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                                  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, 1999 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: $3,017,252

         State the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on March 20, 2000 of $9.00):
$40,774,860.

         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 20, 2000): 8,727,897

         Documents Incorporated By Reference: None.

         Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X ]

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                           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 its 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 45,400 acres, located in Hancock and Claiborne Counties,
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 are 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 total purchase price of these assets was approximately $5.5 million, which

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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 Edmond, 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 Kansas Properties are currently producing approximately
one million cubic feet of gas of natural gas and 400 barrels of oil per day.
Income from the Kansas Properties at the present time is approximately $300,000
per month.

                  The Company presently has 15 productive natural gas wells and
four producing oil wells in the Swan Creek Field in Tennessee. 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 $4,000,000. In
addition, approximately 4,500 barrels of oil per month are being produced and
sold from the Swan Creek Field. Income from the Swan Creek Field is
approximately $60,000 per month.

                  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, major natural gas transmission
pipeline companies, local utilities and private industry end-users.

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 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

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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.

                  During 1996, the Company formed Tengasco Pipeline Corporation,
a wholly- owned subsidiary, to manage the construction and operation of Phase I
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 50,000 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

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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 fifteen productive gas wells and four oil wells for a total of
nineteen wells. See Item 2. Description of Properties.

                  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.

                  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 unless the nitrogen content of the gas is
reduced.

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                  The Company is currently engineering and designing the second
phase ("Phase II") of its pipeline, an additional 28 miles of 12 inch pipeline
which will extend from the terminus of the Company's existing pipeline to an
existing pipeline and meter station at the chemical plant of Eastman Chemical
Company ("Eastman") located in Kingsport, Tennessee. It is estimated that
construction of Phase II of the pipeline will cost approximately $6,000,000 and
will take six to eight months to construct. The Company is attempting to raise
the necessary funds to construct the pipeline through a private placement
offering of Series B Cumulative Convertible Preferred Stock pursuant to Rule 506
of Regulation D. See, Item 6, Management's Discussion and Analysis or Plan of
Operation.

                  On November 18, 1999, the Company entered into an agreement
with Eastman Chemical Company ("Eastman") which provides that by December 31,
2000 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 present contract. 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 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.

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                  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 MMBtu's delivered per day, the index price plus $0.05 for all quantities
in excess of 5,000 MMBtu's up to 15,0000 MMBtu's per day and the index price for
all quantities in excess of 15,000 MMBtu's per day. The index price means the
price per MMBtu published in McGraw-Hill's Inside F.E.R.C.'s Gas Market Report
equal to the Henry Hub price index as shown in the table labeled "Market Center
Spot Gas Prices".

                  The Company will transport and deliver its gas to Eastman
through Phase II of its pipeline. 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 agreement will commence upon the Company's
completion of construction of Phase II of its pipeline and connection to
Eastman's facilities and commercial operation of that facility is approved.
Pursuant to its agreement with Eastman completion of construction of Phase II of
the pipeline is stated to be made by December 31, 2000. However, Eastman has
agreed to extend the completion date of construction to March 31, 2001. It is
estimated that Phase II of the pipeline will cost approximately $6,000,000 and
will take six to eight months to construct.

                  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 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. Tengasco Pipeline intends to begin 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. Construction will begin
when agreement for base load sales are concluded with the local school district.
The Company's existing eight inch main line from its Swan Creek Field passes
through the city limits of Sneedville and completion of a one-half mile of
interconnecting distribution line from the existing pipeline will be required at
a cost not anticipated to exceed $100,000 and which it is expected can be
constructed within a period of six weeks. At this time, no agreements for 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 sales may begin
or what the 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.,

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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.

         2. The Kansas Properties

                  The Company, as of December 31, 1997 acquired the Kansas
Properties which included 149 producing oil wells and 59 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.
Revenues for the Kansas Wells are approximately $300,000 per month.

                  There are several capital projects that are available in
Kansas which include drilling wells, recompletion of wells and major workovers.
These projects when completed may well 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..

         3. The Company's Other Leases

                  In connection with the Purchase Agreement, the Company
acquired from IRC the following properties:

                           (i) a 100% working interest in 41 oil and gas leases
on a total of 8,058 acres, more or less, and a 25% working interest on one lease
of 462 acres, more or less, located in Clay County, Kentucky (collectively, the
"Beech Creek Leases"). Each of these leases provided for a landowner royalty of
12.5% of the oil produced and saved from the leased premises or, at the lessee's
option, to pay the market price for such 12.5% royalty. The leases also provided
for a landowner royalty equal to 12.5% of the market price at the well of the
gas sold or used off the premises, except for injection for secondary recovery
of oil. The Beech Creek Leases were also subject to overriding royalties ranging
from 1.25% to 5%.

                           (ii) a 100% working interest in 5 oil and gas leases
on a total of 741 acres,

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more or less, located in Clay County, Kentucky (collectively, the "Wildcat
Leases"). Each of these leases was subject to a 12.5% landowner royalty, on the
same terms as the Beech Creek Leases, and a 3.125% overriding royalty.

                           (iii) a 100% working interest in six oil and gas
leases on a total of 744 acres, more or less, located in Clay County, Kentucky
(collectively, the "Burning Springs Leases"). Each of these leases was subject
to a 12.5% landowner royalty, on the same terms as the Beech Creek Leases and
the Wildcat Leases, and overriding royalties ranging from 3.125% to 7.5%.

                           (iv) a 100% working interest in nine oil and gas
leases on a total of 2,121 acres, more or less, located in Fentress County,
Tennessee (collectively, the "Fentress County Leases"). Each of these leases was
subject to a 12.5% landowner royalty, on the same terms as the above referenced
leases, and a 19% overriding royalty; and a 25% overriding royalty on one
existing well.

                  All of the above referenced leases have expired and the
Company does not plan to pursue development of these properties since the
Company intends to concentrate on the development of the Swan Creek Leases which
management believes has greater economic potential.

                  Subsequent to the Purchase Agreement, the Company also
acquired a 100% working interest in four oil and gas leases on a total of
1,003.19 acres, more or less, located in Lauderdale County, Alabama
(collectively, the "Alabama Leases"). The Alabama Leases have expired and the
Company does not intend to pursue the development of these leases for the same
reasons it is not pursuing the development of its other leases that have
expired.

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 natural gas marketing companies,
which purchase the gas.

                  In Hancock County, gas production from the Swan Creek Field
can presently be

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delivered through the completed Phase I of the Company's pipeline to the Hawkins
County Gas Utility. The Company has acquired all necessary regulatory approvals
and 100% of necessary property rights for Phase I of the pipeline. The Company's
pipeline will not only service 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
district such as Powell Valley Utility District. No assurance can be given that
the Company will be able to produce a sufficient quantity of crude oil or
natural gas or that it will obtain purchasers of gas from the Company in
sufficient quantities to make these operations profitable.

                  It is anticipated that completion of Phase II of the pipeline
will permit the Company to sell all of its daily natural gas production from the
Swan Creek Field.

                  Natural gas from the Kansas Properties is delivered to
Kansas-Nebraska Energy, Inc. in Bushton, Kansas. At present, crude oil is being
trucked and transported through pipelines to the National Cooperative Refining
Association in McPherson, Kansas, 120 miles from Hays. National Cooperative is
solely responsible for transportation of products whether by truck or pipeline.
An additional purchaser of the crude oil produced is Farmland Industries in
Neodosha. There is a limited market in the area and the only other purchaser of
crude oil is Eott Energy Operations Ltd.

