UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              REPORT ON FORM 10-KSB

(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, 2000 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 SMALL BUSINESS ISSUER 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)

          ISSUER'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.

     CHECK WHETHER THE REGISTRANT (1) FILED ALL REPORTS  REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934 DURING THE PRECEDING
12 MONTHS (OR SUCH SHORTER  PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH
REPORTS),  AND (2) HAS BEEN SUBJECT TO SUCH FILING  REQUIREMENTS FOR THE PAST 90
DAYS: YES /X/ NO / /

     CHECK  IF  DISCLOSURE  OF  DELINQUENT  FILERS  IN  RESPONSE  TO ITEM 405 OF
REGULATION  S-B IS  NOT  CONTAINED  IN  THIS  FORM  AND NO  DISCLOSURE  WILL  BE
CONTAINED,  TO THE BEST OF THE  REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB
OR ANY AMENDMENT TO THIS FORM 10-KSB. [ ]

     STATE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR: $5,241,076

     STATE THE AGGREGATE  MARKET VALUE OF THE VOTING STOCK HELD BY NONAFFILIATES
(BASED ON THE CLOSING PRICE ON MARCH 16, 2001 OF $11.05): $74,876,258.

     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
16, 2001): 9,663,610

     DOCUMENTS INCORPORATED BY REFERENCE: NONE.

     TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]

<PAGE>


                           FORWARD LOOKING STATEMENTS

            The information contained in this Report, in certain instances,
includes certain 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.


BUSINESS DEVELOPMENT.

            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 did not commence
until 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 49,000 acres, located in Hancock, Claiborne, Knox, Jefferson and
Union Counties in Tennessee (collectively, the "Swan Creek Leases or Field").

            Effective December 31, 1997, the Company acquired from AFG Energy,
Inc. ("AFG"), a private company, approximately 30,000 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 gas wells, a related 50
mile pipeline and gathering system, 3 compressors and 11 vehicles. The

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<PAGE>


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 has been 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. The Company is current in its obligations
under this transaction.

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

            The Company has drilled or has an interest in thirty wells in the
Swan Creek field in Tennessee and presently has twenty four productive natural
gas wells and six producing oil wells in this field. In July 1998 the Company
completed the first phase ("Phase I") of its pipeline in the Swan Creek Field, a
23 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 Utility District located in Rogersville. The cost of
constructing Phase I of the pipeline was approximately $4,200,000.

            The Company has now completed construction of the second phase
("Phase II") of its pipeline, an additional 28 miles of 8 and 12 inch pipeline
extending from the terminus of the Company's existing Phase I pipeline to
Eastman Chemical Company in Kingsport, Tennessee. Construction of Phase II of
the pipeline cost approximately $6,800,000. Ceremonies marking the completion of
construction were held in Kingsport, Tennessee on March 8, 2001 and were
attended by over two hundred people, including the Hon. Don Sundquist, Governor
of the State of Tennessee, the president of Eastman Chemical Company, and many
state and local government officials. Deliveries of gas to the Holston Army
Ammunition Plant at Kingsport, Tennessee began on April 4, 2001 and deliveries
to Eastman Chemical Company are expected to commence on or before April 30,
2001.

            Currently the Company is producing and selling approximately 4,000
barrels of oil per month from the Swan Creek Field. Income from oil sales from
the Swan Creek Field is approximately $ 80,000 per month.

            The Company will continue to conduct exploration and production
activities to produce increased quantities of crude oil and natural gas. The
principal markets for these commodities are local refining companies, major
natural gas transmission pipeline companies, local utilities and private
industry end-users.

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<PAGE>


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:

            (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"), 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.

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<PAGE>


            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, leased approximately
49,000 acres of oil and gas leases in the Eastern Overthrust in the Appalachian
Basin, an area now referred to as the Swan 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 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%.

            The first well drilled by the Company in the Swan Creek Field, the
Gary Patton #1 tested at 6.8 Mmcf of deliverable gas per day, making it the
largest known tested well in the states of Tennessee, Kentucky and Virginia. The
Company now has twenty four productive gas wells and six oil wells for a total
of thirty wells. See, Item 2 "Description of Property."

            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 Mcf of gas to
Hawkins County Utility District.

                                       4
<PAGE>


            During the period from January 1, 1999 through March 23, 1999
Hawkins County Utility District took only 477 Mcf 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 the Company has blended from certain wells when such blended gas 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 (Mcf are units of
one thousand cubic feet 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) 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
nonhydrocarbon 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 nonhydrocarbons. 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 nonhydrocarbons 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. The reduction of five cents on the second 5,000 MMBTU's per
day price is more favorable to the Company than the options existing under the
contract prior to this amendment. This price adjustment, while resulting in a
decrease in revenues from the Eastman contract of approximately $90,000 per
year, would also result in substantially less cost to the Company in meeting the
requirements of the existing contract and allowing the Company to double
Eastman's minimum daily purchase to 10,000 MMBTU's per day. The option provided
under the amendment would have the immediate effect of increasing the minimum
quantity under

                                       5
<PAGE>


the original agreement to the higher quantity stated above without the need for
the Company to elect to install some or all of the treatment facilities as was
required under the original agreement. The March 27, 2000 amendment also
provides that in the event Eastman determines that the processes requiring low
nitrogen gas fail to operate satisfactorily with the gas provided to them by the
Company pursuant to the amendment, then Eastman may give written notice to the
Company to begin installation of facilities under the agreement as it existed
prior to the amendment and complete same within eighteen (18) months of such
written notice.

            Under the agreement as amended March 27, 2000, Eastman will pay the
Company the index price plus $0.10 for all natural gas quantities up to 5,000
MMBtus delivered per day, the index price plus $0.05 for all quantities in
excess of 5,000 MMBtus 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-Hills Inside F.E.R.C's Gas Market Report equal to the Henry Hub price
index as shown in the table labeled Market Center Spot Gas Prices. This index
price ranged from $9.91 per MMBtu in January, 2001 to $5.35 per MMBtu in April,
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 commences 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 is 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.

            In April 2000, the Company commenced construction of Phase II of the
pipeline. When the pipeline was completed on March 8, 2001, the Company had laid
an additional 28 miles of 5 inch and 12 inch pipeline at a cost of approximately
$6,800,000 extending its 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 60 miles from the Company's Swan Creek
Field to Kingsport, Tennessee. The Company is ready to commence deliveries of
gas to Eastman. The Company has been advised by Eastman that although the
Company's gas has been tested and the quality of gas is acceptable for initial
deliveries under the agreement, Eastman encountered technical problems in
adjusting its metering equipment for initial deliveries and that final
adjustments and additions to Eastman's meters are being concluded and that
Eastman expects to take initial deliveries as soon as such adjustments and
additions to its equipment are concluded. Based on these representations from
Eastman, the Company expects deliveries to Eastman to begin on or before April
30, 2001.

            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 service 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

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6,900 residents of the County as is economically possible. 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 per thousand cubic feet. 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 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. 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 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 Dr. Richard T. Williams, Ph. D., Associate Professor in geophysics,
will 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.

            On February 13, 2001 the Company and The University of Tennessee
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

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University-owned truck is identical to two trucks owned by the Company and used
in its seismic exploration program.

            On March 30, 2001, the Company signed a contract to supply natural
gas to BAE SYSTEMS Ordnance Systems Inc.("BAE SYSTEMS"), 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 SYSTEMS for the United States military. Delivery of natural
gas by the Company to the Holston facility utilizing the Company's recently
completed intrastate pipeline began at 8:00 AM on Wednesday, April 4, 2001.
Under the agreement, BAE SYSTEMS' daily purchases of natural gas will be between
1.8 million and 5 million cubic feet, and volume could increase significantly
over the life of the agreement as BAE SYSTEMS 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. At the maximum volumes and with the current market price of
gas, the contract with BAE SYSTEMS represents an annual gross revenue to the
Company of about $9.54 million and over $190.8 million over the life of the
agreement

            The contract with BAE SYSTEMS provides that the minimum and maximum
volumes are subject to availability of gas after sales are made by the Company
to Eastman at the maximum volume stated in the existing contract with Eastman on
March 30, 2001 which is 15,000 MMBtu's per day or about 15 million cubic feet.
The Company anticipates that this provision of the agreement will not be invoked
because the deliverability of gas from its wells in the Swan Creek Field is
sufficient to provide the volumes necessary to fulfill both the Eastman and BAE
SYSTEMS agreements.

            The Company will be the sole supplier of natural gas to BAE SYSTEMS
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 SYSTEMS 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 SYSTEMS to be an important factor in the development of the
Park, as well as the source of potential new customers for the Company.

      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 aggregate production for the Kansas Properties at present is
approximately one million cubic feet of gas and 400 barrels of oil per day.
Revenue for the Kansas Wells is approximately $400,000 per month.

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            The Company has hired a full time geologist in Kansas to oversee
operations in the Kansas Properties. The Company plans to drill between five and
ten new wells in Ellis and Rush Counties, Kansas on its existing leases during
this next fiscal year in response to drilling activity in the area establishing
new areas of production. 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.

            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 to not 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.

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, the Hawkins County Gas Utility, and Eastman Chemical Company
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

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districts.

            Now that the pipeline has been completed, management believes that
it will be able to sell all of its daily natural gas production from the Swan
Creek Field. The Company anticipates that a sufficient quantity of crude oil or
natural gas will be produced from the Swan Creek Field to supply the Company's
customers and make the Company profitable.

            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.

RESERVE ANALYSES

            Ryder Scott Company 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 report dated March 28, 2001 prepared
by Ryder Scott. In substance, the report used estimates of oil and gas reserves
based upon standard petroleum engineering methods which include 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 in the Ryder Scott 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. See, "Item 2 - Description of Property." The report of Ryder Scott
provides that the net proved reserves for wells in the Swan Creek Field is
54,572 MMCF of natural gas and 569,774 barrels of oil. According to the Ryder
Scott Report, discounting the net reserve values by 10% results in a present
value as of December 31, 2000 of $443,367,924 before taxes and $430,066,886
after taxes for the Swan Creek Field.

            The reserves analysis performed by Ryder Scott Company for the Swan
Creek field resulted in a decrease in the stated dollar value of the reserves of
that field from the reserve analysis previously performed for the Company by
Coburn Engineering of Tulsa, Oklahoma. This decrease in the stated dollar value
of the reserve analysis was due to the fact that Ryder Scott utilized more
conservative assumptions in its analysis in three primary respects. First, Ryder
Scott assumed that the gas wells in the Swan Creek field would drain a smaller
area per well based on the permeability of the structure. Second, Ryder Scott
assumed that due to the complicated geology of the structure, certain oil zones
in Swan Creek field may not be in communication with producing oil zones, and
therefore did not classify those zones as proven undeveloped reserves for
valuation purposes at this time. Finally, economic projections by Ryder

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<PAGE>


Scott of production rates used in the valuation process of the reserves were
more conservative than those utilized by Coburn Engineering. The Company
recognizes that varying levels of assumptions can be made in rendering an
analysis of reserves and believes that the more conservative assumptions
utilized by Ryder Scott are within the parameters customarily utilized in the
analysis of reserves by companies performing reserve analysis. The Company also
notes that Ryder Scott Company is well known in the oil and gas industry and by
financial institutions throughout the United States and enjoys a reputation of
being one of the preeminent firms engaged in performance of reserve analysis.

            Ryder Scott also performed a reserve analysis of the Kansas
Properties. The net reserve values used hereafter were also obtained from the
Ryder Scott Report dated March 28, 2001. According to the Ryder Scott Report,
discounting the net reserve values by 10% results in a present value as of
December 31, 2000 of $54,419,609 before taxes and $54,307,992 after taxes for
the Kansas Properties.

            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 favorable consideration and review 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 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.

DISTRIBUTION METHODS OF PRODUCTS OR SERVICES

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

            On September 3, 1999,the Company 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 are to be mutually agreed upon. Net revenue will be
81.25% to Miller and the Company will transport Miller's gas for a fee. See,
Item 2 "Description of Property."

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


                                       11
<PAGE>


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 49,000 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 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.

                                       12
<PAGE>


DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

            The Company is presently dependent upon a small number of customers
for the sale of production of gas from the Swan Creek Field, principally Eastman
Chemical Company, 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.

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 Corporation
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 Corporation 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 Corporation was authorized to construct and operate the portion of
Phase II of its pipeline to Eastman Chemical Company 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 Corporation a franchise for twenty
years to construct, maintain and

                                       13
<PAGE>


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 Chemical has been
completed, Tengasco Pipeline and the City of Kingsport will initiate the
required approval process for the ordinance and franchise agreement. 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 Corporation 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.

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

                                       14
<PAGE>


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 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.

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 full time geologist 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.

                                       15
<PAGE>


NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES

            The Company presently has forty one full time employees and no
part-time employees.


ITEM 2. DESCRIPTION OF PROPERTY

PROPERTY LOCATION, FACILITIES, SIZE AND NATURE OF OWNERSHIP

            The Company's Swan Creek Leases are on approximately 49,000 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 drilling. However, the Company does
not anticipate any difficulty in continuing the Swan Creek Leases. See
"Description of Business" - "General" above.

            Morita Properties, Inc., an affiliate of one of the Company's
Directors, Shigemi Morita, 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. 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. See Item 12 -"Certain Relationships
and Related Transactions" - "Transactions with Management and Others."

            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. All of these wells are located in the Swan Creek Field.

            Another individual has a 29% revenue interest in the Laura Jean
Lawson No. 3 well, also located in the Swan Creek Field, 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.

