              For  employees,  the fair  value of stock  options
                              used to  compute  pro  forma net loss and loss per
                              share  disclosures is the estimated  present value
                              at   grant    date    using   the    Black-Scholes
                              option-pricing  model with the following  weighted
                              average  assumptions  for  2001,  2000  and  1999:
                              Expected  volatility  of 50% for 2001 and 2000 and
                              106% for 1999; a risk free  interest rate of 3.67%
                              in 2001,  5.86% in 2000 and 6.17% in 1999;  and an
                              expected  option life of 3 years for 2001 and 2000
                              and 1.1 year in 1999.


12.    INCOME TAXES           The Company had no taxable income during the years
                              ended December 31, 2001, 2000 or 1999.

                              A  reconciliation  of the statutory  U.S.  Federal
                              income tax and the income tax  provision  included
                              in the  accompanying  consolidated  statements  of
                              loss is as follows:

<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31,                             2001               2000
                              -----------------------------------------------------------------------------

<S>                                                                          <C>                <C>
                              Statutory rate                                        34%                34%
                              Tax benefit at statutory rate                  $(769,000)         $(452,500)
                              State income tax benefit                        (136,000)           (75,500)
                              Nondeductible travel and
                                entertainment                                       --             19,000
                              Other                                                 --              5,000
                              Increase in deferred tax asset
                                valuation allowance                            905,000            504,000
                              -----------------------------------------------------------------------------

                              Total income tax provision                     $      --          $      --
                              -----------------------------------------------------------------------------
</TABLE>



                                                                            F-30
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              The  components of the net deferred tax assets are
                              as follows:

<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31,                              2001               2000
                              ------------------------------------------------------------------------------

<S>                                                                         <C>                 <C>
                              Net operating loss carryforward               $ 5,877,000         $4,972,000
                              Capital loss carryforward                         263,000            263,000
                              ------------------------------------------------------------------------------

                                                                              6,140,000          5,235,000

                              Valuation allowance                            (6,140,000)        (5,235,000)
                              ------------------------------------------------------------------------------

                              Net deferred taxes                            $        --         $       --
                              ------------------------------------------------------------------------------
</TABLE>

                              The  Company  recorded a  valuation  allowance  at
                              December  31, 2001 and 2000 equal to the excess of
                              deferred tax assets over deferred tax  liabilities
                              as  management  is unable to determine  that these
                              tax  benefits  are  more  likely  than  not  to be
                              realized.

                              As of  December  31,  2001,  the  Company  had net
                              operating  loss   carryforwards  of  approximately
                              $15,062,000,  which will expire  between  2010 and
                              2021, if not utilized.

                              Additionally,  at December 31,  2001,  the Company
                              had capital loss  carryforwards  of  approximately
                              $81,000 which will expire,  if not offset  against
                              capital gains, in 2002.


13.    SUPPLEMENTAL CASH      The Company paid approximately $853,500,  $544,000
       FLOW INFORMATION       and $479,000 for interest in 2001,  2000 and 1999,
                              respectively.      The     Company     capitalized
                              approximately $148,000 and $128,000 of this amount
                              in 2001 and 2000,  respectively.  The Company paid
                              no income taxes in 2001, 2000 and 1999.

                              In 1999,  the  Company  issued  54,000  shares  of
                              common  stock  to  convert  a note  payable  to an
                              officer  plus  accrued  interest  thereon  in  the
                              approximate amount of $270,000, which approximated
                              the fair value of the shares.

                              In 2001, 2000 and 1999, the Company issued 11,950,
                              5,376  and  9,768   shares  of  common   stock  as
                              consideration for approximately  $92,000,  $42,000
                              and   $42,000,   respectively,   of  services  and
                              charitable  contributions  which  approximated the
                              fair value of the common stock.






                                                                            F-31
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              In 1999,  the lender of the note  payable  with an
                              original  balance of  $1,500,000  sold  $75,000 of
                              this note to other  holders.  These  holders  then
                              converted  the notes into common stock at the rate
                              of $6.25 per share. In 2000, the lender  converted
                              approximately  $450,000  of the  outstanding  debt
                              into common stock under the same agreement.