Reserve Analyses

                  Coburn Petroleum Engineering of Tulsa, Oklahoma, has performed
reserve analyses of all the Company's productive leases (with the exception of
the wells acquired from AFG). R. W. Coburn, a registered petroleum engineer, and
the owner of Coburn Petroleum Engineering, has no interest in the Company or
IRC, and performed these services at his standard rate ($90 per hour was billed
and paid for these reports). The net reserve values used hereafter were obtained
from a report dated March 30, 2000 prepared by Coburn Petroleum Engineering. In
substance, the report used estimates of oil and gas reserves based upon standard
petroleum engineering methods which include decline curve analysis, volummetric
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 Coburn Petroleum Engineering. The net reserve values in
the Coburn Petroleum Engineering Report were adjusted to take into account the
working interests that have been sold by the Company in various wells in the
Swan Creek Field. The report of Coburn Petroleum Engineering provides that the
net reserves as adjusted of the existing 19 wells in the Swan Creek Field is
over 70.90 Bcf of natural gas with a present-day deliverability of 15 million
cubic feet of natural gas per day and 1.39 million barrels of oil. According to
the Coburn Engineering Report, discounting the net reserve values by 10% results
in a present value as of December 31, 1999 of $116,300,000 before taxes and
$69,780,000 after taxes.

                  Columbia Engineering based in Oklahoma City, Oklahoma, has
performed a reserve analysis of the Kansas Properties. David F. Yard, a
registered petroleum engineer is the

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principal of Columbia Engineering. Neither Columbia Engineering nor Mr. Yard has
an interest in the Company or IRC and Mr. Yard performed these services at his
standard rate of $75 per hour. The net reserve values used hereafter were
obtained from a report dated January 31, 2000. According to the report of
Columbia Engineering, discounting the net reserve values by 10% results in a
present value as of December 31, 1999 of $17,467,719 before taxes and
$10,480,631 after taxes for the Kansas Properties.

                  Reserve analyses 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.

                  It is standard in the industry for reserve analyses such as
these to be used as a basis for financing of drilling costs.

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
$.40 per Mcf.

Competitive Business Conditions, Competitive Position in the
Industry and Methods of Competition

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

                  Its principal competitors in the State of Tennessee are
Ashland Oil and Miller Services. In the area of the Company's pipeline, the
Company is in a favorable position since it will own the only pipeline within a
20 mile radius. Within that area, the Company owns leases on approximately
44,000 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

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sell all the gas and oil 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 it leases and because it holds relatively
large acreage blocks in what management believes are promising areas.

Sources and Availability of Raw Materials
and Names of Principal Suppliers

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

Dependence on One or a Few Major Customers

                  The Company is not presently dependent upon any major
customers for the gas from its Swan Creek Field. However, upon completion of
Phase II of its pipeline, the Company anticipates being dependent upon a few
customers.

                  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. National Cooperative is solely responsible for transportation of products
whether by truck or pipeline. An additional purchaser of the crude oil produced
is

                                       11


<PAGE>



Farmland Industries in Neodosha, Kansas. 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 or services 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.

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, such permits being 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

                                       12


<PAGE>



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

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

                  The Company's Board of Directors adopted resolutions to form
an Environmental Response Policy and Emergency Action Response Policy Program. A
plan was recently 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
will be 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 will not have a material cost of anything more
than his standard salary. See, "Number of Total Employees and Number of
Full-Time Employees" set forth below in this section.

                                       13


<PAGE>



Cost and Effects of Compliance With Environmental Laws

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

Number of Total Employees and Number of Full-Time Employees

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

                  The Company has hired a full-time geologist at a salary of
$60,000 per year. His duties for the Company include: surface and sub-surface
geology, log correlation, surface and sub-surface mapping, field research and
well-site geology.

ITEM 2. DESCRIPTION OF PROPERTY


Property Location, Facilities, Size and Nature of Ownership

                  The Company's Swan Creek Leases are on approximately 45,400
acres in Hancock and Claiborne 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.

                  One of the Company's Directors, Shigemi Morita, has a 25%
working interest on a turnkey basis in ten of the Company's existing wells, a
50% working interest in one of the Company's other existing wells and a 12.5%
working interest in another of the Company's existing wells. 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. See Item 12 - Certain Relationships and Related
Transactions.

                  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. Net revenue will be 81.25%
to Miller and the Company's subsidiary Tengasco Pipeline will transport Miller's
gas for $.40 per Mcf.The Company reserves all offset locations to wells drilled
under the farmout agreement. Two wells have been drilled under the farmout
agreement, the

                                       14


<PAGE>



Lange No. 1 and the Woodrow Davis No. 1. The Company obtained an additional 50%
working interest in the Woodrow Davis No. 1 from Miller in addition to its right
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, currently $0.40 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 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 4,731 square feet located at 603 Main Avenue, Suite 500,
Knoxville, Tennessee, at a monthly rent of $3,942.50. 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.

                  Tests to date on the completed wells on the Swan Creek Leases
indicate

                                       15


<PAGE>



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. 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 was named as a defendant in an action commenced
in the Supreme Court of the State of New York, New York County entitled
Wallington Investments, Ltd., Plaintiff v. Tengasco, Inc., Defendant, Index no.
605876/98 In that action the plaintiff sought to recover the sum of $500,000
loaned to the Company which was part of a $1,000,000 bridge loan transaction.
The loan by Wallington Investments, Ltd. ("Wallington") was evidenced by a
promissory note and the action brought by Wallington was based upon that note.
The Company, for no additional consideration other than the loan, issued
warrants to Wallington to purchase 100,000 shares of the common stock of the
Company.

                  The warrants contain an elaborate formula pursuant to which
the exercise price of the warrants would be reduced and the number of shares
increased if the price of the Company's stock decreased. This formula guaranteed
that the warrants would continue to retain their value no matter what happened
to the price of the Company's stock.

                  The action was recently settled. Pursuant to the settlement
the Company paid Wallington the sum of $581,625 which represents 90% of the
amount of the monies loaned to the Company by Wallington together with interest
thereon at 10% from the date of the loan. As part of the settlement, the
warrants held by Wallington were deemed null and void and unenforceable and all
of the liens granted to Wallington as security for its loan to the Company were
released.

                  2. The Company filed an action in Chancery Court for Knox
County, Tennessee entitled, Tengasco, Inc., Plaintiff v. Theodore Scallan,
Thieme Fonds, Ulrich Hocker and

                                       16


<PAGE>



Wallington, Investments, Ltd., Case No. 133620-2 against Wallington Investments,
Ltd. ("Wallington") and two other lenders, Ulrich Hocker ("Hocker") and Thieme
Fonds who had loaned the Company the aforementioned bridge loan in the aggregate
amount of $1,000,000, as well as Theodore Scallan, the Company's former
President, to invalidate the warrants which were issued to those lenders in
connection with and as consideration for that bridge loan. This action was
discontinued against Wallington Investments, Ltd. and Ulrich Hocker as part of
the Company's settlement of actions brought against it by those two parties in
New York to recover the sums they had loaned the Company and to enforce the
warrants issued to them (See no. 1 above). In addition, the Company recently
settled this action and the counterclaims asserted by Thieme Fonds against the
Company to recover the sum of $250,000 it had loaned the Company as part of the
$1,000,000 bridge loan and to enforce the warrants it had obtained in connection
with the loan on the same terms it had settled the Hocker and Wallington
actions. The Company paid Thieme Fonds the sum of $298,812.49 which represents
90% of the amount of the monies loaned to the Company by Thieme together with
interest thereon at 10% from the date of the loan. As part of the settlement,
the warrants held by Thieme Fonds were deemed null and void and unenforceable
and all of the liens granted to Thieme Fonds as security for its loan to the
Company were released.

                  3. 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 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.