            The Company has 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 are to be mutually agreed upon.

                                       16
<PAGE>


Net revenue will be 81.25% to Miller and the Company's subsidiary Tengasco
Pipeline will transport Miller's gas. The Company reserves all offset locations
to wells drilled under the farmout agreement. A total of four wells have been
drilled under the farmout agreement. The Company acquired back from Miller a 50%
working interest from Miller in three of those four wells in addition to its
rights under the farmout agreement.

            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 owners'
production. At this time, the Company has not agreed to market gas for any
working interest owner. 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 acquired from AFG 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 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.

            In addition, the Company has drilling equipment and vehicles which
it acquired from IRC. All of this equipment is in satisfactory operating
condition. The securities which the Company acquired from IRC were sold during
1996 for $250,000. On November 1, 2000, the

                                       17
<PAGE>


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 Item 12, "Certain
Relationships and Related Transactions" - "Transactions with Management and
Others."

            Tests to date on the completed wells on the Swan Creek Leases
indicate substantial potential for future deliverability. Based upon engineering
reports, management believes that the wells drilled to date have a life
expectancy of approximately 25 years on a declining basis.

            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.

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 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 they
would have been able to sell their shares if the plaintiffs 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.

            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

                                       18
<PAGE>


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. As this time it is
not possible to ascertain with any certainty what such damages would be.

            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 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 is expected to go to trial
in the summer or fall of 2001. 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.

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

            (a)   The annual meeting of stockholders of the Company was held on
August 8, 2000.

            (b)   The first item voted on was the election of Directors. Joseph
E. Armstrong, Benton L. Becker, Edward W.T. Gray III, Robert D. Hatcher, Jr.,
Sanford E. McCormick, Shigemi Morita, Malcolm E. Ratliff and Allen J. Sweeney
were elected as Directors of the Company for a term of one year or until their
successors were elected and qualified. The results of voting were as follows:
6,264,102 votes for Joseph E. Armstrong and 1,094 withheld; 6,224,062 votes for
Benton L. Becker and 41,134 withheld; 6,264,062 votes for Edward W.T. Gray III
and 1,134 withheld; 6,245,102 votes for Robert D. Hatcher, Jr. and 20,094
withheld; 6,207,062 votes for Sanford E. McCormick and 58,134 withheld;
6,264,102 votes for Shigemi Morita and 1,094 withheld; 6,263,362 votes for

                                       19
<PAGE>


Malcolm E. Ratliff and 1,834 withheld; and, 6,256,661 votes for Allen J. Sweeney
and 8,535 withheld.

            (c)   The next item of business was the proposal to ratify the
appointment of BDO Seidman, LLP, the independent certified public accountants of
the Company, for fiscal 2000. The results of the voting were as follows:

            6,250,236 votes for the resolution,
            4,000 votes against and
            10,960 votes abstained.

            A majority of the votes cast at the meeting having voted for the
resolution, the resolution was duly passed.

            No other matters were voted on at the meeting.


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 prices for shares of common stock of the
Company during the fiscal years ended December 31, 1999 and December 31, 2000
are set forth below.

                                                           BID
                                                           ---
                                                   HIGH            LOW
                                                   ----            ---

For the Quarters Ending

March 31, 2000                                     10.375          7.00

June 30, 2000                                      10.00           7.00


                                       20
<PAGE>


September 30, 2000                                 10.00           7.75

December 31, 2000                                  14.75           8.00


March 31, 1999                                      6.875          4.50

June 30, 1999                                      10.125          5.50

September 30, 1999                                  9.125          5.75

December 31, 1999                                  14.375          3.50


HOLDERS

            As of March 15, 2001, the number of shareholders of record of the
Company's common stock was 395, and management believes that there are
approximately 1,800 beneficial owners of the Company's common stock.

DIVIDENDS

            There are no present material restrictions that limit the ability of
the Company to pay dividends on common stock or that are likely to do so in the
future. The Company has not paid any dividends with respect to its common stock,
and does not intend to pay dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

            The following tables provide information with respect to the sale of
all "unregistered" and "restricted" securities sold by the Company during the
past three years, which were not registered under the 1933 Act:

COMMON STOCK

                                              DATE    NUMBER OF     AGGREGATE
NAME OF OWNER                               ACQUIRED    SHARES    CONSIDERATION
----------------                            --------  ---------   -------------

Habbersett, William C. TTEE UTD
9/1/94                                        1/5/98     2,303    $   21,970.62
Hauser, Janice                               1/21/98     3,008    $   20,000.00
Mertins, Janelle                             1/21/98    10,000    $   77,500.00

                                       21
<PAGE>


Spoonbill, Inc.                              1/29/98    50,000    $  350,000.00
Ueshima, Takeshi                              2/5/98     6,494    $   50,000.00
Mobarak, Heather L.                          2/12/98       500    $    4,000.00
Smithers, Charles F., Jr.                     2/12/98    6,250    $   50,000.00
Eisert, Anthony & Marie                      2/25/98     2,857    $   20,000.00
Presnell, Joe                                2/25/98     1,000    $    6,650.00
L'Hussier, Harold                             3/3/98     1,594    $   11,715.90
Esrick, Ralph Trust                          3/10/98     1,000    $    7,170.00
Seevers, Larry                               3/10/98     1,504    $   10,000.00
Weeks, Everette, J.                          3/10/98       500    $    3,590.00
Stern, William TTEE                           4/7/98    10,000    $   70,000.00
Stern, William TTEE                           4/9/98     5,000    $   35,000.00
Morita, Shegemi                              4/10/98     7,400    $   37,000.00
Honeycutt, Robert M.                         4/16/98       100    $      639.00
Astuto, Angelo                               4/22/98       500    $    3,590.00
Astuto, Laura J.                             4/22/98       500    $    3,590.00
Giresi, Mary E.                              4/22/98     2,000    $   14,360.00
Nikovits, John L.                            4/22/98     1,000    $    7,180.00
Pych, Barbara M.                             4/22/98     1,000    $    7,180.00
Pych, Gregory L.                             4/22/98     2,000    $   14,360.00
Pych, Joseph                                 4/22/98     1,250    $    8,975.00
Pych Joseph R.                               4/22/98     1,000    $    7,180.00
Pych, Robert F.                              4/22/98     1,000    $    7,180.00
Pych, Cynthia M.                             4/24/98     2,000    $   14,360.00
Presnell, Joe                                4/28/98     1,000    $    6,430.00
Harbert, Bill L.                             4/30/98    40,000    $  262,800.00
Adams, Stanley & Sharon E.                    5/4/98    10,000    $   71,300.00
Keller, James & Shirley                       5/4/98     4,000    $   28,520.00
Moor, John                                    5/4/98     1,000    $    7,130.00
Padron, Ramon                                5/13/98     1,000    $    7,350.00
Fujita, Eiji                                 5/18/98    21,097    $  150,000.00
Koshi, Junichiro                             5/18/98     2,628    $   20,000.00
Cajigas, Arthur & Hidako                     5/21/98     1,143    $   10,000.00
Kiryu, Hironori                              5/26/98     1,406    $   10,000.00
Mori, Masahiko                               5/28/98     7,032    $   50,000.00
Synap Corp.                                  5/29/98     9,143    $   80,000.00
Fujii, Daisuke                                6/1/98     1,406    $   10,000.00
Ura, Yukari                                   6/2/98     1,406    $   10,000.00
Harbert, Bill L.                             6/11/98    75,414    $  497,441.00
Burklow, Jim                                 6/15/98     1,000    $    7,780.00
Presnell, Joe                                6/15/98     1,000    $    7,000.00
Carter Daryl M.                               7/2/98     1,500    $   10,500.00
Carter, Maury L.                              7/2/98     3,500    $   24,500.00
Kobayashi, Shungo                             7/2/98     1,429    $   10,000.00


                                       22
<PAGE>

Nagashima, Tsuyoshi                          7/22/98     1,429    $   10,000.00
Kitaoka, Yukiki                              7/31/98     1,429    $   10,000.00
Yoshida, Teruni                              7/31/98     1,429    $   10,000.00
Carvajah, Rose Marie                          9/1/98       250    $    1,750.00
Harris, Rona                                  9/1/98       500    $    3,500.00
Mintzer, Dorothy                              9/1/98       500    $    3,500.00
Sherbal, Rose                                 9/1/98       500    $    3,500.00
Warhaft, Terri                                9/1/98       500    $    3,500.00
Spoonbill, Inc.                               9/2/98    50,000    $  250,000.00
Harbert, Bill L.                            10/22/98   150,200    $  488,150.00
Stanley, David G. TTEE                       12/8/98     5,000    $   23,750.00
Houlihan, Smith & Co., Inc.                   1/4/99     2,143    $   15,000.00
Spoonbill, Inc.                               1/6/99   140,000    $  700,000.00
Wayne H. Gillis                               1/6/99    12,016    $   39,052.00
Silva, Anthony                               1/26/99    20,000    $  100,000.00
Morita, Shegemi                              1/29/99    20,000    $  100,000.00
Silva, Anthony                                3/8/99    22,300    $  100,350.00
Keeler, Richard & Rita, JTWROS               3/22/99     2,000    $    9,000.00
Nishiwaki, Nick S.                           3/23/99    40,000    $  180,000.00
Spoonbill, Inc.                              3/23/99    20,000    $   90,000.00
AHS & Associates                             3/26/99     5,625    $   22,500.00
Harbert, Bill L.                              4/5/99   125,000    $  500,000.00
Houlihan, Smith & Co., Inc.                  5/24/99     2,000    $   10,000.00
Nishiwaki, Yasuko                            6/30/99    20,000    $  100,000.00
Silva, Anthony                                8/5/99    50,000    $  300,000.00
Spoonbill, Inc.                               8/5/99    40,000    $  200,000.00
Nishiwaki Yasuko                             8/30/99    20,000    $  100,000.00
Smithers, Anne H.                             9/3/99     4,500    $   25,020.00
Tanaka Memorial Foundation                   9/17/99     9,000    $   50,040.00
Wenger, Virgil E.                            9/20/99    20,000    $  117,000.00
Artola Company Ltd.                          9/20/99    17,986    $  100,000.00
Spoonbill, Inc.                              9/24/99    50,000    $  250,000.00
Smithers Benefit Plans                      10/21/99    11,000    $   61,000.00
Spoonbill, Inc.                             10/25/99    50,000    $  250,000.00
Spoonbill, Inc.                             10/25/99    50,000    $  250,000.00
Keller, James & Shirley                      12/3/99     2,000    $    7,000.00
Spoonbill, Inc.                             12/29/99    50,000    $  250,000.00
LCMS Foundation                             12/30/99     8,200    $   50,020.00
A.D. Tengo Partnership, LLC                 12/30/99       820    $    5,002.00
Akos, Stephen & Cynthia                     12/30/99       820    $    5,002.00
Stern, William M. TTEE/WMS RLT              12/30/99       820    $    5,002.00
Stern, William M. TTEE/Gutman #2            12/30/99       820    $    5,020.00
Cipponeri, Jerome                           12/30/99       820    $    5,002.20
Spoonbill, Inc.                              1/19/00    37,500    $  300,000.00


                                       23

<PAGE>



Spoonbill, Inc.                              2/10/00    27,397    $  200,000.00
Akos, Stephen & Cynthia                      2/16/00    15,373    $   95,000.00
Akos, Stephen & Cynthia                       4/3/00       820    $    5,000.00
A.D. Tengo Partnership, LLC                   4/3/00       820    $    5,000.00
Cipperoni, Jerome                             4/3/00     1,640    $   10,000.00
Devereux, Robert L. & Mary O.                 4/3/00     1,640    $   10,000.00
RKY Partnership, LLC                          4/3/00     1,640    $   10,000.00
S&K Partnership                               4/3/00    18,033    $  110,000.00
Stern, William M. TTEE/RLT 7/9/92             4/3/00       820    $    5,000.00
Stern, William M.  TTEE, Gutman
GRAT #2                                       4/3/00       820    $    5,000.00
Cipponeri, Jerome                             4/5/00     8,818    $   50,000.00
Spoonbill, Inc.                              5/24/00    82,645    $  500,000.00
Spoonbill, Inc.                              6/14/00    52,632    $  300,000.00
Intermark Gillis                             6/19/00     1,536    $   12,000.00
Akos, Stephen & Cynthia                       7/7/00       817    $    5,000.00
A.D. Tengo Partnership, LLC                   7/7/00       817    $    5,000.00
Cipponeri, Jerome                             7/7/00     1,634    $   10,000.00
Devereux, Robert L. & Mary O.                 7/7/00     1,634    $   10,000.00
RKY Partnership, LLC                          7/7/00     1,634    $   10,000.00
S&K Partnership                               7/7/00     2,451    $   15,000.00
Stern, William M. TTEE/RLT 7/9/92             7/7/00       817    $    5,000.00
Stern, William M. TTEE, Gutman
GRAT #2                                       7/7/00       817    $    5,000.00
Intermark Gillis                             7/10/00       768    $    6,000.00
Intermark Gillis                              8/4/00       768    $    6,000.00
Bill L. Harbert                              8/14/00    70,000    $  490,000.00
Bill L. Harbert                              8/16/00    50,000    $  350,000.00
Bill L. Harbert                              8/18/00    25,000    $  175,000.00
Tanaka Memorial Foundation                   8/29/00     7,143    $   50,001.00
Anthony Silva                                8/31/00     5,100    $   35,700.00
Intermark Gillis                             9/27/00     1,536    $   12,000.00
A.D. Tengo Partnership, LLC                  9/29/00       817    $    5,000.00
Akos, Stephen & Cynthia                      9/29/00       817    $    5,000.00
Cipponeri, Jerome                            9/29/00     1,634    $   10,000.00
Devereux, Robert L. & Mary O.                9/29/00     1,634    $   10,000.00
RKY Partnership                              9/29/00     1,634    $   10,000.00
S&K Partnership                              9/29/00     2,451    $   15,000.00
Stern, William M. TTEE/RLT 7/9/92            9/29/00       817    $    5,000.00
Stern, William M. TTEE/Gutman
GRAT #2                                      9/29/00       817    $    5,000.00
Goda, Shin-Ichiro                            10/5/00    14,286    $  100,002.00
AEB Properties, Inc.                        10/17/00     8,784    $   65,000.00
Intermark Gillis                             11/2/00       768    $    6,000.00