14.    QUARTERLY DATA AND     The  following  table sets  forth,  for the fiscal
       SHARE INFORMATION      periods indicated, selected consolidated financial
       (UNAUDITED)            data and  information  regarding  the market price
                              per  share  of the  Company's  common  stock.  The
                              prices represent the reported high and low closing
                              sale prices.







<TABLE>
<CAPTION>
                                                                                           FISCAL YEAR ENDED 2001
                              -----------------------------------------------------------------------------------
                                                      First           Second           Third           Fourth
                                                     Quarter          Quarter         Quarter          Quarter
                              -----------------------------------------------------------------------------------

<S>                                              <C>              <C>              <C>              <C>
Revenues                                         $ 1,448,318      $ 1,863,068      $ 2,583,758      $ 1,101,542
Net loss                                            (368,768)        (336,034)        (378,597)      (1,179,388)
Net loss available to common shareholders           (447,546)        (423,523)        (491,055)      (1,291,846)
-----------------------------------------------------------------------------------------------------------------
Loss per common share
   Basic and diluted                             $     (0.05)     $     (0.04)     $     (0.05)     $     (0.12)
-----------------------------------------------------------------------------------------------------------------

                                                                                           FISCAL YEAR ENDED 2000
-----------------------------------------------------------------------------------------------------------------
                                                      First           Second           Third           Fourth
                                                     Quarter          Quarter         Quarter          Quarter
-----------------------------------------------------------------------------------------------------------------

Revenues                                         $ 1,179,912      $ 1,270,283      $ 1,666,583      $ 1,124,298
Net Income (loss)                                    (70,453)        (379,234)          84,909       (1,177,106)
Net Income (loss) available to common
shareholders                                        (110,231)        (451,394)          18,064       (1,255,880)
-----------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share
   Basic and diluted                             $     (0.01)     $     (0.05)              --      $     (0.13)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                              Third  quarter 2001 results  reflect the effect on
                              depletion expense that resulted from a decrease in
                              reserve estimates provided in a study performed by
                              Ryder Scott and issued August 10, 2001. The amount
                              recorded  during this quarter was $562,000  higher
                              than the  quarterly  estimates  made by management
                              during the first  three  quarters as a result of a
                              change in estimate  arising  from new  information
                              provided  in  the  Ryder  Scott  Report.   Amounts
                              disclosed  above  differ from those filed with the
                              SEC during  the third  quarter of 2001 as a result
                              of an error in  recording  this change in estimate
                              to depletion at the time of





                                                                            F-32
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              the  filing.   Management  intends  to  amend  the
                              September 30, 2001 SEC Form 10-Q filing.

15.    SUPPLEMENTAL OIL AND   Information  with respect to the Company's oil and
       GAS INFORMATION        gas  producing  activities  is  presented  in  the
                              following tables. Estimates of reserve quantities,
                              as well as future  production and discounted  cash
                              flows before  income  taxes,  were  determined  by
                              Ryder Scott Company,  L.P. as of December 31, 2001
                              and 2000 and by Coburn  Petroleum  Engineering and
                              Columbia   Engineering,    independent   petroleum
                              engineers, as of December 31, 1999.

                              OIL AND GAS RELATED COSTS

                              The   following   table  sets  forth   information
                              concerning  costs related to the Company's oil and
                              gas   property   acquisition,    exploration   and
                              development activities in the United States during
                              the years ended December 31, 2001, 2000 and 1999:

<TABLE>
<CAPTION>
                                                              2001              2000            1999
                              ========================================================================
                              <S>                         <C>              <C>              <C>

                              Property acquisition

                                Proved                  $        --      $        --      $    13,921
                                Unproved                         --            5,702           17,265
                              Less - proceeds from
                                sales of properties        (750,000)      (1,176,411)        (625,000)
                              Development costs           5,571,883        2,430,702        1,110,288
                              ------------------------------------------------------------------------

                                                        $ 4,821,883      $ 1,259,993      $   516,474
                              ========================================================================
</TABLE>