                                       17


<PAGE>



                  4. The Company was named as a defendant in an action commenced
in May 1998 in the United States District Court for the Eastern District of
Tennessee entitled Operations Management International, Inc. ("OMI") v.
Tengasco, Inc. The complaint seeks a declaratory judgment declaring a teaming
agreement the Company entered into in March 1997 with OMI to operate, as a
subcontractor, the steam generating facilities at the East Tennessee Technology
Park ("ETTP") in Oak Ridge, Tennessee invalid and unenforceable, or in the
alternative to declare that the Company is in breach of the teaming agreement
thereby rendering it unenforceable. No claim for recovery of money is made
against the Company. The Company filed an answer and counterclaim against OMI
seeking damages for breach of contract. The action was recently settled.
Pursuant to the settlement, OMI paid the Company the sum of $40,000 and the
parties released all claims against each other.

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

                  (a) The annual meeting of stockholders of the Company was held
on August 31, 1999.

                  (b) The first item voted on was a proposal to authorize an
amendment to the Company's By-Laws to increase the maximum number of Directors
of the Company from seven (7) to ten (10). The results of the voting were as
follows:

                  5,472,595 votes for the resolution,
                  676,093 votes against and
                  41,992 votes abstained.

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

                  (c) The next item of business was the election of Directors.
Joseph E. Armstrong, Benton L. Becker, John A. Clendening, Neal F. Harding, John
L. Kidde, Shigemi Morita, Malcolm E. Ratliff and Allen J. Sweeny 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: 6,204,285 votes
for Joseph E. Armstrong and 58,565 withheld; 5,635,466 votes for Benton L.
Becker and 627,384 withheld; 6,199,434 votes for John A. Clendening and 63,416
withheld; 6,202,535 votes for Neal F. Harding and 60,315 withheld; 6,204,125
votes for John L. Kidde and 58,725 withheld; 6,206,975 votes for Shigemi Morita
and 55,875 withheld; 6,206,335 votes for Malcolm E. Ratliff and 56,515 withheld;
and, 6,208,435 votes for Allen J. Sweeney and 54,415 withheld.


                                       18


<PAGE>



                  (d) 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 1999. The results of the voting were as follows:

                  6,216,522 votes for the resolution,
                  4,050 votes against and
                  42,278 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 bid prices for shares of common
stock of the Company during the fiscal years ended December 31, 1998 and
December 31, 1999 are set forth below.

                                                      Bid
                                                      ---

                                            High                      Low
                                            ----                      ---

For the Quarters Ending

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

                                       19


<PAGE>





March 31, 1998                              13.12                     9.09

June 30, 1998                               12.50                     9.00

September 30, 1998                           9.75                     5.75

December 31, 1998                            7.12                    5.375


                  These bid prices were obtained from the National Quotation
Bureau, Inc. ("NQB") and do not necessarily reflect actual transactions, retail
markups, mark downs or commissions. The transactions include inter-dealer
transactions.

Holders

                  As of March 20, 2000, the number of shareholders of record of
the Company's common stock was 443, and management believes that there are
approximately 1,700 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

<TABLE>
<CAPTION>
Name of Owner                                 Date            Number of            Aggregate
                                              Acquired        Shares               Consideration

<S>                                            <C>           <C>                  <C>
DeMunnick, Jeffrey                             3/15/97            4,000                                1
Arzonetti, Walter C.                           4/22/97           88,493                                1
</TABLE>


                                       20


<PAGE>


<TABLE>
<S>                                            <C>           <C>                  <C>
Harding, Neil                                   5/21/97          100,000                               2
Moffett, William A.                             6/25/97          72,603                                1
Carter, Robert M                                6/30/97           7,329                                1
McCown, Michael                                 6/30/97          50,000                                1
Lautzenhiser, Stephen                           8/19/97            800             $            4,832.00
Steuer, Joseph, Jr.                             8/19/97           1,703            $            9,996.61
Day, Christopher                                8/22/97            482             $            2,966.11
Gray, Edward W.T.                               8/22/97          80,515            $          500,000.00
Gerding, James A.                               8/26/97          20,000            $          140,000.00
Gillis, Wayne H.                                8/26/97          14,286            $          100,000.00
Strickland, Thomas Jr.                          8/26/97            200             $            1,174.00
Thurman, Shawn Lee                              8/26/97            219             $            1,495.00
Habbersett, William C. TTEE UTD
9/1/94                                          8/27/97           2,197            $           15,005.51
Kail, Wilbert L.                                 9/2/97           1,000            $            6,650.00
Burleson, Elizabeth E.                          9/15/97            500             $            3,895.00
Kamer, John P.                                  9/22/97            400             $            2,976.00
Habbersett, William C. TTEE UTD
9/1/94                                          9/24/97           1,500            $           11,550.00
Hampton, Earl                                   9/24/97            500             $            3,850.00
Bailey, Gurvin & Margaret                       9/25/97           4,500            $           36,225.00
Milligan, Shirley TTEE TR UA
7/3/90                                          9/30/97            300             $            2,415.00
Fortune Hunters Investment Club                 10/9/97            201             $            1,759.00
Vickers, T. Owen                                10/9/97           7,584            $           64,994.88
Angle, Noriko T.                               10/10/97           5,714            $           50,000.00
Harbert, Bill L.                               10/10/97          34,286            $          300,002.50
Lange, Robert A.                               10/10/97           1,500            $           13,345.00
Miller William F., Jr.                         10/10/97           3,000            $           26,250.00
Regions Bank TTEE for the Bobby P.
Lemay Directed IRA                             10/10/97           5,656            $           49,999.99
Stanley Robert J.                              10/10/97          11,313            $          100,006.92
Green, Daryl  IRA R/O UTA R/O
UTA 10/13/97 C. Schwab & Co.                   10/13/97           5,000            $           42,000.00
Cates, Dennis                                  10/14/97           7,000            $           58,800.00
Jones Michael J.                               10/14/97           2,200            $           20,020.00
Scott, Donald L.                               10/14/97           2,220            $           20,020.00
Scott, Randall L.                              10/14/97           2,220            $           20,020.00
Adams, Stanley & Sharon E.                     10/15/97           6,000            $           53,580.00
Borger, Jeannie                                10/15/97            224             $            2,000.32
Funk, Sharon                                   10/15/97           5,599            $           49,999.07
Honeycutt, Robert M.                           10/15/97            100             $              893.00
Jungman, Paul Claude                           10/15/97            500             $            5,000.80
L'Hussier, Harold R.                           10/17/97           1,406            $           15,002.02
</TABLE>