                                       24

<PAGE>

Harbert, Bill L.                            11/14/00   100,000    $  700,000.00
Nishiwaki, Yasuko                            12/5/00   173,611    $1,250,000.00
Intermark Gillis                             12/7/00       768    $    6,000.00
Kenny Securities                            12/22/00    20,715    $  180,013.00
A.D. Tengo Partnership                      12/28/00       817    $    5,000.00
Akos, Stephen & Cynthia                     12/28/00       817    $    5,000.00
Cipponeri, Jerome                           12/28/00     1,634    $   10,000.00
Devereux, Robert L. & Mary O.               12/28/00     1,634    $   10,000.00
JFB Joint Venture                           12/28/00       817    $    5,000.00
RKY Partnership, LLC                        12/28/00     1,634    $   10,000.00
S&K Partnership                             12/28/00     2,451    $   15,000.00
Stern, William M. TTEE/RLT 7/9/92           12/28/00       817    $    5,000.00



Series A 8% cumulative Convertible Preferred Stock ($100.00 per share)


                                              DATE    NUMBER OF     AGGREGATE
NAME                                        ACQUIRED    SHARES    CONSIDERATION
----------------                            --------  ---------   -------------

Harding, Neal                               10/30/98      2950    $2,950,000.00
Cipponeri, Jerome                           10/30/98       500    $   50,000.00
Kenny Vernon & Rosemary                     10/30/98      1300    $  130,000.00
Gorman, Robert & Anne                       10/30/98      1000    $  100,000.00
Cregan, John D                              10/30/98       500    $   50,000.00
Stern, William M, TTEE                      10/30/98       750    $   75,000.00
Hall, Kelly                                 12/30/98      1000    $  100,000.00
Stern, William, TTEE
William Stern Rev. Living Tr. DTD
7/7/92                                       4/13/99       600    $   60,000.00
Harding, Neal                                4/14/99      3035    $  303,500.00
Herligy Shannon Shay                         4/14/99       324    $   32,400.00
Kenny, Vernon & Rosemary
JT/WROS                                      4/14/99      1200    $  120,000.00
Kollinger, Peter TTEE                        4/20/99      1020    $  102,000.00
Colson, William and Anita                    6/10/99       710    $   71,000.00
Harding, Neal                                7/30/99      5000    $  500,000.00
Artola Company Limited                       1/21/00      2000    $  200,000.00
Harbert, Bill L.                              2/4/00      5000    $  500,000.00
Gray, Edward W.T. III                         2/7/00      3000    $  300,000.00


                                       25
<PAGE>

Series B 8% cumulative Convertible Preferred Stock ($100.00 per share)



                                              DATE    NUMBER OF     AGGREGATE
NAME                                        ACQUIRED    SHARES    CONSIDERATION
----------------                            --------  ---------   -------------

McGowan, Edward                               9/5/00      1000    $  100,000.00
Dolphin Offshore Partners, L.P.               9/5/00      9000    $  900,000.00

            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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

            With the completion of its 60 mile pipeline and the flow of gas
through the pipeline, the Company will be able to deliver its gas to Eastman,
BAE SYSTEMS at the Holston Army Ammunition Plant and other customers in the
Kingsport area and anticipates being able to sell substantially all of its
natural gas production from the Swan Creek Field. The Company anticipates that
its agreement with Eastman will require Eastman to purchase a minimum of 10,000
MMBTU of gas per day. The Company expects deliveries to Eastman to begin on or
before April 30, 2001. Deliveries of natural gas to BAE SYSTEMS at the Holston
facility commenced on April 4, 2001 and the Company anticipates that purchases
under that agreement will be 1,800 MMBTU of gas per day.

            The completion of the pipeline will also allow the Company to focus
on its drilling program on the Swan Creek leases and continue the development of
that field. The existence of substantial deposits of hydrocarbons (oil and/or
gas) in the Swan Creek structure (i.e. the rock formation beneath the surface)
is confirmed by the following facts:

            (1)   The Swan Creek structure is located in an area known as the
Eastern Overthrust Belt which is an area with numerous faults. A fault is an
area where geologic plates overlap. The Eastern Overthrust Belt is geologically
similar to the Western Overthrust Belt located in the Rocky Mountains, where
there are other oil and gas producing properties.

                                       26
<PAGE>


            (2)   The Company has successfully completed 24 gas wells in this
area, all of which have been flow tested by metering gas from the wells through
a one-half inch orifice. These tests all verify the presence of a substantial
reservoir of natural gas and/or oil. One of these wells, the Reed #1 tested at
4,800,000 cubic feet of gas per day with a pressure of 800 psi. Another well,
the Sutton #1 tested at 1,200,000 cubic feet per day with a pressure of 150 psi.

            The Company's present plan of operations for the next two years
calls for the drilling of 50 additional wells in the Swan Creek Field at a cost
of approximately $250,000 per well. Although the Company does not presently have
the funds needed to enable it to complete its drilling program, it anticipates
that as a result of the completion of the pipeline, it will receive sufficient
proceeds from the sale of gas from the Swan Creek Field, in particular sales to
Eastman, to complete the program. Alternatively, the Company believes that if
proceeds from gas sales are insufficient to pay for the drilling program it will
be able to obtain the necessary funds from other sources such as a bank loan,
equity investment, or a joint venture with another company. Although there can
be no assurances that such financing will be available, the Company believes
that it will be able to procure such financing.

            The Company's present plan of operation also calls for contracting
for sales of additional volumes of natural gas not only to Eastman and BAE
Systems as their needs increase, but to other industrial customers in the
Kingsport, Tennessee area as greater volumes of gas become available from the
Swan Creek Field as a result of additional drilling. Other large industrial
customers in Kingsport presently served by an interstate pipeline include
Willamette Paper, General Shale (brick manufacturer) and AFG Glass. The
aggregate requirements of these customers exceeds the requirements of Eastman.
The Company has not entered into any contracts for sales to any of these
potential customers, and no assurances can be made that such contracts will be
agreed upon. However, the Company plans to fully exploit this significant
potential market in the Kingsport area for serving large volume industrial
customers. In addition, the Company's subsidiary, Tengasco Pipeline, has entered
into a franchise agreement with the City of Kingsport that grants it authority
for twenty years to construct facilities and to sell and distribute natural gas
to all classes of customers in Kingsport, not only the large industrial
customers listed herein. The franchise agreement is subject to approval by the
Tennessee Regulatory Authority which the Company expects to be granted in the
near future. See, Item 1 - "Business" - "Effect of Existing or Probable
Government Regulation on Business."

            The Company estimates that its ultimate deliverability from the Swan
Creek Field may reach 80 to 100 Mmcf per day or 2.5 to 3.1 Bcf per month. The
Company expects to reach this capacity on or about June 30, 2003 upon completion
of its drilling program. Certain additional pipelines or looping of existing
pipeline may be necessary to increase pipeline capacity in order to accommodate
transportation of this additional natural gas production.

            The Company has hired a full time geologist in Kansas to oversee
operations in the Kansas Properties. The Company plans to drill between five and
ten new wells in Ellis and Rush Counties, Kansas on its existing leases during
this next fiscal year in response to drilling activity in the area establishing
new areas of production. The Company is also engaged in gathering for a

                                       27
<PAGE>


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.

            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 well increase production in Kansas. However, the Company does not
presently have the funds necessary for such projects and the ability to
undertake such efforts is dependent on the Company obtaining such funds.
Management has made the decision not to undertake such efforts at this time. It
will however, reconsider its decision if such funds become available through the
Company's operations or other sources of financing.

            The Company's plan of operation also includes exploration in six or
more additional major geological structures in the East Tennessee area that are
similar to the Swan Creek structure and which the Company's geology staff
indicate 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 facilities of the University of Tennessee as
part of the strategic alliance between the Company and the University of
Tennessee. The seismic analysis and related leasing activities should be
completed in approximately six months, and the Company plans to conduct
exploration activities in these new areas. The Company plan to obtain funds for
these activities from results of operations or from third party sources such as
a bank loan or other third party financing.

            The Company has no plans, at present, to increase the number of its
employees significantly.

            This plan of operation is based upon many variables and estimates,
all of which may change or prove to be other than or different from information
relied upon.

RESULTS OF OPERATIONS

            The Company incurred a net loss to holders of common stock of
$1,799,441 ($.20 per share of common stock) in 2000 compared to a net loss in
1999 to holders of common stock of $2,791,270 ($0.34 per share of common stock).

            The Company realized oil and gas revenues of $5,241,076 in 2000 as
compared to $3,017,252 in 1999 resulting in an increase in revenues this past
year of $2,223,824. Despite this increase in revenues, production costs and
taxes in fiscal 2000 increased by only $49,482. The increase in revenues was
primarily attributable to the increase in oil prices in 2000. In addition,

                                       28
<PAGE>


however, oil production in the Swan Creek Field increased from 21,964 barrels in
1999 to 47,281 barrels in 2000 as a result of drilling new wells in that field
in 2000. Oil production in Kansas also increased from 113,758 barrels in 1999 to
143,949 barrels in 2000. Gas production in Kansas increased from 287,453 mcf in
1999 to 325,625 mcf in 2000.

            The Company's loss included $242,000 of professional fees due to a
charge incurred in the fourth quarter of 2000 as a result of options granted
to consultants and counsel to the Company.

            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 in 2000, and an increase in depletion
expense of $97,000 due to a change in estimate and increases in production. The
change in estimate was due to the Company's decision to retain a different
engineering firm, Ryder Scott Company, to render reserve analysis reports of the
Company's properties which used more conservative assumptions in its analysis.
See, "Item 1 - "Business" - "Reserve Analysis."

            General and administrative costs increased to $2,556,406 in 2000.
This increase of $614,152 in these costs from the prior year was due primarily
to an increase of $346,263 as a result of the hiring of additional personnel and
consultants; increased costs of $76,491 in engineering services for reserve
evaluations due to the Company's decision to utilize a different engineering
firm; increased insurance coverage costs of $125,278, including blow out
insurance for the wells; and, property taxes in the amount of $43,004 incurred
in connection with Phase I of the pipeline.

            Interest expense decreased from $417,497 in 1999 to $415,376 in
2000. Although increased levels of debt raised the interest cost incurred by the
Company, interest expense remained relatively consistent between 2000 and 1999.
This was due to the fact that during 2000, $128,000 of interest cost was
capitalized into pipeline facilities under construction relating to Phase II of
the pipeline. No interest cost was capitalized in 1999 due to the fact that
Phase I of the pipeline was completed and ready for its intended use during the
entire year.

            The Company did not have any income tax expense in 2000 or 1999 due
to a net operating loss carryforward. Deferred tax assets, consisting primarily
of these loss carryforwards, have been fully reduced by a valuation allowance as
management is unable to determine that these tax benefits are more likely than
not to be realized.

LIQUIDITY AND CAPITAL RESOURCES

            During 2000 and 1999, because the Company was still constructing
Phase II of its pipeline, the Company's revenues were insufficient to fund its
operations. Accordingly, significant cash was absorbed in the day to day
operations. In addition, substantial financing was necessary to obtain the funds
to complete construction of the pipeline.

                                       29
<PAGE>


            Assuming that Eastman purchases the minimum daily requirements of
gas from the Company provided for in its agreement with the Company and the
Company is able to deliver this gas through its completed pipeline, it is
anticipated that the Company will have more than sufficient proceeds from those
sales and sales of gas to other customers to fund its day to day operations,
continue with its drilling program and be profitable. While management believes
that it is highly unlikely to occur, in the event that Eastman does not comply
with the terms of its contract with the Company for whatever reason, or that the
Company is unable to deliver the required amount of gas to Eastman, the Company
would be forced to seek other options to obtain the funding necessary to meet
its current and future cash requirements. 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.

            As of December 31, 2000, the Company had total stockholders' equity
of $10,864,202 on total assets of $25,224,724. The Company has a net working
capital deficiency at December 31, 2000 of $622,299 as compared to a net
deficiency of $1,406,263 at December, 1999.

            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 ($371,249) and non-cash
compensation and services paid by issuance of equity instruments ($284,000).
Cash flow from working capital items in 2000 was $66,020 compared to uses of
Cash flow of $353,837 in 1999. This reflects increases in accounts payable
($364,553) and accrued interest payable ($135,435) partially offset by an
increase in accounts receivable ($301,421) and a decrease in other accrued
liabilities ($140,955).

            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 investing activities during 2000 was primarily
attributable to the construction of Phase II of the pipeline ($6,834,196 in 2000
as compared to $193,633 in 1999), additions to oil and gas properties
($1,456,996 in 2000 as compared to $1,413,029 in 1999) and additions to other
property and equipment ($1,276,783 in 2000 as compared to $256,045 in 1999).