                              RESULTS OF  OPERATIONS  FROM OIL AND GAS PRODUCING
                              ACTIVITIES

                              The  following  table  sets  forth  the  Company's
                              results of  operations  from oil and gas producing
                              activities for the years ended:

<TABLE>
<CAPTION>
                              December 31,                         2001             2000           1999
                              ------------------------------------------------------------------------------

<S>                                                              <C>            <C>               <C>
                              Revenues                        $ 6,656,758      $ 5,241,076      $ 3,017,252
                              Production costs and taxes       (2,951,746)      (2,614,414)      (2,564,932)
                              Depreciation, depletion and
                                  amortization                 (1,342,000)        (197,000)         (92,000)
                              ------------------------------------------------------------------------------

                              Income from oil and gas
                                  producing activities        $ 2,363,012      $ 2,429,662      $   360,320
                              ==============================================================================
</TABLE>

                              In the  presentation  above, no deduction has been
                              made for indirect

                                                                            F-33
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              costs  such  as  corporate  overhead  or  interest
                              expense.  No income taxes are reflected  above due
                              to the Company's tax loss carryforwards.

                              OIL AND GAS RESERVES (UNAUDITED)

                              The  following  table sets forth the Company's net
                              proved oil and gas  reserves at December  31, 2001
                              and 2000 and the changes in net proved oil and gas
                              reserves for the years then ended. Proved reserves
                              represent  the  estimated  quantities of crude oil
                              and natural gas which  geological and  engineering
                              data demonstrate  with reasonable  certainty to be
                              recoverable   in  the  future   years  from  known
                              reservoirs  under existing  economic and operating
                              conditions.   The  reserve  information  indicated
                              below requires substantial judgment on the part of
                              the  reserve  engineers,  resulting  in  estimates
                              which are not  subject to  precise  determination.
                              Accordingly,  it is expected that the estimates of
                              reserves  will  change  as future  production  and
                              development information becomes available and that
                              revisions in these estimates could be significant.
                              Reserves  are  measured  in barrels  (bbls) in the
                              case of oil, and units of one thousand  cubic feet
                              (MCF) in the case of gas.






                                                                            F-34
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                                                            OIL (BBLS)           GAS (MCF)
                              -----------------------------------------------------------------------------
<S>                                            <C>                           <C>                <C>
                              Proved reserves:

                              Balance, January 1, 1999                       1,624,622          46,176,025
                                Discoveries and extensions                   1,295,685          13,566,161
                                Revisions of previous estimates                444,893          15,268,361
                                Production                                    (137,997)           (215,260)
                              -----------------------------------------------------------------------------

                              Balance, December 31, 1999                     3,227,203          74,795,287
                                Discoveries and extensions                      56,103           1,059,147
                                Revisions of previous estimates             (1,309,366)        (27,998,986)
                                Production                                    (159,035)           (315,577)
                              -----------------------------------------------------------------------------

                              Balance, December 31, 2000                     1,814,905          47,539,871
                                Discoveries and extensions                      62,254           4,915,431
                                Revisions of previous estimates               (672,443)        (25,263,634)
                                Production                                    (148,041)         (1,311,466)
                              -----------------------------------------------------------------------------

                              Proved reserves at, December 31, 2001          1,056,675          25,880,202
                              -----------------------------------------------------------------------------

                              Proved developed producing
                                reserves at, December 31, 2001                 767,126           7,157,183
                              -----------------------------------------------------------------------------

                              Proved developed producing
                                reserves at, December 31, 2000               1,553,759           2,888,769
                              -----------------------------------------------------------------------------

                              Proved developed producing
                                reserves at, December 31, 1999               1,688,073           3,248,552
                              ==============================================================================
</TABLE>

                              Of  the  Company's  total  proved  reserves  as of
                              December 31, 2001 and 2000 and 1999, approximately
                              36%, 21% and 13%, respectively, were classified as
                              proved  developed  producing,  26%,  34% and  35%,
                              respectively,  were classified as proved developed
                              non-producing and 37%, 45% and 52%,  respectively,
                              were classified as proved undeveloped.  All of the
                              Company's  reserves are located in the continental
                              United States.