                                       21


<PAGE>



<TABLE>
<S>                                            <C>           <C>                  <C>
Funk, Frederick                                10/20/97           2,158            $           20,000.00
Kourkournelis, James M.                        10/21/97            500             $            4,815.00
Viam Charitable & Edu. Found., Inc.            10/21/97          11,905            $          100,000.00
Buck, Frank S. & Martha J.                     10/22/97           5,000            $           47,250.00
STEP, Inc.                                     10/22/97           2,000            $           18,200.00
Nishiwaki, Nick S.                             10/23/97          21,978            $          200,000.00
Spoonbill, Inc.                                10/23/97          178,024           $        1,619,949.00
Stewart S. Kent TTEE, UA/TR Dtd
12/29/88                                       10/23/97           2,500            $           22,550.00
Knott, Patricia                                10/24/97            500             $            4,550.00
Eggerr & Company                               10/28/97          202,380                   $1,200,000.00
Jones, Ronald M.                               10/28/97           1,500            $           12,600.00
Thomson, Charles A.                            10/29/97           2,000            $           15,400.00
Ershek, John                                    11/3/97           5,000            $           41,100.00
Wilson, Henry A.                                11/3/97            585             $            5,019.30
Arkwright, Richard T.                           11/4/97          10,989            $           99,999.90
Hamac & Co. TTEE   Marilyn Himes
Riviere TR                                      11/5/97          10,582            $           99,999.90
Emory Clinic Profit Sharing Plan
FBO William J. Casarella                        11/6/97           2,646            $           25,004.70
Gillis, Terry                                   11/6/97           2,667            $           24,989.79
Huang, Diedre A.                                11/6/97           5,336            $           49,998.32
Huang, Peter C.R.                               11/6/97          16,008            $          149,994.96
Haung, Stephen                                  11/6/97           5,336            $           49,998.32
Nevin, Micah Cole                               11/6/97            100             $              945.00
Reventolow, Richard H.                          11/6/97          10,989            $           99,999.90
Watson, W.N.                                    11/6/97            534             $            5,003.58
Leonard, William Curtis                         11/7/97            216             $            2,004.00
Weldon, William Edgar Jr.                      11/11/97            506             $            5,000.00
Weldon, William Edgar, Dr.                     11/11/97           2,528            $           25,000.00
Chandler, Robert A.                            11/13/97            500             $            4,945.00
Gillis, Terry                                  11/14/97           1,465            $           15,001.60
Presnell, Joe                                  11/14/97           2,000            $           20,480.00
Habbersett, Wm. C. TTEE UTD
9/1/94                                         11/14/97           1,000            $           10,240.00
Habbersett, Edith T. TTEE                      11/18/97           1,500            $           16,020.00
Castllas, Arcadio & Renate                     11/19/97           9,685            $           99,997.63
Gerding, Daniel J.                             11/21/97           1,000            $            9,890.00
Hut, Robert A.                                  12/3/97           4,682            $           50,000.00
Jones Investment Co.                            12/4/97           6,000            $           50,400.00
Pichiarella, Lawrence, S.                       12/8/97            100             $            1,103.00
Presnell, Joe & Alma                            12/8/97           1,000            $           11,030.00
French, Peter & Grace                           12/9/97           2,267            $           25,000.00
Gerding, Scott J.                               12/9/97           1,000            $            9,890.00
</TABLE>


                                       22


<PAGE>

<TABLE>
<S>                                            <C>           <C>                  <C>
Keyser, Frank & Mims, Catherrine                12/9/97            443             $            4,500.00
Malone, Michael & Kimberely                     12/9/97            49              $              500.00
McCarty, Billy E. & Carol J.                    12/9/97            99              $            1,000.00
MSP Enterprises                                 12/9/97            500             $            5,515.00
Rich Energy, Inc.                               12/9/97            700             $            6,370.00
Dale, John D. Jr.                              12/10/97           4,682            $           50,000.00
Pichiarella, Lawrence, S.                      12/11/97            200             $            1,960.00
Uy, Camilo                                     12/11/97           2,500            $           25,000.00
Nishimura, Joseph, Y                           12/16/97           5,192            $           50,000.00
Pichiarella, Lawrence, S.                      12/17/97            100             $              840.00
Bonham, Elizabeth D.                           12/19/97           5,952            $           50,000.00
Blaker, Barbara & Lloyd                        12/26/97           1,120            $           10,000.00
Myers, Garry D.                                12/31/97           1,344            $           12,000.00
Widmer, Edward J.                              12/31/97            500             $            4,465.00
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
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
</TABLE>


                                       23


<PAGE>


<TABLE>
<S>                                            <C>           <C>                  <C>
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
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
</TABLE>


                                       24


<PAGE>


<TABLE>
<S>                                            <C>           <C>                  <C>
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             $            5,002.00
Cipponeri, Jerome                              12/30/99            820             $            5,002.00
</TABLE>



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



<TABLE>
<CAPTION>
Name                                          Date            Number of Shares            Aggregate
                                              Acquired                                    Consideration

<S>                                          <C>            <C>                  <C>
Harding, Neal                                  10/30/98           2950                                 3
Cipponeri, Jerome                              10/30/98            500                                 4
Kenny Vernon & Rosemary                        10/30/98           1300                                 4
Gorman, Robert & Anne                          10/30/98           1000                                 4
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
</TABLE>

                                       25

<PAGE>



                  1        Issued pursuant to Stock Option Agreements adopted by
                           the Board of Directors granting these persons an
                           option to purchase "unregisted" and "restricted"
                           shares of the Company's common stock at a price of
                           $0.275 per share.

                  2        Issued as consideration for the granting of a loan in
                           the amount of $1,000,000.

                  3        Issued as partial payment of a loan made to the
                           Company in 1997 by Harding. See, "Item 12 - Certain
                           Relationships and Related Transactions - Transactions
                           with Management and Others"

                  4        Issued as partial payment of loans made to the
                           Company in July 1998 by the above shareholders. See,
                           "Item 12 - Certain Relationships and Related
                           Transactions - Transactions with Management and
                           Others"


                  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

                  The Company intends to continue its drilling program on the
Swan Creek leases. 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

                                       26


<PAGE>



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.

                  (2) The Company has successfully completed fifteen 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. To date, the Company has not drilled any dry wells.

                  In July 1998, the Company completed Phase I of its 8 inch 23
mile pipeline from the Swan Creek Field to Rogersville, Tennessee. With the
assistance of the Tennessee Valley Authority, the Company was successful in
utilizing TVA's rights-of-way along its main power grid from the Swan Creek
Field to Rogersville, Tennessee.

                  The Company's plan of operations for the next two years calls
for the drilling of 50 additional wells on the Swan Creek Field at a cost of
approximately $250,000 per well. Drilling operations are contingent upon funds
becoming available either as a result of gas sales upon completion of Phase II
of the pipeline or from other sources. The Company is currently engineering and
designing Phase II of its pipeline, an additional 28 miles of 12 inch pipeline,
at a cost of approximately $6,000,000 which will extend from a point near the
terminus of the Company's existing pipeline and connect to an existing pipeline
and meter station at the chemical plant of Eastman Chemical Company ("Eastman")
in Kingsport, Tennessee. The Company recently entered into an agreement with
Eastman to supply substantial amounts of natural gas to Eastman. See,
"Description of Business" for a more detailed statement of the terms of that
agreement. The Tennessee Department of Transportation has granted the Company
the right to lay Phase II of its pipeline along state highway 11 to Kingsport,
Tennessee. At the present time, the Company is capable of producing
substantially more gas than it is able to sell. Completion of Phase II of the
pipeline will allow the Company to deliver its gas to Eastman and sell
substantially more of its natural gas production from the Swan Creek Field. The
Company estimates that its ultimate deliverability will reach 80 to 100 Mmcf per
day or 2.5 to 3.1 Bcf per month once Phase II of its pipeline is completed. The
Company expects to reach this capacity on or about December 31, 2002. The
estimated time from start to finish of construction of Phase II of the Pipeline
is six to eight months. The Company anticipates that its agreement with Eastman
will require Eastman to purchase 10,000 MMBTU of gas per day, to take effect
upon completion of Phase II of its pipeline.

                  The Company does not presently have the funds needed to enable
it to complete its drilling program and the extension of the pipeline. The
Company is attempting to raise those funds through a private placement offering
(the "Offering") of a minimum of 30,000 and a maximum of 100,000 shares of
Series B Cumulative Convertible Preferred Stock (the "Series B Shares") at a
purchase price of $100 per share pursuant to Rule 506 of Regulation D
promulgated by the Securities and Exchange Commission. The Series B Shares are
being offered through


                                       27
<PAGE>



Southcoast Capital L.L.P. ("Southcoast Capital") pursuant to a written agreement
with the Company on a "best efforts basis." Southcoast Capital will receive
selling commissions of eight percent (8%) of the price of the Series B Shares.
In addition, the Company will issue to Southcoast Capital a warrant (the
"Warrant") to purchase a number of shares of the Company's stock equal to ten
percent (10%) of the total number of shares of the Company's common stock into
which the total number of Series B Shares sold pursuant to the Offering are
convertible. The warrant will be for a term of five years and the price of
shares of common stock subject to the Warrant shall be equal to the conversion
rate for the Series B Shares pursuant to the Offering which is the average
closing price of the Company's common stock for a period of thirty (30) business
days immediately preceding a closing of any sale of securities offered pursuant
to the Offering, but in no event less than $9.00 per share. The Company will
also reimburse Southcoast Capital for its expenses in connection with the
Offering, including the fees and expenses of its legal counsel, provided that,
without the prior agreement of the Company, the aggregate of such expenses shall
not exceed $15,000.