            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 ($6,493,563 in 2000 as compared to $2,119,023
in 1999), private placements of stock ($4,425,713 in 2000 as compared to
$2,771,722 in 1999) and convertible redeemable preferred stock ($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 ($1,720,856 in 2000 as compared to
$2,383,605 in 1999).

                                       30
<PAGE>


NEW ACCOUNTING PRONOUNCEMENTS

            Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities", as amended, by SFAS No. 137 and No. 138, is effective for all
fiscal years beginning after June 15, 2000. This statement requires recognition
of all derivative contracts as either assets or liabilities in the balance sheet
and the measurement of them at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the objective of which is
to match the timing of any gains or losses on the hedge with the recognition of
(i) the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the period of change. Historically,
the Company has not entered into any material derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of this new standard on January 1, 2001, to affect its
financial statements.

            In December 1999 the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial statements" which outlines the basic criteria that must be met to
recognize revenue and provides guidance for presentation of revenue and for
disclosure related to revenue recognition policies in financial statements filed
with the SEC. Adoption of SAB No. 101 did not have a material impact on the
Company's financial position or its results of operation.

ITEM 7      FINANCIAL STATEMENTS

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

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

            Not applicable.


                                       31
<PAGE>


PART III

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


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

Edward W.T. Gray III                 Director                    8/8/00
3 New Street
Remsenberg, NY 11960

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

Sanford E. McCormick                 Director                    8/8/00
1100 Louisiana, Ste. 5425
Houston, TX 77002

Shigemi Morita                       Director                    3/13/97
35 Park Avenue
New York, NY 10016

                                       32
<PAGE>


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

Allen H. Sweeney                     Director                    3/13/97
1400 Oak Tree Drive
Edmund, OK 73003

Robert M. Carter                     President                   8/8/00
760 Prince George Parish Drive
Knoxville, TN 37922

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

Cary V. Sorensen                     Vice President and          07/09/99
509 Bretton Woods Dr.                General Counsel
Knoxville, TN 37919

Mark A. Ruth                         Chief Financial             12/14/98
104-D Cynthia Lane                   Officer
Knoxville, TN 37922

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

Linda Parton                         Secretary                   04/02/01
607 Summit View
Knoxville, TN 37920


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            In fiscal 2000, Malcolm E. Ratliff, the Company's Chief Executive
Officer and Allen H. Sweeney, one of the Company's other Directors,
inadvertently failed to timely file certain Form 4 reports. Mr. Ratliff failed
to timely file nine Form 4 reports, including three reports that were to be
filed in 1999, and one Form 5 report involving forty four transactions. Mr.
Sweeney failed to timely file five Form 4 reports involving fourteen
transactions. These deficiencies have all been cured.

                                       33
<PAGE>


BUSINESS EXPERIENCE

      Directors

            Joseph Earl Armstrong is 44 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 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 63 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.

            Edward W. T. Gray III is 66 years old. He received an A.B. degree
from Princeton University in 1956. In 1965 he graduated from the Stonier
Graduate School of Banking. From 1968 to 1979 he was a Senior Vice-President
with Bessemer Trust Company, N.A. located in New York City. From 1980 to 1999 he
was the Chief Executive Officer and Director of Gray, Seifert & Co., an
investment firm in New York City. In 1994 that firm was sold to and became an
independent subsidiary of Legg Mason, Inc. From April 1999 to the present, Mr.
Gray has been a Managing Director of White Oak Capital Management, Inc. Mr. Gray
is also currently a Board Member of the Rotary Club of New York, the
Lichtenstein Foundation and Family Counseling Service in Westhampton Beach, New
York.

            Robert D. Hatcher, Jr. is 60 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 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

                                       34
<PAGE>


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.

            Sanford E. McCormick is 69 years old. He is a Phi Beta Kappa
graduate of Yale University. Mr. McCormick also attended L'Ecole des Sciences
Politiques in Paris, France. He began his career in the oil and gas industry 40
years ago when he joined Zapata Corporation. He then served several independent
oil and gas firms in executive positions. In 1964 he founded his own firm,
McCormick Oil & Gas Company and directed its growth into an organization with
180 employees. McCormick Oil & Gas Company was listed on the American Stock
Exchange and had a market capitalization of approximately $275 million. Its
operations covered much of the United States and had offices in Houston, Corpus
Christi and Midland, Texas; Lafayette, Louisiana; and, Denver, Colorado. The
company conducted one of the industry's most successful public drilling
programs, drilling 30 to 40 prospects annually. In 1983, Mr. McCormick converted
McCormick Oil and Gas Company into a Master Limited Partnership. The Partnership
was listed on the American and Pacific Stock Exchanges until its sale in 1985.
The following year Mr. McCormick founded McCormick Resources, Inc. which was a
pioneer in the application of horizontal drilling technologies to develop
previously unproducible reservoirs with major reserve potential. McCormick
Resources, Inc. became a major operator of coalbed methane properties, including
a 500 well program in the Black Warrior Basin in Alabama which was operated
under the name of MetFuel, Inc. a subsidiary of McCormick Resources, Inc. and
was sold in 1992. In 1995, Mr. McCormick founded McCormick Partners, Inc. and
put together a joint venture with Ouput Exploration, Inc., a subsidiary of
Input/Output, Inc. the world's leading manufacturer of 3-D seismic acquisition
equipment and a group of financial institutions to conduct a 3 year drilling
program based on 3-D seismic.

            Shigemi Morita is 68 years old. He received an A.B. Degree from Elon
College in North Carolina. From 1969 to 1996 he was the President and CEO of
Morita & Co., an insurance agency specializing in insurance for Japanese
companies doing business in the United States. In 1996, Morita & Co., Inc. was
acquired by Tokio Marine Management, Inc., Mitsubishi International Corporation
in New York and Mitsubishi International, Ltd. in Tokyo. He is President of
Morita Properties, Inc., an oil and natural gas investor.

                                       35
<PAGE>


            Malcolm E. Ratliff is 54 years old. He attended the University of
Mississippi from 1965 to 1967. He has been involved in the oil and gas business
since 1974, initially as a roustabout and then developing oil and gas leases. In
1992 he was involved with personal investments. In 1993 and 1994 he experienced
serious health problems which prevented him from working. In April 1995, he
became associated with the Company and, after its merger with Onasco, he served
as a consultant to the Company's Board of Directors. From March 13, 1997 until
March 13, 1998 when he resigned for health reasons, he was the Chief Executive
Officer of the Company, and until his resignation on March 13, 1998, he was also
acting as interim President of the Company as the result of the death, on
September 19, 1997, of Daniel Follmer, the Company's President. 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 a Director of the Company since June 19, 1998.

            Allen H. Sweeney is 54 years old. He received an MBA in finance from
Oklahoma City University in 1972 and a Bachelor Degree in Accounting from
Oklahoma State University in 1969. From 1978 to 1980, he served as Treasurer and
CEO of Phoenix Resources Company. From 1980 to 1981, he served as
Vice-President-Finance for Plains Resources, Inc. From 1982 to 1984, he was
Vice-President-Finance for Wildcat Mud, Inc. From 1984 to 1992 he operated an
independent consulting service under the name of AHS and Associates, Inc. Since
1992, he has served as Director and President of Columbia Production Company and
Mid-America Waste Management, Inc.

      Officers

            Robert M. Carter is 64 years old. He received a B.A. degree in
Business form the Middle Tennessee State College. 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. He then served as President of Tengasco Pipeline
Corporation, a wholly owned subsidiary of the Company up until March 6, 2001. On
August 8, 2000 he again was elected as President of the Company and continues to
serve in that capacity.

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

                                       36
<PAGE>


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 Finance.

            Cary V. Sorensen is 52 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 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
Vice-President and Legal Counsel of the Company since July 9, 1999.

            Mark A. Ruth is 42 years old. He is a certified public accountant
with 17 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.

            Sheila F. Sloan is 45 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.

                                       37
<PAGE>


            Linda S. Parton is 43 years old. Ms. Parton attended Southern West
Virginia Community College. She also attended Millard Business School and
obtained a two year secretarial certificate. She has fifteen years experience as
a paralegal/legal assistant. She joined the Company in September 2000 and was
appointed as the Company's secretary effective April 2, 2001.


COMMITTEES

            The Company's Board has operating stock option, audit and
compensation committees. Messrs. Sweeney, Becker and Gray compromise the stock
option committee. Messrs. Sweeney, McCormick and Morita comprise the audit
committee and Messrs. Armstrong, Becker and Gray are the members of the
compensation committee. The Board also formed a field safety committee
consisting of members of the Board and Officers of the Company. That committee
consists of Messrs. Ratliff, Armstrong, McCormick, Carter, Sorenson and Jeffrey
Brockman, the field supervisor for the Company's drilling operations.

FAMILY RELATIONSHIPS

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

INVOLVEMENT IN CERTAIN LEGAL PROCEEDING

            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;

                                       38
<PAGE>


            (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 10     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, 2000, December 31, 1999 and December 31, 1998. 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.

                                       39
<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                    SATION
                                                                                                /SARS(#)
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>        <C>           <C>         <C>            <C>             <C>             <C>        <C>
Malcolm E. Ratliff,         2000       $ 70,000      $-0-        $500           -0-             50,000          -0-        -0-
Chief Executive Officer     1999       $ 60,000      $-0-        $500           -0-             50,000          -0-        -0-
                            1998       $ 60,000      $-0-        $500           -0-             -0-             -0-        -0-
====================================================================================================================================
</TABLE>

                                       40
<PAGE>


                        OPTION GRANTS IN LAST FISCAL YEAR

            INDIVIDUALIZED GRANTS
================================================================================
NAME                   NUMBER OF      PERCENT OF TOTAL    EXERCISE   EXPIRATION
                       SECURITIES     OPTIONS/SARS        OR BASE    DATE
                       UNDERLYING     GRANTED TO          PRICE
                       OPTIONS/SARS   EMPLOYEES IN        ($/SH)
                       GRANTED (#)    FISCAL 2000
--------------------------------------------------------------------------------
MALCOLM E. RATLIFF         50,000         6.14%            $8.69     10/26/03

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


                   AGGREGATE OPTION EXERCISES FOR FISCAL 2000
                           AND YEAR END OPTION VALUES

================================================================================
                                                                  VALUE(1) OF
                                         NUMBER OF SECURITIES     UNEXERCISED
                                        UNDERLYING UNEXERCISED   IN-THE-MONEY
                     SHARES                 OPTIONS/SARS AT     OPTIONS/SARS AT
                    ACQUIRED               DECEMBER 31, 2000   DECEMBER 31, 2000
         NAME          ON      VALUE ($)      EXERCISABLE/       EXERCISABLE/
                    EXERCISE  REALIZED(2)   UNEXERCISABLE       UNEXERCISABLE
--------------------------------------------------------------------------------
MALCOLM E. RATLIFF     -0-        -0-        50,000/-0-          $ 625,000/-0-
================================================================================


            No options were exercised during fiscal year ended December 31, 2000
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 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
and a health insurance plan for employees in the near future.

COMPENSATION OF DIRECTORS


----------
(1)   Total value of unexercised options is based upon the fair market value of
      the Common Stock, $12.50 on December 29, 2000, as reported by The American
      Stock Exchange.

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




                                       41
<PAGE>



            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 will set a rate of compensation for such services which may
be no less favorable to the Company than if the services had been performed by
an independent third party contractor. 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 contracts with its
Vice-President and General Counsel, Cary V. Sorensen for a period of two years
through July 9, 2001 at an annual salary of $80,000. 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.

ITEM 11     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 16, 2001 with these computations being based
upon 9,663,610 shares of common stock being outstanding and assumes the exercise
of 555,500 shares vested under options granted by the Company as of March 16,
2001.

                                       42
<PAGE>


                            FIVE PERCENT STOCKHOLDERS

                                                NUMBER OF SHARES     PERCENT OF
NAME AND ADDRESS              TITLE            BENEFICIALLY OWNED      CLASS
----------------              -----            ------------------   ------------
Industrial Resources          Stockholder           2,574,358(3)         26.5%
Corporation
603 Main Ave.
Knoxville, TN 37902

Spoonbill, Inc.               Stockholder           878,198             9.09%
Tung Wai Commercial Bldg.
20th Floor
109-111 Gloucester Rd.
Wanchai, Hong Kong

Bill L. Harbert               Stockholder           720,000             7.45%
820 Shaders Creek Pkwy.
Birmingham, AL 35209

                             DIRECTORS AND OFFICERS

                                                NUMBER OF SHARES     PERCENT OF
NAME AND ADDRESS              TITLE            BENEFICIALLY OWNED      CLASS
----------------              -----            ------------------   ------------
Joseph Earl Armstrong         Director              50,000(4)      Less than 1%
4708 Hilldale Drive
Knoxville, TN 37914

----------

(3)   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 1,715,000 shares owned
      directly by IRC, 53,698 shares owned directly and an option to purchase
      50,000 shares held by Malcolm E. Ratliff, 725,660 shares owned directly by
      Ratliff Farms, Inc. and 30,000 shares owned directly by a trust of which
      Linda Ratliff is trustee and the children of Malcolm E. Ratliff are the
      beneficiaries.

(4)   Consists of 10,000 shares held directly and an option to purchase 40,000
      shares.