                                                                            F-35
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
                              FLOWS (UNAUDITED)

                              The standardized  measure of discounted future net
                              cash flows from the  Company's  proved oil and gas
                              reserves is presented in the following table:

<TABLE>
<CAPTION>
                                                                             AMOUNTS IN THOUSANDS
                              December 31,                             2001            2000            1999
                              -----------------------------------------------------------------------------

<S>                                                           <C>              <C>              <C>
                              Future cash inflows             $    78,296      $   505,733      $   252,270
                              Future production
                                  costs and taxes                 (26,083)         (41,689)         (30,598)
                              Future development costs             (6,384)          (8,225)          (5,634)
                              Future income tax expenses               --         (122,881)         (55,090)
                              -----------------------------------------------------------------------------

                              Net future cash flows                45,829          332,938          160,948

                              Discount at 10% for
                                  timing of cash flows            (24,095)         (97,195)         (60,066)
                              -----------------------------------------------------------------------------

                              Discounted future net
                                  cash flows from
                                  proved reserves             $    21,734      $   235,743      $   100,882
                              ==============================================================================
</TABLE>


                              The following  table sets forth the changes in the
                              standardized measure of discounted future net cash
                              flows from proved reserves during 2001 and 2000:


<TABLE>
<CAPTION>
                                                                             AMOUNTS IN THOUSANDS
                                                                          2001           2000              1999
                              -------------------------------------------------------------------------------

<S>                                                           <C>              <C>              <C>
                              BALANCE, beginning of year      $   235,743      $   100,882      $    42,976
                              Sales, net of production costs
                                and taxes                          (3,705)          (2,627)            (452)
                              Discoveries and extensions            4,167            1,778           27,394
                              Changes in prices and
                                production costs                 (299,527)         360,082           27,919
                              Revisions of quantity estimates     (33,449)        (186,289)          21,799
                              Development costs incurred               --            1,236            1,076
                              Interest factor - accretion
                                of discount                        32,198           13,355            5,329
                              Net change in income taxes           86,237          (53,572)         (22,869)
                              Changes in future development
                                costs                               2,666           (3,237)             556
                              Changes in production rates
                                and other                          (2,596)           4,135           (2,846)
                              -------------------------------------------------------------------------------

                              BALANCE, end of year            $    21,734      $   235,743      $   100,882
                              ==============================================================================
</TABLE>






                                                                            F-36
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

                              Estimated  future  net  cash  flows  represent  an
                              estimate   of  future   net   revenues   from  the
                              production of proved  reserves using current sales
                              prices,  along  with  estimates  of the  operating
                              costs, production taxes and future development and
                              abandonment  costs (less salvage value)  necessary
                              to produce such reserves.  The average prices used
                              at December 31,  2001,  2000 and 1999 were $17.03,
                              $25.62  and  $23.01  per  barrel of oil and $2.33,
                              $9.66 and $2.38 per MCF of gas,  respectively.  No
                              deduction   has  been   made   for   depreciation,
                              depletion  or any  indirect  costs such as general
                              corporate overhead or interest expense.

                              Operating costs and production taxes are estimated
                              based on current  costs with  respect to producing
                              gas properties. Future development costs are based
                              on  the  best  estimate  of  such  costs  assuming
                              current economic and operating conditions.

                              Income tax expense is  computed  based on applying
                              the  appropriate  statutory tax rate to the excess
                              of future cash inflows less future  production and
                              development  costs over the  current  tax basis of
                              the   properties    involved,    less   applicable
                              carryforwards,  for both  regular and  alternative
                              minimum tax.

                              The  future  net  revenue  information  assumes no
                              escalation  of costs  or  prices,  except  for gas
                              sales made under terms of contracts  which include
                              fixed and  determinable  escalation.  Future costs
                              and prices could  significantly  vary from current
                              amounts and, accordingly,  revisions in the future
                              could be significant.





                                                                            F-37