                  The Company intends to use the proceeds from the Offering of
the Series B Shares to finance construction of Phase II of the pipeline.
However, there can be no assurance that the Company will be able to sell the
Series B Shares, or if does not sell more than the minimum amount of the
Offering, that the proceeds from the Offering will be sufficient to complete the
pipeline. If these funds are not sufficient, the Company will seek additional
financing by other means. Although there can be no assurances that such
financing will be available, the Company believes that it will be able to
procure such financing by means of a bank loan, equity investment or a joint
venture with another company.

                  In connection with its acquisition of all of AFG's assets, the
Company acquired 208 working wells in Kansas. Pursuant to the acquisition
agreement the Company was entitled to all income from those wells as of January
1, 1998. The acquisition was for a total purchase price of approximately $5.5
million. The aggregate current production from the Kansas properties is
approximately 1.0 million cubic feet of natural gas and 400 barrels of oil per
day. Income from the Kansas properties at the present time is approximately
$300,000 per month. Revenues from the Kansas Properties for the third and fourth
quarters of 1999 continued to increase due to the significant increase in oil
prices during the quarter.

                  There are several capital projects that are available in
Kansas which include drilling wells, recompletion of wells and major workovers
to increase current production. These projects when completed may well increase
production in Kansas. However, the cost of major reworking of certain existing
wells is projected to be $1.4 million. Since the Company does not presently have
the funds necessary for major reworking of existing wells and/or for drilling
additional wells, the ability to undertake such efforts is dependent on the
Company obtaining additional debt or equity financing. Management has made the
decision not to undertake such efforts to raise the funds necessary to perform
this work at the present time.

                  The Company has determined not to pursue the development of
the Beech Creek, Fentress County, Wildcat, Burning Springs and Alabama Leases,
all of which have expired. The


                                       28
<PAGE>


Company, instead, will concentrate on the development of its other properties
which management believes have greater economic potential and the acquisition of
other properties.

                  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 of $2,671,923 ($0.34 per share
of common stock) in 1999 compared to a net loss in 1998 of $3,083,638 ($0.42 per
share of common stock).

                  The Company realized oil and gas revenues of $3,017,252 in
1999 as compared to $2,078,101 in 1998. Revenues in 1999 were offset by
increased production costs and taxes of $2,564,932 compared to $1,943,944 in
1998. These increases in revenues and production costs were attributable
primarily to well workover costs on several wells in Kansas to maintain
production. The increase in revenues was primarily attributable to the increase
in oil prices in 1999, however, oil production in Swan Creek did increase from
11,222 barrels in 1998 to 21,964 barrels in 1999 due to new oil wells drilled in
1999.

                  Depletion, depreciation and amortization decreased from
$290,030 in 1998 to $233,807 in 1999. This decrease was due to less depletion in
the Kansas Properties.

                  General and administrative costs increased $570,122 to
$1,942,254 in 1999. The increase was due to the hiring of additional personnel,
increase in engineering services for the pipeline and reserve evaluations and
the increase in geological service for 3-D seismic data needed in the
development of the Swan Creek Field. The additional in-house personnel, while
increasing general and administrative costs, had the effect of substantially
reducing other of the Company's costs. As a result, the Company's public
relations costs of $86,061 in 1999 were $256,742 less than in 1998 and its legal
and accounting costs in 1999 were $444,624 compared to $656,104 in 1998.

                  Interest expense of $417,497 in 1999 was $157,409 less than
the previous year due to less debt and funding transactions.

                  The Company did not have any income tax expense in 1999 or
1998 due to a net operating loss carryfoward. Deferred tax assets, consisting
primarily of these loss carryfowards, 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.


                                       29
<PAGE>


Liquidity and Capital Resources

                  During 1999 and 1998, the Company's revenues were insufficient
to fund operations. Accordingly, significant cash was absorbed in the day to day
operations. This trend is expected to continue throughout 2000 and at least
until such time as the Company completes Phase II of its pipeline which it
anticipates completing either by the end of 2000 or the first quarter of 2001.

                  As of December 31, 1999, the Company had total stockholders'
equity of $7,453,930 on total assets of $15,182,712, however, the Company has a
net working capital deficiency at December 31, 1999 of $1,406,263 as compared to
a net deficiency of $1,929,215 at December 1998.

                  The Company continues to be in the early stages of its
operating history as it endeavors to expand its operations through the
continuation of its drilling program in the Swan Creek Field and the extension
of Phase II of its pipeline. The Company anticipates that it will require
$6,000,000 to fund the completion of Phase II of the pipeline and another
$6,000,000 to fund the development of the Swan Creek Field and other working
capital requirements. The Company plans to fund these amounts from the proceeds
of its offering of Series B Cumulative Convertible Preferred Stock, from other
future issuances of the Company's common stock, from the sale of oil and gas
interests and from other debt financing from lenders. Management believes that
the Company will be able to obtain the necessary funding to meet its operational
requirements during 2000, 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
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.

                  Net cash used in operating activities amounted to $2,555,003
for 1999, compared to net cash used in the amount of $2,329,325 for 1998,
resulting primarily from the 1999 net loss of $2,671,923, partially offset by
non-cash depletion, depreciation and amortization ($233,807) and non-cash
compensation and services paid by issuance of equity instruments ($204,500).
Changes in working capital items during 1999 absorbed $353,387 in operating cash
flow, reflecting increases in accounts receivable ($386,933) and inventory
($159,455) and partially offset by an increase in accounts payable ($300,342).

                  Net cash used in investing activities amounted to $1,868,958
for 1999, compared to net cash used in the amount of $6,132,772 for 1998. The
net cash used for investing activities during 1999 was primarily attributable to
additions to oil and gas properties ($1,413,029 in 1999 as compared to
$1,721,770 in 1998) and additions to property and equipment ($256,045 in 1999 as
compared to $203,507 in 1998). The investing activities during 1998 included
$2,990,253 relating to the acquisition of the Kansas Properties and $1,422,242
relating to the construction of Phase I of the pipeline.


                                       30
<PAGE>



                  Net cash provided by financing activities amounted to
$3,931,357 for 1999 as compared to $4,924,017 for 1998. The primary sources of
financing include proceeds from borrowings ($2,771,722 in 1999 as compared to
$3,557,396 in 1998) and convertible redeemable preferred stock ($1,188,900 in
1999 as compared to $225,000 in 1998). The primary use of cash in financing
activities was the repayment of borrowings ($2,383,605 in 1999 as compared to
$1,831,685 in 1998).

New Accounting Pronouncements

                  Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities", as amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. Historically, the Company has not entered into 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.

Year 2000 Risks

                  The Company achieved Year 2000 compliance for all internal
systems and did not suffer any adverse effects with respect thereto. The Company
does not anticipate any such problems in the future. The Company's Year 2000
compliance costs were insignificant and, accordingly, did not have a material
effect on its operating results or financial position.