                                       43
<PAGE>

Benton L. Becker              Director               90,000(5)     Less than 1%
1497 Lacosta Drive East
Pembrook Pines, FL 33027

Edward W.T. Gray III          Director              127,350(6)     1.3%
3 New Street
Remsenberg, NY 11960

Robert D. Hatcher, Jr.        Director               50,000(7)     Less than 1%
107 Golden Gate Lane
Oak Ridge, TN 37830

Sanford E. McCormick          Director               40,000(8)     Less than 1%
1100 Louisiana Ste. 5425
Houston, TX 77002

Shigemi Morita                Director               235,141(9)     2.4%
35 Park Avenue
New York, N.Y. 10016

Malcolm E. Ratliff            Chief Executive      2,574,358(10)    26.5%
2100 Scott Lane               Officer; Chairman
Knoxville, TN 37922           of the Board

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

(5)   Consists of 40,000 shares owned directly and an option to purchase 50,000
      shares.

(6)   Consists of 77,350 shares held directly and an option to purchase 50,000
      shares.

(7)   Consists of shares underlying an option.

(8)   Consists of shares underlying an option.

(9)   Consists of (10) 5,741 shares held directly, 79,400 shares held as an IRA
      beneficiary and options to purchase 50,000 shares.

(10)  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
      1,715,000 shares owned directly by IRC, 53,698 shares owned directly and
      an option to purchase 50,000 shares held by Malcolm E. Ratliff, 725,660
      owned directly by Ratliff Farms, Inc. and 30,000 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").

                                       44
<PAGE>


Allen H. Sweeney              Director             88,300(11)       Less than 1%
1400 Oak Tree Drive
Edmund, OK 73003

Robert M. Carter              President            52,329(12)       Less than 1%
760 Prince Georges Parish
Knoxville, TN 37922

Harold G. Morris, Jr.         Executive Vice-      28,000(13)       Less than 1%
153 Chuniloti Way             President
Loudon, TN 37774

Cary V. Sorensen              Vice-President       50,000(14)       Less than 1%
509 Bretton Woods Dr.         and General Counsel
Knoxville, TN 37919

Mark A. Ruth                  Chief Financial      38,500(15)       Less than 1%
104-D Cynthia Lane            Officer
Knoxville, TN 37922

Sheila F. Sloan               Treasurer            17,000(16)       Less than 1%
121 Oostanali Way
Loudon, TN 37774

Linda Parton                  Secretary             2,000(17)       Less than 1%
607 Summit View
Knoxville, TN 37920

--------

(11) Consists of 38,300 shares held indirectly through a company which he
controls and an option to purchase 50,000 shares.

(12) Consists of 7,329 shares held directly and an option to purchase 45,000
shares.

(13) Consists of 3,000 shares held directly and an option to purchase 25,000
shares.

(14)  Consists of shares underlying an option.

(15)  Consists of shares underlying an option.

(16) Consists of 2,000 shares held directly and an option to purchase 15,000
shares.

(17)  Consists of shares underlying an option.

                                       45
<PAGE>


All Officers and                                3,442,978(18)       33.7%
Directors as a group


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 12     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 July 16, 1998, the Company entered into a loan agreement with
five individual investors totaling $800,000. The loans were secured by a pledge
of 118,200 shares of the Company's Common Stock owned by Malcolm E. Ratliff, the
Company's Chief Executive Officer and a Director. The loans bore interest at the
rate of 8% per annum and matured on October 14, 1998. Loan origination fees
consisted of $64,000 in cash to the broker who arranged the loan and 16,800
shares of the Company's common stock advanced to the lenders and broker on
behalf of the Company by Malcolm E. Ratliff. The shares advanced by Malcolm E.
Ratliff were carried as a debt payable to him. Approximately $520,000 of this
$800,000 loan was repaid by the Company out of proceeds from a Convertible Note
in the amount of $1,500,000 received during October, 1998. The Convertible Note
matures in five years and is convertible into shares of the Company's common
stock at a price of $6.25 per share. In connection with the loan received by the
Company evidenced by the Convertible Note, the Company issued 25,000 shares of
its common stock to the lender as a loan fee. The balance of the $800,000 loans
have been satisfied by the issuance to the lenders of 2,800 shares of Series A
Shares convertible at a price of $5.75 per share. In 1999 the Company converted
the debt payable of $163,800 to Malcolm E.

----------

(18) 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
555,500 shares underlying options.

                                       46
<PAGE>


Ratliff for the shares he had advanced on behalf of the Company to common stock
by issuing 16,800 shares of common stock in satisfaction of that obligation.

            The Company entered into a financial consulting agreement with
Proton Capital, LLC ("Proton") of Westport Connecticut, for a two (2) year
period commencing as of January 1, 1999, whereby Proton was to provide services
in connection with shareholder relations, press releases, long term financial
planning, corporate reorganizations and financing.

            Malcolm E. Ratliff, the Chief Executive Officer and a Director of
the Company, entered into an agreement with Proton to sell Proton not more than
370,000 shares of common stock of the Company at $5.00 per share over a five (5)
year period. Proton issued a non-recourse promissory note in the amount of $1.85
million, together with interest at six (6%) percent per annum (the "Proton
Note"). The Proton Note was to be payable out of proceeds of the sale of the
shares. The 370,000 shares were transferred from IRC, an affiliate of Mr.
Ratliff, to Ratliff Farms, Inc., a privately held company solely owned by James
Ratliff, the father of Malcolm E. Ratliff, and were then held in escrow pending
the purchase of these shares by Proton. No shares were sold to Proton under the
terms of that agreement.

            The Company subsequently entered into a similar financial consulting
agreement with AM Partners, L.L.C. ("AM Partners") of Houston, Texas which
replaced and superceded its agreement with Proton. As a result, the Proton
agreement was deemed canceled. The agreement with AM Partners was for a one year
period commencing October 1, 1999. Pursuant to the agreement AM Partners was to
provide services in connection with investor relations, press releases,
corporate reorganizations and financing. The Company paid AM Partners $5,000 per
month commencing October 1, 1999. The agreement with AM Partners has now expired
by its own terms and no payments are being made by the Company to AM Partners.
In addition, as part of the agreement with AM Partners, the Proton Note to
purchase up to 370,000 shares of the Company's common stock from Malcolm E.
Ratliff was assigned to AM Partners and 147,000 of those shares were
subsequently purchased. The balance of those shares are still being held in
escrow pursuant to the terms of the Proton Note.

            In 1999, the Company converted $250,000 of debt together with
accrued interest thereon payable to Malcolm E. Ratliff for a loan he had made to
the Company to 54,000 shares of common stock and $22,000 of debt payable to a
company owned by Allen H. Sweeney, one of the Company's Directors, for
consulting services provided in connection with the preparation of the Company's
business plan to 5,625 shares of common stock.

            In 1999, the Company paid Shigemi Morita $218,000 for commissions on
private placements of common stock and consulting services. In December, 1999,
Morita Properties, Inc., an affiliate of Mr. Morita, purchased for the sum of
$625,000 a 25% working interest on a turnkey basis in two wells, Laura Jean
Lawson #1 and Stephen Lawson #2 both of which are in the Swan Creek Field, and a
50% working interest in a third well, Springdale Land Company #1, which is a
wildcat step-out well located approximately ten miles from the existing
production. Pursuant to resolution of the Board of Directors in February, 2000,
Morita Properties, Inc. has

                                       47
<PAGE>


purchased on a turnkey basis at an aggregate cost of $875,000 a 12.5% working
interest in the Stephen Lawson #3 well which interest it subsequently sold, a
25% working interest in the Laura Jean Lawson #2 well, a 25% working interest in
the R.D. Helton #2 well, a 25% working interest in the Stephen Lawson #4 well, a
25% working interest in the Hugh Roberts #1 well; a 25% working interest in the
Wells/Yeary #1 well, a 25% working interest in the Hazel Sutton #2 well, and a
6% working interest in the Laura J. Lawson #3 well, all of which are in the Swan
Creek Field. The purchases of these interests were concluded before the
respective wells were drilled and the purchaser assumed all the attendant risks
involved in normal and customary drilling operations, including the risk of a
dry hole. The Company received fair market value for the interests conveyed and
the sale of such interests was required to raise funds to allow drilling
operations to continue. In 2000, the Company paid Mr. Morita approximately
$270,000 for commissions on private placements of common stock and consulting
services.

            In 1999, 30,000 shares of the Company's common stock held in the
name of Tracmark, Inc. were transferred to an affiliate, Commonwealth Resources,
Inc. James Ratliff, the father of Malcolm E. Ratliff, is the sole shareholder of
Tracmark, Inc., as Trustee for the Ratliff family. Malcolm E. Ratliff is
Vice-President of Tracmark, Inc. Malcolm E. Ratliff is the sole shareholder and
President of Commonwealth Resources, Inc. and his wife, Linda Ratliff, is the
Secretary/Treasurer of that corporation. Those 30,000 shares were subsequently
transferred from Commonwealth Resources, Inc. to a family trust of which Linda
Ratliff is the trustee and the beneficiaries are the children of Malcolm E.
Ratliff.

            In December 1999, ownership of all of the outstanding and issued
shares of IRC, the largest shareholder of the Company's common stock was
transferred from James Ratliff to his son, Malcolm E. Ratliff. Ownership of the
IRC shares had previously been transferred to James Ratliff due to the illness
of Malcom E. Ratliff. IRC presently owns 1,715,000 shares of the Company's
common stock.

            On August 16, 2000, Tengasco Pipeline Corporation ("TPC"), a
wholly-owned subsidiary of the Company, entered into loan agreements (the "Loan
Agreements") with five lenders (the "Lenders") for a loan (the "Loan") to
finance the completion of Phase II of the Company's 58 mile pipeline. Under the
terms of the Loan Agreements, the Lenders agreed to loan TPC $5.6 million for
the construction and costs associated with Phase II. Repayment of the Loan was
secured only by a first lien upon the pipeline assets of TPC. The Loan is to be
repaid over a five-year term, accruing interest at 10.75% per annum from the
date of funding, with no penalty for prepayment, and the first payment due in
six months from closing. As additional consideration for making the Loan, each
Lender is to share on a pro-rata basis, a total throughput fee for all of the
Lenders of $.10 per MMBTU of natural gas delivered through the completed
pipeline system. The throughput agreement will cease to exist when the Loan is
paid in full. The Lenders include Morita Properties, Inc., an affiliate of
Shigemi Morita, a Director of the Company which loaned TPC $500,000; Edward W.T.
Gray III, a Director of the Company who loaned TPC $1,000,000; and, Malcolm E.
Ratliff, Chairman of the Board of Directors and Chief Executive Officer of the
Company who agreed to loan $2,000,000, to have been funded by November 15, 2000.
The balance of the Loan in the amount of $2,100,000 was made by two

                                       48
<PAGE>


individuals, both of whom are shareholders of the Company. Under the Loan
Agreements, a total of $3.85 million was loaned to TPC. Of the $2.0 million that
was to be loaned to the Company by Malcolm E. Ratliff, the sum of $250,000 was
loaned to the Company by Mr. Ratliff and is subject to the Loan Agreements. The
remaining portion of funds necessary to complete the pipeline construction was
obtained from other sources, including funds from Arvest United Bank of Edmond,
Oklahoma under refinancing of existing loans to the Company, sales of common
stock of the Company, and revenues from operations.

            On October 25, 2000, The Company's Board of Directors authorized the
purchase of an RD20 drill rig and related equipment from Ratliff Farms, Inc., an
affiliate of Malcolm E. Ratliff. This equipment had been provided by Ratliff
Farms, Inc. for use by the Company and had been used for Company purposes
without compensation for several years. Based on an independent appraisal of the
equipment, the Company purchased the equipment effective November 1, 2000 for
$995,000 in the form of a promissory note, payable on demand in five years,
bearing interest at the rate of eight percent (8%) per annum with principal and
interest being convertible into shares of the Company's common stock at the rate
of $7.10 per share.

            On October 25, 2000, the Board of Directors of the Company adopted
the Tengasco, Inc. Stock Incentive Plan (the "Plan") a stock option plan
intended to provide an incentive to key employees, officers, directors and
consultants of the Company, and its present and future subsidiary corporations,
and to offer an additional inducement in obtaining the services of such
individuals. The Plan is designed to increase the Company's ability to attract,
retain and compensate persons of experience and ability and whose services are
considered valuable, to encourage the sense of proprietorship in such persons,
and to stimulate the active interest of such persons in the development and
success of the Company.

            On October 27, 2000, a Registration Statement was filed on Form S-8
covering 1,000,000 shares of common stock (the "Common Stock") issuable under
the Plan. The Plan provides for the grant to employees of the Company of
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, nonqualified stock options to outside
directors and consultants to the Company, and stock appreciation rights. The
capability of the Plan to authorize the issuance of incentive stock options is
subject to approval of the shareholders of the Company at the next annual
meeting of shareholders.

            The Plan provides for its administration by a Stock Option Committee
to be appointed by the Board and each member of which shall be a "non-employee
director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, as amended. The Board appointed Allen Sweeney, Edward W.T. Gray III, and
Benton Becker to the Stock Option Committee. The Committee has discretionary
authority with respect to the awarding of options, including determining the
individuals who shall receive options; the times when they shall receive them;
whether an option shall be an incentive or a nonqualified stock option; the
number of shares to be subject to each option; the term of each option; the date
each option shall become exercisable; and to make all other determinations
necessary or advisable for administering the Plan.

                                       49
<PAGE>


            A maximum of 1,000,000 shares of the Company's Common Stock are
issuable under the terms of the Plan. The Plan is in existence for a maximum of
ten years. As of March 16, 2001 the Stock Option Committee had issued 44 options
to purchase an aggregate of 889,715 shares of the Company's common stock
pursuant to the Plan. The Plan is strictly compensatory in nature and is not in
the nature of savings, dividend reinvestment, profit-sharing or pension plan.
Accordingly, the Plan has no assets or funds to be administered or invested by
its administrators.