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
2624 Selma Avenue
Knoxville, TN 37914

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

John A. Clendening                  Director                  8/31/99
1031 Saint Johns Drive
Maryville, TN 37801

Neal F. Harding                     Director                  8/31/99
2155 So. Ocean Blvd., #PH20
Delray Beach, Florida 33843

John L. Kidde                       Director                  6/19/98
154 Oldchester Road
Essex Fells, N.J. 07021

Shigemi Morita                      Director                  3/13/97
35 Park Avenue
New York, N.Y. 10016

Malcolm E. Ratliff                  Chairman of the           4/21/98
12608 Avallon Place                 Board; Chief Executive
Knoxville, TN 37922                 Officer



                                       32
<PAGE>





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

Terry W. Piesker                    President                 10/19/99
7531 Turnbrook Way
Knoxville, TN 37919

Robert M. Carter                    President Tengasco        10/19/99
760 Prince George Parish Drive      Pipeline Corporation
Knoxville, TN 37922

Harold G. Morris, Jr.               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

Elizabeth Wendelken                 Secretary                 12/4/96
8023 Stanley Road
Powell, TN 37849


Section 16(a) Beneficial Ownership Reporting Compliance

                  In fiscal 1999, Malcolm E. Ratliff, the Company's Chief
Executive Officer and a Director, Shigemi Morita and Allen H. Sweeney, two of
the Company's other Directors, and IRC, which owns more than ten percent (10%)
of the Company's common stock inadvertently failed to timely file certain Form
3, 4 and 5 reports. Mr. Ratliff failed to timely file six Form 4 reports and one
Form 5 report involving twenty five transactions. Mr. Morita failed to timely
file a Form 5 report and a Form 4 report involving three transactions. Mr.
Sweeney filed six Form 4 reports in the six months following the dates on which
the transactions he reported took place in those


                                       33
<PAGE>


preceding months, but not within the required first ten days of the following
month as required. Those untimely reports involved twenty eight transactions.
IRC failed to timely file three Form 4 reports involving five transactions.
These deficiencies have all been cured.

Business Experience

         Directors

                  Joseph Earl Armstrong is 42 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 62 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.

                  Dr. John A. Clendening is 67 years old. He received B.S.
(1958), M.S. (1960) and Ph. D. (1970) degrees in geology from West Virginia
University. He was employed as a Palynologist-Coal Geologist at the West
Virginia Geological Survey from 1960 until 1968. He joined Amoco in 1968 and
remained with Amoco as a senior geological associate until 1972. Dr. Clendening
has served as President and other offices of the American Association of
Stratigraphic Palynologists and the Society of Organic Petrologists. From 1992 -
1998 he was engaged in association with Laird Exploration Co., Inc. of Houston,
Texas, directing exploration and production in south central Kentucky. In 1999
he purchased all the assets of Laird Exploration in south central Kentucky and
operates independently. While with Amoco Dr. Clendening was instrumental in
Amoco's acquisition in the early 1970's of large land acreage holdings in
Northeast Tennessee, based upon his geological studies and recommendations. His
work led directly to the discovery of the Paul Reed # 1 well which has been
tested at 4.7 Mmcf of natural gas per day with proven reserves of 5 Bcf. He
further recognized the area to have great both oil and gas potential and is
credited with discovery of the field which is now known as the


                                       34
<PAGE>



Company's Swan Creek Field.

                  Neal F. Harding is 57 years old. He received a B.S. degree in
Social Sciences from Campbellsville University in 1964. He is the Chairman and
Chief Executive Officer of the Heritage Companies based in Cocoa Beach, Florida
which are three management companies specializing in the development,
construction and management of more than 6,000 single and multi-family
affordable housing units. Mr. Harding through various different partnerships,
currently owns in excess of 16,000 affordable housing units in Toronto, Canada
and England. Mr. Harding is also the majority shareholder in F & II Development
which owns and operates a semi-public PGA designed 18 hole golf course in
Sikeston, Missouri. Additionally, Mr. Harding is the sole shareholder of Harding
Construction Services, Inc., a real estate company specializing in the
acquisition and development of commercial and residential properties.

                  John L. Kidde is 65 years old. He received a B.A. Degree from
Princeton University in 1956. From 1969 to 1988 he served as a Director and
Vice-President of Kidde International, Inc. which was engaged in several
businesses in the area of safety, security and business protection. Subsequently
and to date he has acted as President of KDM Development Corporation, an
investment management company. Mr. Kidde is also a Co-Founder and Chairman of
Australasia, Inc., a Pacific Rim investment fund. He is also a Director and
Investment Committee member of Asset Management Advisors, Inc. of Palm Beach,
Florida and an active General Partner in a number of venture capital
partnerships including, Claflin Capital I-VII, North American Venture Capital
II and the Opportunity Fund. Mr. Kidde is a Trustee of the Stevens Institute of
Technology and the Open Space Institute in New York.

                  Shigemi Morita is 67 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.

                  Malcolm E. Ratliff is 53 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.


                                       35
<PAGE>



                  Allen H. Sweeney is 53 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

                  Terry W. Piesker is 48 years old. In 1974, he received a
Bachelor of Science Degree in Education from Emporia State University in
Emporia, Kansas. From 1974 to 1977, he worked for Cities Service Oil Company as
an Engineering Technician and Assistant Production Foreman in Eastern Kansas.
From 1977 to 1978, he was employed by Petroleum, Inc. in Wyoming as Rocky
Mountain District Engineer. In 1977 he moved back to Western Kansas as
Production Foreman for Frontier Oil Company. In 1987, Frontier Oil Company was
purchased by AFG Energy Inc. and he was named General Manager of the Kansas
Properties.. On January 1, 1998, the Company purchased the Kansas Properties
from AFG Energy Inc. and on October 19, 1999, he was appointed President of the
Company by the Board of Directors.

                  Robert M. Carter is 63 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 remains as President of Tengasco Pipeline
Corporation, a wholly owned subsidiary of the Company.

                  Harold G. Morris, Jr. is 52 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 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



                                       36
<PAGE>





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.

                  Cary V. Sorensen is 51 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.

                  Mark A. Ruth is 41 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 44 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.

                  Elizabeth A. Wendelken is 61 years old. Mrs. Wendelken
attended Brooklyn College in Brooklyn, New York from 1964 to 1968. She is a
Certified Legal Assistant. From 1964 to 1980 she was a legal assistant to Eugene
Frederick Roth, Esq., eight years of which were served in the Office of the
United States Attorney for the Southern District of New York (Criminal
Division). From 1980 to 1984, she worked as a tax shelter specialist in the New
York offices of Allegheny & Western Energy Corporation whose headquarters are
located in Charleston, West Virginia. From 1990 to 1996 she was a paralegal at
the law firm of Lockett,


                                       37
<PAGE>



Slovis & Weaver in Knoxville, Tennessee. She joined the Company in June 1996 and
on December 4, 1996 was elected as the Company's Secretary.




Committees

                  The Company has operating audit and compensation committees.
Messrs. Sweeney, Armstrong and Morita comprise the audit committee and Messrs.
Sweeney, Ratliff and Morita are the members of the compensation committee.



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;

                  (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


                                       38
<PAGE>



                  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, 1999, December 31, 1998 and December 31, 1997.
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>

                                        Annual Compensation
Name and                             Year            Salary ($)     Bonus ($)
Principal Position
-------------------------------------------------------------------------------
<S>                                  <C>             <C>            <C>
Malcolm E. Ratliff,                  1999            $ 60,000       $-0-
Chief Executive Officer              1998            $ 60,000       $-0-
                                     1997            $ 9,731        $-0-

James E. Kaiser,                     1999            $-0-           $-0-
Chief Executive Officer and          1998            $-0-           $-0-
General Counsel                      1997            $ 6,154        $-0-
-------------------------------------------------------------------------------

<CAPTION>
                                                             --------Long Term Awards--------
                                                             --------Awards-----Payouts
Name and                              Other Annual    Restricted     Securities      Payouts         All Other
Principal Position                    Compensation    Stock          Underlying                      Compen-
                                      ($)             Awards($)      Options                         sation
                                                                     /SARs(#)
---------------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>           <C>              <C>             <C>
Malcolm E. Ratliff,                   $500            -0-            50,000          -0-             -0-
Chief Executive Officer               $500            -0-            -0-             -0-             -0-
                                      $500            -0-            -0-             -0-             -0-

James E. Kaiser,                      $-0-            -0-            -0-             -0-             -0-
Chief Executive Officer and           $-0-            -0-            -0-             -0-             -0-
General Counsel                       $-0-            -0-            -0-             -0-             -0-
---------------------------------------------------------------------------------------------------------------
</TABLE>




                                       40
<PAGE>



                                         OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                 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 1998
--------------------------------------------------------------------------------------------------------
<S>                       <C>                      <C>                     <C>             <C>
Malcolm E.                      50,000                      100%           $7.00           6/17/00
Ratliff
=========================================================================================================
</TABLE>




                   AGGREGATE OPTION EXERCISES FOR FISCAL 1999
                           AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>

                                                           ======================================================
                                                            Number of Securities         Value(1) of Unexercised
                                                            Underlying Unexercised      In-the-Money
                                                            Options/SARs at             Options/SARs at
                                                            December 31, 1999           December 31, 1999
         Name              Shares Acquired   Value ($)             Exercisable/                Exercisable/
                             on Exercise     Realized(2)           Unexercisable               Unexercisable
=================================================================================================================
<S>                        <C>              <C>             <C>                         <C>
Malcolm E. Ratliff               -0-              -0-                50,000-0-                 $ 531,125/-0-
=================================================================================================================
</TABLE>


                  No options were exercised during fiscal year ended December
31, 1999 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.

--------
     (1) Total value of unexercised options is based upon the fair market value
of the Common Stock, $10.625 on December 31, 1999, 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>


Compensation of Directors

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

           Members of the Board of Directors may also be requested to perform
consulting or other professional services for the Company from time to time. The
Board of Directors 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 employment contracts with its
Vice-President and General Counsel, Cary V. Sorensen for a period of two years
at an annual salary of $80,000 and its Vice- President-Finance, Harold G.
Morris, Jr. for a period of one year at an annual salary of $65,000. 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 February 23, 2000 with these computations
being based upon 8,727,897 shares of common stock being outstanding and assumes
the exercise of 850,000 shares vested under options granted by the Company as of
February 23, 2000.


                                       42
<PAGE>



                            Five Percent Stockholders
<TABLE>
<CAPTION>

                                                              Number of Shares                            Percent  of
Name and Address                    Title                     Beneficially Owned                          Class
----------------                    -----                     ------------------                          -----
<S>                                 <C>                       <C>                                         <C>
Industrial Resources                Stockholder               3,014,559(3)                                34.3%
Corporation
603 Main Ave.
Knoxville, TN 37902

Spoonbill, Inc.                     Stockholder               715,524                                     8.2%
Tung Wai Commercial Bldg.
20th Floor
109-111 Gloucester Rd.
Wanchai, Hong Kong
</TABLE>

<TABLE>
<CAPTION>
                                                     Number of Shares           Percent
Name and Address                    Title            Beneficially Owned         of Class
----------------                    -----            ------------------         --------
<S>                                <C>               <C>                        <C>
Joseph Earl Armstrong              Director          50,000(4)                  Less than 1%
2624 Selma Avenue
Knoxville, TN 37914

Benton L. Becker                   Director          93,822(5)                  1.1%
1497 Lacosta Drive East
Pembrook Pines, FL 33027
</TABLE>

--------
     (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 2,402,372 shares owned
directly by IRC, 62,853 shares owned directly and an option to purchase 50,000
shares held by Malcolm E. Ratliff, 469,334 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 shares underlying an option.

     (5) Consists of 43,822 shares owned directly and an option to purchase
50,000 shares.


                                       43
<PAGE>


<TABLE>
<S>                                 <C>                      <C>                <C>
John A. Clendening                  Director                   67,000(6)         Less than 1%
1031 Saint Johns Drive
Maryville, TN 37801

Neal F. Harding                     Director                   417,881(7)        4.6%
2155 So. Ocean Blvd., #PH20
Delray Beach, Florida 33843

John L. Kidde                       Director                    59,000(8)        Less than 1%
154 Old Chester Road
Essex Falls, NJ 07021

Shigemi Morita                      Director                   235,141(9)        2.7%
35 Park Avenue
New York, N.Y. 10016


Malcolm E. Ratliff                  Chief Executive          3,014,559(10)       34.3%
12608 Avallon Place                 Officer; Chairman
Knoxville, TN 37922                 of the Board
</TABLE>

--------
     (6) Consists of 17,000 shares held directly and an option to purchase
50,000 shares.

     (7) Consists of 67,881 shares owned directly and options to purchase
350,000 shares. He also owns 10,985 shares of the Company's Series A 8%
Cumulative Convertible Preferred Stock.

     (8) Consists of 9,000 shares held directly and an option to purchase 50,000
shares.

     (9) Consists of 105,741 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 2,402,372 shares owned
directly by IRC, 62,853 shares owned directly and an option to purchase 50,000
shares held by Malcolm E. Ratliff, 469,334 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>


<TABLE>
<S>                                 <C>                      <C>                        <C>
Allen H. Sweeney                    Director                  95,625(11)                1.1%
1400 Oak Tree Drive
Edmund, OK 73003

Terry W. Piesker                    President                 25,000(12)                Less than 1%
7531 Turnbrook Way
Knoxville, TN 37919

Robert M. Carter                    President                 32,329(13)                Less than 1%
760 Prince Georges Parish           Tengasco
Knoxville, TN 37922                 Pipeline Corporation

Harold G. Morris, Jr.               Vice-President            29,000(14)                Less than 1%
153 Chuniloti Way                   Finance
Loudon, TN 37774



Cary V. Sorensen                    Vice-President            50,000(15)                Less than 1%
509 Bretton Woods Dr.               and General Counsel
Knoxville, TN 37919

Mark A. Ruth                        Chief Financial           25,000(16)                Less than 1%
104-D Cynthia Lane                  Officer
Knoxville, TN 37922

Sheila F. Sloan                     Treasurer                  2,000                    Less than 1%
121 Oostanali Way
Loudon, TN 37774

Elizabeth Wendelken                 Secretary                  1,000                    Less than 1%
</TABLE>

--------
     (11) Consists of 45,625 shares held indirectly through a company which he
controls and options to purchase 50,000 shares.

     (12) Consists of shares underlying an option.

     (13) Consists of 7,329 shares held directly and options to purchase 25,000
shares.

     (14) Consists of 4,000 shares held directly and an option to purchase
25,000 shares.

     (15) Consists of shares underlying an option.

     (16) Consists of shares underlying an option.



                                       45
<PAGE>


<TABLE>
<S>                                                  <C>                                <C>
8023 Stanley Road
Powell, TN 37849

All Officers and                                     4,197,357(17)                      43.8%
Directors as a group
</TABLE>


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.

                  During 1997, the Company converted $333,719 of debt payable to
IRC to 59,328 shares of common stock, $12,398 of debt payable to Malcolm E.
Ratliff to 2,204 shares of common stock and $138,105 of debt payable to
Tracmark, Inc. to 24,552 shares of common stock. Those obligations arose from
loans to the Company by IRC, Malcolm E. Ratliff and Tracmark, Inc.

                  During 1997 the Company borrowed the sum of $1,000,000 from an
individual, Neal Harding, who is now a Director of the Company. The loan from
Mr. Harding was used primarily for pipeline construction. Repayment of the loan
from Mr. Harding was guaranteed by IRC, which also granted an option to Mr.
Harding to purchase 300,000 shares of stock of the Company it owned at a price
of $10 per share. One-half of that loan was repaid in January 1998 from existing
cash and the balance was paid in October 1998 by paying Mr. Harding $250,680.56
in cash and issuing to him 2,950 shares of the Company's Series A Shares.

--------
     (17) 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 850,000 shares underlying options.