            On October 27, 2000 the Stock Option Committee granted options for a
term of three years to the following named officers and directors of the Company
to purchase shares of the Company's common stock in the following amounts at a
price of $8.69 per share which was the closing price of the stock as listed on
the American Stock Exchange on that day: 50,000 shares to Malcolm E. Ratliff,
Allen Sweeney, Benton Becker, Edward W. T. Gray III, Joe Armstrong, Robert
Hatcher, Sanford McCormick, Robert M. Carter, Mark A. Ruth, and Cary V.
Sorensen; 30,000 shares to Shigemi Morita; 25,000 shares to Harold Morris; and,
20,000 shares to Elizabeth Wendelken and Sheila Sloan. On January 24, 2001, the
Stock Option Committee granted an additional option to Shigemi Morita 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.

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.

                                       50
<PAGE>


PART IV

ITEM 13     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:

(i)   from the 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

                                       51
<PAGE>


         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.

(ii)  from 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

                                       52
<PAGE>


                     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 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

                                       53
<PAGE>


(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
          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.

                                       54
<PAGE>


        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.

        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)   Form 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

                                       55
<PAGE>


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


The following exhibits are filed herewith:

        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

        99.14(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.

                                                     TENGASCO, INC.
                                                     (Registrant)

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

                                                     Dated: April 10, 2000

      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.

                                       56
<PAGE>


Signature                                   Title                 Date


/s/ MALCOLM E.  RATLIFF              Chief Executive Officer;    April 10, 2001
--------------------------           Chairman of the Board
 Malcolm E. Ratliff                  Of Directors


/s/ JOSEPH EARL ARMSTRONG            Director                    April 10, 2001
--------------------------
 Joseph Earl Armstrong

/s/ BENTON L. BECKER                 Director                    April 10, 2001
--------------------------
 Benton L. Becker

/s/ EDWARD W.T. GRAY III             Director                    April 10, 2001
--------------------------
 Edward W.T. Gray III

/s/ ROBERT D. HATCHER, JR.           Director                    April 10, 2001
--------------------------
 Robert D. Hatcher, Jr.

/s/ SANFORD E. MCCORMICK             Director                    April 12, 2001
--------------------------
 Sanford E. McCormick

/s/ SHIGEMI MORITA                   Director                    April 10, 2001
--------------------------
 Shigemi Morita

/s/ ALLEN H. SWEENEY                 Director                    April 12, 2001
--------------------------
 Allen H. Sweeney

/s/ ROBERT M. CARTER                 President                   April 10, 2001
--------------------------
 Robert M. Carter

                                       57
<PAGE>


/s/ MARK A. RUTH                      Principal Financial         April 10, 2001
---------------------------           and Accounting Officer
 Mark A. Ruth





                                       58
<PAGE>

                                  TENGASCO, INC.
                                AND SUBSIDIARIES

                                               CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2000 AND 1999


                                                                             F-1
<PAGE>










                                  TENGASCO, INC.
                                AND SUBSIDIARIES




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

                                               CONSOLIDATED FINANCIAL STATEMENTS
                                          YEARS ENDED DECEMBER 31, 2000 AND 1999



                                                                             F-2
<PAGE>


                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                                        CONTENTS

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

        INDEPENDENT AUDITORS' REPORT                                      F-4


        CONSOLIDATED FINANCIAL STATEMENTS

            Consolidated Balance sheets                                   F-5

            Consolidated Statements of loss                               F-6

            Consolidated Statements of stockholders' equity               F-7

            Consolidated Statements of cash flows                       F-8-9

            Notes to consolidated financial statements                F-10-33






                                                                             F-3
<PAGE>


                          [BDO Seidman LLP Letterhead]


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, 2000 and 1999, and the related  consolidated
statements  of loss,  stockholders'  equity  and cash  flows for the years  then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with 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,  2000  and  1999,  and the  results  of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.


                                                            /s/ BDO Seidman, LLP

Atlanta, Georgia
March 12, 2001




                                                                             F-4
<PAGE>



                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS


================================================================================
<TABLE>
<CAPTION>
DECEMBER 31,                                                                 2000               1999
------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>
ASSETS (Notes 6 and 7)

CURRENT
   Cash and cash equivalents                                         $  1,603,975      $     420,590
   Accounts receivable                                                    835,404            533,983
   Inventory                                                              251,345            259,753
------------------------------------------------------------------------------------------------------

TOTAL CURRENT ASSETS                                                    2,690,724          1,214,326

OIL AND GAS PROPERTIES, net (on the basis
   of full cost accounting) (Notes 3 and 15)                            9,704,029          8,444,036

COMPLETED PIPELINE FACILITIES                                           4,200,000          4,200,000

PIPELINE FACILITIES UNDER CONSTRUCTION, at cost (Note 4)                6,847,038             12,842

OTHER PROPERTY AND EQUIPMENT, net (Note 5)                              1,677,432            574,895

RESTRICTED CASH (Note 1)                                                        -            625,000

OTHER                                                                     105,501            111,613
------------------------------------------------------------------------------------------------------










                                                                     $ 25,224,724       $ 15,182,712
======================================================================================================
</TABLE>
                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-5
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS


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

DECEMBER 31,                                                                                  2000               1999
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Notes payable (Note 6)                                                             $          -       $    750,000
   Current maturities of long-term debt - related party (Notes 2 and 7)                    500,000                  -
   Current maturities of long-term debt (Note 7)                                         1,608,486          1,025,085
   Accounts payable - trade                                                              1,016,462            651,909
   Accrued interest payable                                                                135,435                  -
   Accrued liabilities                                                                      52,640            193,595
-----------------------------------------------------------------------------------------------------------------------

TOTAL CURRENT LIABILITIES                                                                3,313,023          2,620,589
-----------------------------------------------------------------------------------------------------------------------

LONG-TERM DEBT - RELATED PARTIES, less current
   maturities (Notes 2 and 7)                                                            4,845,000            500,000

LONG TERM DEBT, less current maturities (Note 7)                                         2,263,599          2,619,293
-----------------------------------------------------------------------------------------------------------------------

Total long-term debt                                                                     7,108,599          3,119,293
-----------------------------------------------------------------------------------------------------------------------

Total liabilities                                                                       10,421,622          5,739,882
-----------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES (Notes 4, 8 and 10)

PREFERRED STOCK, $.0001 par value; authorized 25,000,000 shares (Note 9):
   Series A 8% cumulative, convertible, mandatorily redeemable;
     29,389 and 19,889 shares outstanding; redemption value
     $2,938,900 and $1,988,900                                                           2,938,900          1,988,900
   Series B 8% cumulative, convertible, mandatorily redeemable;
     1,000 shares outstanding; redemption value $1,000,000 in
     2000; no shares outstanding in 1999                                                 1,000,000                  -
-----------------------------------------------------------------------------------------------------------------------

TOTAL PREFERRED STOCK                                                                    3,938,900          1,988,900
-----------------------------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY (Notes 6 and 10)
   Common stock, $.001 par value; authorized 50,000,000 shares                               9,296              8,533
   Additional paid-in capital                                                           25,941,709         20,732,759
   Accumulated deficit                                                                 (15,086,803)       (13,287,362)
-----------------------------------------------------------------------------------------------------------------------

TOTAL STOCKHOLDERS' EQUITY                                                              10,864,202          7,453,930
-----------------------------------------------------------------------------------------------------------------------

                                                                                      $ 25,224,724       $ 15,182,712
=======================================================================================================================
</TABLE>

                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-6
<PAGE>



                                                 TENGASCO, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF LOSS


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

YEARS ENDED DECEMBER 31,                                                                      2000               1999
-----------------------------------------------------------------------------------------------------------------------

<S>                                                                                   <C>                <C>
OIL AND GAS REVENUES                                                                  $  5,241,076       $  3,017,252
-----------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES
   Production costs and taxes                                                            2,614,414          2,564,932
   Depreciation, depletion and amortization                                                371,249            233,807
   General and administrative costs                                                      2,556,406          1,942,254
   Interest expense                                                                        415,376            417,497
   Public relations                                                                        106,195             86,061
   Professional fees (Notes 11 and 14)                                                     719,320            444,624
-----------------------------------------------------------------------------------------------------------------------

Total costs and expenses                                                                 6,782,960          5,689,175
-----------------------------------------------------------------------------------------------------------------------

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

Dividends on preferred stock                                                               257,557            119,347
-----------------------------------------------------------------------------------------------------------------------

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

NET LOSS AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
   Basic and diluted                                                                  $      (0.20)      $      (0.34)
=======================================================================================================================

Weighted average shares outstanding                                                      8,813,049          8,149,900
=======================================================================================================================
</TABLE>
                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-7
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

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


================================================================================
<TABLE>
<CAPTION>
                                                                       COMMON               UNAMORTIZED
                                             COMMON STOCK               STOCK    ADDITIONAL       STOCK
                                       -------------------------     ISSUABLE       PAID-IN      OPTION
                                           SHARES       AMOUNT       (NOTE 10)      CAPITAL      AWARDS         DEFICIT
------------------------------------------------------------------------------------------------------------------------

<S>                                     <C>             <C>         <C>          <C>          <C>          <C>
BALANCE, January 1, 1999                7,644,212       $7,644      $ 700,000    $16,796,038  $(162,500)   $(10,496,092)

   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       (700,000)     3,471,722          -               -

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

   Payment of dividends on convertible          -            -              -              -          -        (119,347)
     redeemable preferred stock

   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          -               -

   Payment of dividends on convertible
     redeemable preferred stock                 -            -              -              -          -        (257,557)
------------------------------------------------------------------------------------------------------------------------

BALANCE, December 31, 2000              9,295,558       $9,296      $       -    $25,941,709 $        -    $(15,086,803)
========================================================================================================================
</TABLE>
                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                             F-8
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


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

<S>                                                                                    <C>                <C>
OPERATING ACTIVITIES
   Net loss                                                                            $(1,541,884)       $(2,671,923)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
       Depreciation, depletion and amortization                                            371,249            233,807
       Compensation and services paid in stock options, stock
         warrants, and common stock                                                        284,000            204,500
       Changes in assets and liabilities:
         Accounts receivable                                                              (301,421)          (386,933)
         Inventory                                                                           8,408           (159,455)
         Accounts payable - trade                                                          364,553            300,342
         Accrued interest payable                                                          135,435                  -
         Accrued liabilities                                                              (140,955)          (107,341)
-----------------------------------------------------------------------------------------------------------------------

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

INVESTING ACTIVITIES
   Additions to other property and equipment                                            (1,276,783)          (256,045)
   Net additions to oil and gas properties                                              (1,456,996)        (1,413,029)
   Proceeds on sale of oil and gas interests                                                     -            625,000
   Additions to pipeline facilities under construction                                  (6,834,196)          (193,633)
   Decrease (increase) in restricted cash                                                  625,000           (625,000)
   Other                                                                                     6,112            (29,587)
-----------------------------------------------------------------------------------------------------------------------

Net cash used in investing activities                                                   (8,936,863)        (1,892,294)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                             F-9
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS


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

<S>                                                                                   <C>                <C>
FINANCING ACTIVITIES
   Proceeds from exercise of options                                                             -             10,000
   Proceeds from borrowings                                                              6,493,563          2,119,023
   Repayments of borrowings                                                             (1,720,856)        (2,383,605)
   Net proceeds from issuance of common stock                                            4,425,713          2,771,722
   Proceeds from private placements of convertible
     redeemable preferred stock                                                          2,000,000          1,188,900
   Collection of due from stockholder                                                            -            400,000
   Dividends on convertible redeemable preferred stock                                    (257,557)          (119,347)
-----------------------------------------------------------------------------------------------------------------------

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

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

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

CASH AND CASH EQUIVALENTS, end of year                                                $  1,603,975       $    420,590
=======================================================================================================================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
   ACTIVITIES:
     During 2000, the Company converted preferred stock
       to common stock.                                                               $     50,000       $          -
     During 2000 and 1999, respectively, the Company issued
       common stock on conversion of debt.                                            $    450,000       $    509,000
     During 2000 and 1999, respectively, the Company issued
       common stock for services received.                                            $    284,000       $    204,500
=======================================================================================================================
</TABLE>
                    SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                                                            F-10
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

1.     SUMMARY OF                       ORGANIZATION
       SIGNIFICANT ACCOUNTING
       POLICIES                         Tengasco,   Inc.  (the   "Company"),   a
                                        publicly held 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,   a  wholly-owned
                                        subsidiary,  to manage the  construction
                                        and  operation of a 51 mile gas pipeline
                                        as well as other  pipelines  planned for
                                        the future.

                                        PRINCIPLES OF CONSOLIDATION

                                        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


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

                                        BASIS OF PRESENTATION

                                        The Company's financial  statements have
                                        been presented on a going concern basis,
                                        which  contemplates  the  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. The Company anticipates beginning
                                        distribution  of natural  gas from those
                                        fields in April  2001.  During  the year
                                        ended  December  31,  2000,  the Company
                                        borrowed  $3,850,000  from Directors and
                                        other  related  parties in order to fund
                                        the    completion   of   the   pipeline.
                                        Completion  of Phase II of the  pipeline
                                        occurred  on March 8,  2001.  Management
                                        expects  cash  flow from  operations  to
                                        satisfy any short term operating  needs.
                                        However,  until  significant  operations
                                        commence  from natural gas sales through
                                        the completed pipeline, the Company will
                                        need to be able to obtain other  sources
                                        of   financing   to   support   intended
                                        drilling  programs and other exploratory
                                        activities.  The  Company  plans to fund
                                        these  activities from the proceeds from
                                        other debt  financing  from  lenders and
                                        directors,  from the sale of oil and gas
                                        interests,  and from  private  placement
                                        offerings of equity securities.

                                        Management  believes  that  the  Company
                                        will  be able to  attain  the  projected
                                        levels of  operations  necessary to meet
                                        its  operational  needs,  or be  able to
                                        obtain the  necessary  financing to fund
                                        future  growth and  ultimately to attain
                                        profitability.  However, there can be no
                                        assurances  that the Company will obtain
                                        the  necessary  funding  or obtain  such
                                        funding  in a timely  manner in order to
                                        meet  its   current   and  future   cash
                                        requirements.   The   inability  of  the
                                        Company  to   maintain   the   projected
                                        operational levels of sales or 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.

                                        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.


                                                                            F-12
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        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

                                        In 1999 an  affiliate  of a board member
                                        paid the  Company  $625,000  for certain
                                        oil  and   gas   well   interests.   Per
                                        agreement  with the buyer,  this cash is
                                        restricted   to  use  for   payments  of
                                        drilling costs for the related wells. At
                                        December  31,  2000,  the related  wells
                                        were in  production  and the  restricted
                                        cash  had  been  used  to  pay  drilling
                                        costs.

                                        INVENTORY

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

                                        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  costs  of


                                                                            F-13
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        significant     development     projects
                                        awaiting    completion    of    pipeline
                                        facilities     are     excluded     from
                                        amortization  until  such  time  as  the
                                        pipeline  facilities are completed.  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.

                                        The capitalized oil and gas property and
                                        pipeline   costs,    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 2000 or 1999.

                                        PIPELINE FACILITIES

                                        Pipeline  facilities under  construction
                                        consist   of   direct    and    indirect
                                        construction costs, capitalized interest
                                        and  capitalized   overhead.   Once  the
                                        facility  has  been   determined  to  be
                                        complete and ready for its intended use,
                                        it   is    reclassified    to   pipeline
                                        facilities.  Once the  pipeline has been
                                        placed   in   service,    it   will   be
                                        depreciated  over its  estimated  useful
                                        life  (presently  anticipated  to  be 30
                                        years).  Phase  I of  the  pipeline  was
                                        completed  during 1999, yet has not been
                                        placed  in  service.  Phase  II  of  the
                                        pipeline was completed on March 8, 2001.
                                        Accordingly, no depreciation expense has
                                        been recorded for 2000 and 1999 relating
                                        to pipeline facilities.

                                        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.

                                                                            F-14
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

                                        Management  believes  that  none  of its
                                        long-lived assets are impaired,  and the
                                        accompanying     financial    statements
                                        reflect  no charges  or  allowances  for
                                        impairment.

                                        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  statement  and tax  bases  of
                                        assets and  liabilities,  using  enacted
                                        tax  rates  in  effect  for the  year in
                                        which the  differences  are  expected to
                                        reverse.

                                        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, 1999,
                                        the  Company  had   deposits   with  one
                                        financial institution in an amount which
                                        exceeded the federally  insured limit by
                                        approximately  $1  million.  At December
                                        31, 2000,  the Company had deposits with
                                        two  financial  institutions  in amounts
                                        which  exceeded  the  federally  insured
                                        limit  by  approximately   $450,000  and
                                        $800,000.

                                        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 once the  pipeline  facility
                                        has been  completed.  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  calculated  in a  manner
                                        consistent  with that of basic  loss per
                                        share   while   giving   effect  to  all
                                        dilutive  potential  common  shares that
                                        were  outstanding   during  the  period.
                                        Basic  and  diluted  loss per  share are
                                        based upon 8,813,049 shares for the year
                                        ended  December  31, 2000 and  8,149,900
                                        shares for the year ended  December  31,
                                        1999.  There were  1,092,038 and 732,967
                                        potential    weighted    common   shares
                                        outstanding during 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.

                                        FAIR VALUES OF FINANCIAL INSTRUMENTS

                                        Fair values of cash and cash equivalents
                                        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

                                        SFAS No. 133, "Accounting for Derivative
                                        Instruments and Hedging  Activities," as
                                        amended  by SFAS  No.  137 and  138,  is
                                        effective for all fiscal years beginning
                                        after  June  15,  2000.  This  statement
                                        requires  recognition  of all derivative
                                        contracts    as    either    assets   or
                                        liabilities in the balance sheet and the
                                        measurement  of them at fair  value.  If
                                        certain conditions are met, a derivative
                                        may  be  specifically  designated  as  a
                                        hedge,  the  objective  of  which  is to
                                        match the  timing of any gains or losses
                                        on the hedge with the recognition of (i)
                                        the  changes  in the  fair  value of the
                                        hedged  asset  or  liability   that  are
                                        attributable  to the hedged risk or (ii)
                                        the   earnings   effect  of  the  hedged
                                        forecasted transaction. For a derivative
                                        not designated as a hedging  instrument,
                                        the gain or loss is recognized in income
                                        in the period of  change.  Historically,
                                        the  Company  has not  entered  into any
                                        material derivative  contracts either to
                                        hedge existing risks or for  speculative
                                        purposes.   The   adoption  of  the  new
                                        standard  on  January  1,  2001 will not
                                        affect    the    Company's     financial
                                        statements.

                                                                            F-16
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        In December  1999,  the SEC issued Staff
                                        Accounting   Bulletin  ("SAB")  No.  101
                                        "Revenue    Recognition   in   Financial
                                        Statements"  which  outlines  the  basic
                                        criteria  that must be met to  recognize
                                        revenue  and   provides   guidance   for
                                        presentation    of   revenue   and   for
                                        disclosure     related     to    revenue
                                        recognition    policies   in   financial
                                        statements filed with the SEC.  Adoption
                                        of SAB No.  101 did not have a  material
                                        impact   on  the   Company's   financial
                                        position or its results of operations.

                                        RECLASSIFICATIONS

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

2.     RELATED PARTY                    During 2000, the Company  acquired  debt
       TRANSACTIONS                     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 (see Note 7).

                                        During 2000,  the Company  acquired debt
                                        financing       from       a       major
                                        officer/stockholder  in  the  amount  of
                                        $995,000 in order to purchase a drilling
                                        rig (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.

                                        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.

                                                                            F-17
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        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.

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

<TABLE>
<CAPTION>
                                        DECEMBER 31,                                 2000             1999
                                        ==================================================================
                                        <S>                                   <C>               <C>
                                        Oil and gas properties, at cost       $10,209,323       $8,752,327
                                        Accumulation depreciation,
                                            depletion and amortization           (505,294)        (308,291)
                                        -------------------------------------------------------------------

                                        Oil and gas properties, net           $ 9,704,029       $8,444,036
                                       ====================================================================
</TABLE>


4.     PIPELINE FACILITIES              In 1996, the Company began  construction
       UNDER CONSTRUCTION               of a 51-mile gas pipeline which will (1)
                                        connect   the  Swan  Creek   development
                                        project  to  a  gas  purchaser  and  (2)
                                        enable  the   Company  to  develop   gas
                                        distribution  business  opportunities in
                                        the future.  Phase I, a 23 mile  portion
                                        of the pipeline, was completed in 1998.

                                        As  of  December  31,  2000,  management
                                        estimates the costs to complete Phase II
                                        of the pipeline are  approximately  $1.3
                                        million.

                                        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-18
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

5.     OTHER PROPERTY                   Other property and  equipment  consisted
       AND EQUIPMENT                    of the following:
<TABLE>
<CAPTION>
                                        DECEMBER 31,                                    2000            1999
                                        ====================================================================
                                        <S>                                       <C>            <C>
                                        Machinery and equipment                   $1,689,128     $   605,069
                                        Vehicles                                     522,854         377,208
                                        Other                                         63,734          63,735
                                        ---------------------------------------------------------------------

                                                                                   2,275,716       1,046,012

                                        Less accumulated depreciation               (598,284)       (471,117)
                                        ---------------------------------------------------------------------

                                        Other property and equipment - net        $1,677,432     $   574,895
                                        =====================================================================
</TABLE>


6.     NOTES PAYABLE                    Notes    payable    consisted   of   the
                                        following:

<TABLE>
<CAPTION>
                                        DECEMBER 31,                                      2000            1999
                                        =======================================================================

                                        <S>                                             <C>           <C>
                                        Note   payable,   in   default,   to  an
                                        investment  company  due May  1997  with
                                        interest  payable  monthly  at  10%  per
                                        annum;  collateralized by a subordinated
                                        security  interest  in all assets of the
                                        Company.                                        $    -        $500,000

                                        Note payable,  in default,  to a company
                                        due  April  1997 with  interest  payable
                                        monthly at 10% per annum; collateralized
                                        by all assets of the Company.                   $    -         250,000
                                        -----------------------------------------------------------------------

                                                                                        $    -        $750,000
                                        =======================================================================
</TABLE>

                                        In conjunction with the issuance of each
                                        of the notes payable  listed above,  the
                                        Company  granted the lenders  detachable
                                        stock  warrants which enabled the holder
                                        to  obtain up to  200,000  shares of the
                                        Company's  common stock at a price of $5
                                        per share.

                                        These  notes  were  not paid as of their
                                        respective  original due dates. In March
                                        1997,  the Company filed a claim against
                                        the three  lenders and a former  officer
                                        of  the  Company   asserting   that  the
                                        Company did not  authorize the issuances
                                        of certain stock warrants related to the

                                                                            F-19
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        borrowings and seeking rescission of the
                                        warrant agreements. The Company disputed
                                        the   validity  of  the  stock   warrant
                                        agreements based upon certain provisions
                                        which were not  authorized  by the board
                                        of   directors.    These   claims   were
                                        ultimately settled as discussed below.

                                        In January 2000, the respective  parties
                                        agreed  to  settle  the   disputes.   As
                                        settlement the Company paid an aggregate
                                        of  approximately  $880,000 of principal
                                        and accrued  interest as payment in full
                                        for the remaining notes outstanding. The
                                        above-mentioned   warrants  were  deemed
                                        null and void and unenforceable











                                                                            F-20
<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,                                         2000                1999
                                        =============================================================================
<S>                                                                                   <C>                 <C>
                                        Note  payable  to a bank,  with  $52,364
                                        principal     payments    due    monthly
                                        commencing  on December 31, 1999 through
                                        November 30,  2002.  Interest is payable
                                        monthly commencing  December 31, 1999 at
                                        prime  plus 1% per  annum.  The  note is
                                        guaranteed by a major shareholder and is
                                        collatalized by certain of the Company's
                                        assets. The note was repaid in 2000.          $         -         $1,828,327

                                        Note  payable  to the bank with  $95,000
                                        principal     payments    due    monthly
                                        commencing  on January  1, 2001  through
                                        February  1,  2003.   Interest   payable
                                        monthly  commencing  January  1, 2001 at
                                        prime  plus 1%  (9.5%  at  December  31,
                                        2000) per annum.  The note is guaranteed
                                        by   a   major    shareholder   and   is
                                        collatalized by certain of the Company's
                                        assets.                                         2,469,989                  -

                                        Note  payable  to an  institution,  with
                                        $75,000 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.                  975,000          1,425,000

                                        Thirteen    individual    vehicle    and
                                        equipment  notes having  interest at the
                                        rate  of  8.4%  to   11.95%   per  annum
                                        collateralized by vehicles and equipment
                                        with monthly payments including interest
                                        of  $493 to  $1,049  due  2001 to  2006,
                                        collateralized     by    vehicles    and
                                        equipment.                                        427,096            391,051
                                        -----------------------------------------------------------------------------
</TABLE>

                                                                            F-21
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


================================================================================
<TABLE>
<CAPTION>
                                        DECEMBER 31,                                         2000                1999
                                        -----------------------------------------------------------------------------
<S>                                                                                   <C>                 <C>
                                        Total long term debt due to  unrelated
                                        entities carried forward                      $ 3,872,085        $ 3,644,378

                                        Less current maturities                        (1,608,486)        (1,025,085)
                                        -----------------------------------------------------------------------------

                                        Long  term   debt  due  to   unrelated
                                        entities, less current maturities               2,263,599          2,619,293
                                        -----------------------------------------------------------------------------

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

                                        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            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            500,000
                                        Less current maturities                           500,000                  -
                                        -----------------------------------------------------------------------------

                                        Long term debt due to related parties,
                                          less current maturities                     $ 4,845,000        $   500,000
                                        ============================================================================
</TABLE>


                                                                            F-22
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        The  aggregate  maturities  of long term
                                        debt as of  December  31,  2000,  are as
                                        follows:

                                              Year                        Amount
                                        ----------------------------------------

                                              2001                   $2,108,486
                                              2002                    1,526,794
                                              2003                      633,499
                                              2004                       53,219
                                              2005                    4,895,087
                                        ----------------------------------------

                                                                     $9,217,085
                                        =======================================

8.     COMMITMENTS                      The Company  is a  party  to lawsuits in
       AND CONTINGENCIES                the ordinary  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:

                                              Year                       Amount
                                        ---------------------------------------

                                              2001                     $170,404
                                              2002                       71,255
                                              2003                       60,158
                                              2004                       59,210
                                              2005                       62,617
                                        ---------------------------------------

                                                                       $423,644
                                        ---------------------------------------

                                        Office rent  expense  was  approximately
                                        $86,120  and $52,590 for the years ended
                                        December     31,    2000    and    1999,
                                        respectively.

                                                                            F-23
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

9.     CONVERTIBLE                      In 1999 the Company issued 11,889 shares
       REDEEMABLE                       of   Series  A   Preferred   Stock   for
       PREFERRED STOCK                  $1,988,900,  which  netted  the  Company
                                        approximately      $1,894,000      after
                                        commissions.

                                        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").  As of December  31,
                                        1999 no  Series B  Preferred  Stock  had
                                        been issued.

                                        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 a price of $9 per share.

                                        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.

                                        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 $5.75 and $9.00
                                        for the  Series  A and B,  respectively,
                                        per   share   of   common   stock.   The
                                        conversion  rate is subject to  downward
                                        adjustment  if the Company  subsequently
                                        issues   shares  of  common   stock  for
                                        consideration  less than $5.75 and $9.00
                                        for the  Series  A and B,  respectively,
                                        per share.

                                                                            F-24
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        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.    COMMON STOCK TO BE               In  1998,   an   institution   purchased
       ISSUED AND DUE FROM              140,000   shares  of  common  stock  for
       STOCKHOLDER                      $700,000.  As of December 31, 1998,  the
                                        stockholder  owed the  Company  $400,000
                                        for the stock purchase. Additionally, as
                                        of December  31,  1998,  the Company had
                                        not  issued  the   shares.   The  entire
                                        $700,000 was included as common stock to
                                        be    issued    on   the    accompanying
                                        consolidated   balance   sheet   as   of
                                        December 31, 1998. In 1999,  the Company
                                        issued  the  shares  and  collected  the
                                        receivable.



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
                                        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.


                                                                            F-25
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        Stock  option  activity in 2000 and 1999
                                        is summarized below:
<TABLE>
<CAPTION>
                                                                         2000                         1999
                                                               --------------------------    ------------------------
                                                                                 AVERAGE                       AVERAGE
                                                                                EXERCISE                      EXERCISE
                                                                     SHARES        PRICE         SHARES          PRICE
                                        -------------------------------------------------------------------------------
                                        <S>                        <C>            <C>           <C>             <C>
                                        OUTSTANDING,
                                          beginning
                                           of year                 505,000        $6.91         375,000         $5.80
                                        Granted                    814,715         8.69         475,000          6.90
                                        Exercised                  (20,715)        8.69         (20,000)         5.00
                                        Expired/canceled          (330,000)        6.91        (325,000)         5.66
                                                                 ---------                     --------

                                        OUTSTANDING,
                                          end of year              969,000         8.54         505,000          6.91

                                        EXERCISABLE,
                                          end of year              885,960        $8.49         252,083         $5.50
                                        ===============================================================================
</TABLE>

                                        The    following    table     summarizes
                                        information    about    stock    options
                                        outstanding at December 31, 2000:
<TABLE>
<CAPTION>
                                                                         OPTIONS                         OPTIONS
                                                                       OUTSTANDING                     EXERCISABLE
                                                        -------------------------------------------  ----------------
                                                                                        AVERAGE
                                                             AVERAGE                  REMAINING
                                                            EXERCISE                CONTRACTUAL
                                                               PRICE        SHARES  LIFE (YEARS)           SHARES
                                        -----------------------------------------------------------  ----------------
<S>                                                             <C>        <C>              <C>           <C>
                                                                7.00       175,000          .33           175,000
                                                                8.69       794,000         2.83           710,960
                                                                        -----------                     -----------

                                        Total                   8.38       969,000                        885,960
                                        =============================================================================
</TABLE>


                                                                            F-26
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        The  weighted  average fair value of all
                                        options  granted during 2000 and 1999 is
                                        $3.41 and $2.88 per share  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  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:
<TABLE>
<CAPTION>
                                                                                        2000             1999
                                        -----------------------------------------------------------------------
                                        <S>                                      <C>              <C>
                                        Net loss available to common
                                        shareholders
                                            As reported                          $(1,799,441)     $(2,791,270)
                                            Pro forma                             (4,052,452)      (3,529,395)
                                        =======================================================================

                                        Basic and diluted loss per share
                                            As reported                             $(0.20)          $(0.34)
                                            Pro forma                                (0.46)           (0.43)
                                        =======================================================================
</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 2000
                                        and 1999: Expected volatility of 50% for
                                        2000  and  106% for  1999;  a risk  free
                                        interest rate of 5.86% in 2000 and 6.17%
                                        in 1999; and an expected  option life of
                                        3 years for 2000 and 1.1 year in 1999.

                                                                            F-27
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

12.    INCOME TAXES                     The Company had no taxable income during
                                        the years  ended  December  31, 2000 and
                                        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,                        2000             1999
                                        --------------------------------------------------------------------
<S>                                                                               <C>              <C>
                                        Statutory rate                                   34%             34%
                                        Tax benefit at statutory rate             $(452,500)       $(908,000)
                                        State income tax benefit                    (75,500)        (167,000)
                                        Nondeductible travel and
                                          entertainment                              19,000           19,000
                                        Nondeductible compensation
                                          expense                                         -           62,000
                                        Other                                         5,000          199,000
                                        Increase in deferred tax asset
                                          valuation allowance                       504,000          795,000
                                        --------------------------------------------------------------------

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

                                        The  components  of the net deferred tax
                                        assets are as follows:
<TABLE>
<CAPTION>
                                        YEAR ENDED DECEMBER 31,                         2000             1999
                                        ----------------------------------------------------------------------
                                        <S>                                       <C>             <C>
                                        Net operating loss carryforward           $4,972,000      $ 4,344,000
                                        Capital loss carryforward                    263,000          263,000
                                        Employee stock option tax
                                          benefits                                         -          124,000
                                        ----------------------------------------------------------------------

                                                                                   5,235,000        4,731,000

                                        Valuation allowance                       (5,235,000)      (4,731,000)
                                        ----------------------------------------------------------------------

                                        Net deferred taxes                        $        -      $         -

                                        ----------------------------------------------------------------------
</TABLE>

                                        The   Company   recorded   a   valuation
                                        allowance  at December 31, 2000 and 1999
                                        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.

                                                                            F-28
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        As of December 31, 2000, the Company had
                                        net  operating  loss   carryforwards  of
                                        approximately  $13,088,000,  which  will
                                        expire  between  2010 and  2015,  if not
                                        utilized.

                                        Additionally,  at December 31, 2000, the
                                        Company had capital  loss  carryforwards
                                        of  approximately  $657,000  which  will
                                        expire,  if not offset  against  capital
                                        gains,   as   follows:    2001-$576,000,
                                        2002-$81,000.

13.    SUPPLEMENTAL CASH                The Company paid approximately  $544,000
       FLOW INFORMATION                 and  $479,000  for  interest in 2000 and
                                        1999, respectively.  In 2000 the Company
                                        capitalized $128,000 of this amount. The
                                        Company paid no income taxes in 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 2000 and  1999,  the  Company  issued
                                        5,376 and 9,768  shares of common  stock
                                        as   consideration   for   approximately
                                        $42,000  and  $41,000,  respectively  of
                                        services,  which  approximated  the fair
                                        value of the common stock.

                                        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.    SIGNIFICANT FOURTH               A  significant  portion  of the net loss
       QUARTER EVENTS                   available  to  common  shareholders  was
                                        incurred  during the three  months ended
                                        December 31,  2000.  During this period,
                                        the   Company   incurred   approximately
                                        $260,000 of maintenance  and other costs
                                        on   completed   natural  gas  wells  in
                                        anticipation  of the  completion  of the
                                        pipeline  in the first  quarter of 2001.
                                        Additionally,  during the fourth quarter
                                        of   2000,    the    Company    incurred
                                        approximately  $140,000 in  professional
                                        fees   associated   with  an   abandoned
                                        potential business venture and increased
                                        interest  expense  associated with newly
                                        acquired    related    party   debt   of
                                        approximately  $30,000  (which is net of
                                        approximately   $130,000   of   interest
                                        capitalized  during this  period).  As a
                                        result  of  the  Company  issuing  stock
                                        options to  consultants  and  counsel to
                                        the Company, the Company was required to
                                        recognize   professional   fee   expense
                                        totalling   $242,000   in   the   fourth
                                        quarter. These factors, combined with an
                                        average  decrease in crude oil prices of
                                        approximately 10% during the


                                        F-29
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        quarter  and   decreases  in  production
                                        resulted in additional  operating losses
                                        of approximately  $1,192,000 during this
                                        period   in   comparison   to   previous
                                        quarterly   reporting   periods  of  the
                                        Company.

15.    SUPPLEMENTAL OIL AND             Information    with   respect   to   the
       GAS INFORMATION                  Company's    oil   and   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
                                        Engineering  as of December 31, 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, 2000 and
                                        1999:
<TABLE>
<CAPTION>
                                                                                        2000            1999
                                        -----------------------------------------------------------------------
                                        <S>                                      <C>               <C>
                                        Property acquisition
                                          Proved                                 $         -      $   13,921
                                          Unproved                                     5,702          17,265
                                        Less - proceeds from sales of
                                          properties                              (1,176,411)       (625,000)
                                        Development costs                          2,430,702       1,110,288
                                        -----------------------------------------------------------------------

                                                                                 $ 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,                                  2000             1999
                                        ---------------------------------------------------------------------
                                        <S>                                    <C>              <C>
                                        Revenues                               $ 5,241,076      $ 3,017,252
                                        Production costs and taxes              (2,614,414)      (2,564,932)
                                        Depreciation, depletion and
                                            amortization                          (197,000)         (92,000)
                                        ---------------------------------------------------------------------

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


                                                                            F-30
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

                                        In the presentation  above, no deduction
                                        has been made for indirect 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, 2000 and 1999
                                        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.
<TABLE>
<CAPTION>
                                                                                      OIL (BBLS)           GAS (MCF)
                                        -----------------------------------------------------------------------------
                                        <S>                                            <C>                <C>
                                        Proved reserves

                                        Balance, December 31, 1998                     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
                                        =============================================================================

                                        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>


                                                                            F-31
<PAGE>

                                                 TENGASCO, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

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

                                        The reserves analysis performed by Ryder
                                        Scott  Company  for the Swan Creek field
                                        resulted  in a  decrease  in the  stated
                                        dollar  value  of the  reserves  of that
                                        field   from   the   reserve    analysis
                                        previously  performed for the Company by
                                        Coburn  Engineering of Tulsa,  Oklahoma.
                                        This decrease in the stated dollar value
                                        of the reserve  analysis  was due to the
                                        fact  that  Ryder  Scott  utilized  more
                                        conservative assumptions in its analysis
                                        in three primary respects.  First, Ryder
                                        Scott  assumed that the gas wells in the
                                        Swan Creek  field  would drain a smaller
                                        area per well based on the  permeability
                                        of the  structure.  Second,  Ryder Scott
                                        assumed  that  due  to  the  complicated
                                        geology of the  structure,  certain  oil
                                        zones in Swan Creek  field may not be in
                                        communication  with producing oil zones,
                                        and  therefore  did not  classify  those
                                        zones as proven undeveloped reserves for
                                        valuation   purposes   at   this   time.
                                        Finally,  economic  projections by Ryder
                                        Scott of  production  rates  used in the
                                        valuation  process of the reserves  were
                                        more conservative than those utilized by
                                        Coburn    Engineering.    The    Company
                                        recognizes   that   varying   levels  of
                                        assumptions  can be made in rendering an
                                        analysis of reserves and  believes  that
                                        the   more   conservative    assumptions
                                        utilized  by Ryder  Scott are within the
                                        parameters  customarily  utilized in the
                                        analysis  of   reserves   by   companies
                                        performing reserve analysis. The Company
                                        also notes that Ryder  Scott  Company is
                                        well  known in the oil and gas  industry
                                        and by financial institutions throughout
                                        the   United   States   and   enjoys   a
                                        reputation   of   being   one   of   the
                                        preeminent  firms engaged in performance
                                        of reserve analysis.


                                                                            F-32
<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,                                          2000            1999
                                        ----------------------------------------------------------------------------
<S>                                                                                      <C>              <C>
                                        Future cash inflows                              $ 505,733        $252,270
                                        Future production costs and taxes                  (41,689)        (30,598)
                                        Future development costs                            (8,225)         (5,634)
                                        Future income tax expenses                        (122,881)        (55,090)
                                        ----------------------------------------------------------------------------

                                        Net future cash flows                              332,938         160,948

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

                                        Discounted future net cash flows from
                                            proved reserves                              $ 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 2000 and 1999:
<TABLE>
<CAPTION>
                                                                                             AMOUNTS IN THOUSANDS
                                                                                             2000            1999
                                        ----------------------------------------------------------------------------
                                        <S>                                             <C>             <C>
                                        BALANCE, beginning of year                      $ 100,882       $  42,976
                                        Sales, net of production costs
                                          and taxes                                        (2,627)           (452)
                                        Discoveries and extensions                          1,778          27,394
                                        Changes in prices and
                                          production costs                                360,082          27,919
                                        Revisions of quantity estimates                  (186,289)         21,799
                                        Development costs incurred                          1,236           1,076
                                        Interest factor - accretion of discount            13,355           5,329
                                        Net change in income taxes                        (53,572)        (22,869)
                                        Changes in future development
                                          costs                                            (3,237)            556
                                        Changes in production rates
                                          and other                                         4,135          (2,846)
                                        ----------------------------------------------------------------------------

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


                                        F-33
<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,  2000 and 1999 were $25.62
                                        and  $23.01  per barrel of oil and $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-34