                                       46
<PAGE>



                  In 1997 and 1998, the Company issued fully paid 25% working
interests in six wells in the Swan Creek Field to Shigemi Morita, one of the
Directors of the Company, for the aggregate amount of $750,000 which were paid
for in part by crediting Mr. Morita $360,000 for placement fees in connection
with private placements of the Company's common stock which occurred during the
fourth quarter of 1997 and the first quarter of 1998 and the balance of $390,000
was paid in cash. Mr. Morita was given an option that if it was determined that
a well(s) at the time of completion of the drilling was not economically
feasible and as such was subsequently plugged and abandoned, he had 30 days,
after written notice from the Company, to convert amounts paid for that well(s)
to restricted shares of the Company's common stock at 70% of its then current
market value. However, all six of the wells in which Mr. Morita has a
participation interest are producing, therefore his options for these wells are
not exercisable.

                  In 1998, the Company paid Mr. Morita an additional $141,000 in
commissions for private placements of stock.

                  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 to Malcolm E. 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


                                       47
<PAGE>


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 and the 370,000 shares of the Company's stock in
the name of Ratliff Farms, Inc. being held in escrow were transferred back to
Ratliff Farms, Inc. which presently owns 469,334 shares of the Company's common
stock. Malcolm E. Ratliff has voting control over those shares. The agreement
with AM Partners is for a one year period commencing October 1, 1999. Pursuant
to the agreement AM Partners is to provide services in connection with investor
relations, press releases, corporate reorganizations and financing. The Company
is to pay AM Partners $5,000 per month commencing October 1, 1999. 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.

                  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 existing
production. More recently in January and March 2000, Morita Properties. Inc.
purchased on a turnkey basis a 12.5% working interest in the Stephen Lawson #3
well, a 25% working interest in the Laura Jean Lawson #2 well and a 25% working
interest in the R.D. Helton #2 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 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.


                                       48
<PAGE>



                  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 2,402,372 shares of the Company's
common stock.

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.




                                       49
<PAGE>


PART IV

ITEM 13  EXHIBITS AND REPORTS ON FORM 8-K.

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

2.  Financial Statement Schedules:

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

Schedule X - Supplementary Income Statement Information

3.  Exhibits.

(a) - The following documents heretofore filed by the Company with the
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


                                       50

<PAGE>


         10.1(c)           General Bill of Sale and Promissory Note
         10.2(a)           Compensation Agreement - M. E. Ratliff
         10.2(b)           Compensation Agreement - Jeffrey D. Jenson
         10.2(c)           Compensation Agreement - Leonard W. Burningham
         10.3              Agreement with The Natural Gas Utility District of
                           Hawkins County, Tennessee
         10.4              Agreement with Powell Valley Electric Cooperative,
                           Inc.
         10.5              Agreement with Enserch Energy Services, Inc.
         16.1              Letter of David T. Thomson, CPA, Regarding Change in
                           Certifying Accountant
         16.2              Letter of Charles M. Stivers, CPA, Regarding Change
                           in Certifying Accountant
         16.3              Letter of Price-Bednar, LLP, CPA, Regarding Change in
                           Certifying Accountant
         23.1              Consent of Charles M. Stivers, CPA
         23.2              Consent of David T. Thomson, CPA
         23.3              Consent of BDO Seidman, LLP
         23.4              Consent of Robson & Miller, LLP
         99.1              Beech Creek Lease Schedule
         99.2              Wildcat Lease Schedule
         99.3              Burning Springs Lease Schedule
         99.4              Fentress County Lease Schedule
         99.5              Swan Creek Lease Schedule
         99.6              Alabama Lease Schedule
         99.7              Coburn Engineering Report dated June 18, 1997.


(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.



                                       51
<PAGE>



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

Exhibit Number and Description

                           Financial Statements of Business Acquired (AFG
                           Energy, Inc.)

                           Independent auditor's report, statement of revenues
                           and direct operating expenses and notes to financial
                           statements of the properties acquired by Tengasco,
                           Inc. from AFG Energy, Inc.

                           Pro Forma Financial Information

                           Pro forma combined statements of loss for year ended
                           December 31, 1997 for Tengasco, Inc. from AFG Energy,
                           Inc.

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

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

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

Exhibit Number and Description

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

                                       52

<PAGE>



                           on Form SE pursuant to continuing hardship granted by
                           Office of EDGAR Policy)

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

Exhibit Number and Description

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


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

Exhibit Number and Description

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

The following exhibits are filed herewith:

         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)


         21                List of Subsidiaries



<PAGE>


                                   SIGNATURES

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


                                              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.

Signature                             Title                      Date


s/Malcolm E.  Ratliff         Chief Executive Officer;           April 10, 2000
---------------------         Chairman of the Board
Malcolm E. Ratliff            Of Directors


s/Joseph Earl Armstrong       Director                           April 10, 2000
-------------------
Joseph Earl Armstrong

s/Benton L. Becker            Director                           April 10, 2000
-------------------
Benton L. Becker

s/John A. Clendening          Director                           April 10, 2000
-------------------
John A. Clendening



<PAGE>



s/Neal F. Harding             Director                           April 10, 2000
-------------------
Neal F. Harding

s/John L. Kidde               Director                           April 12, 2000
----------------------
John L. Kidde

s/Shigemi Morita              Director                           April 10, 2000
----------------------
Shigemi Morita

s/Allen H. Sweeney            Director                           April 12, 2000
-------------------
Allen H. Sweeney

s/Terry W. Piesker            President                          April 10, 2000
----------------------
Terry W. Piesker

s/Mark A. Ruth                Principal Financial                April 10, 2000
----------------------        and Accounting Officer
Mark A. Ruth


                                       55

<PAGE>




                                                   Tengasco, Inc.




                                              Consolidated Financial Statements
                                         Years Ended December 31, 1999 and 1998




<PAGE>


                                                                  Tengasco, Inc.

                                                                        Contents

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


            Report of Independent Certified Public Accountants            F-2


            Consolidated Financial Statements

               Balance sheets                                         F-3-F-4

               Statements of loss                                         F-5

               Statements of stockholders' equity                         F-6

               Statements of cash flows                               F-7-F-8

               Notes to financial statements                         F-9-F-31



<PAGE>


Report of Independent Certified Public Accountants

Board of Directors
  Tengasco, Inc.
Knoxville, Tennessee

We have audited the accompanying consolidated balance sheets of Tengasco, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of loss, stockholders' equity and cash flows for each of the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the years then ended in conformity with
generally accepted accounting principles.

                                                /s/ BDO Seidman, LLP

Atlanta, Georgia
February 18, 2000



                                                                             F-2
<PAGE>


                                                                  Tengasco, Inc.

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


December 31,                                                 1999           1998
--------------------------------------------------------------------------------

Assets (Notes 7 and 8)

Current

  Cash and cash equivalents                          $    420,590  $     913,194
  Accounts receivable                                     533,983        147,050
  Inventory                                               259,753        100,298
--------------------------------------------------------------------------------

Total current assets                                    1,214,326      1,160,542

Oil and gas properties, net (on the basis
  of full cost accounting) (Note 4)                     8,444,036      7,747,655

Pipeline facilities under construction, at cost
  (Note 5)                                              4,212,842      4,019,209

Other property and equipment, net (Note 6)                574,895        461,009

Restricted cash (Note 1)                                  625,000              -

Other                                                     111,613        137,362
--------------------------------------------------------------------------------







                                                      $15,182,712    $13,525,777
================================================================================
                    See accompanying notes to consolidated financial statements.


                                                                             F-3
<PAGE>


                                                                  Tengasco, Inc.

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

December 31,                                                1999           1998
-------------------------------------------------------------------------------

Liabilities and Stockholders' Equity

Current liabilities
  Due to AFG Energy, Inc. (Note 2)                  $          -  $     953,895
  Notes payable (Note 7)                                 750,000      1,000,000
  Loans payable to affiliates (Note 3)                         -        413,800
  Current maturities of long-term debt (Note 8)        1,025,085         89,135
  Accounts payable - trade                               651,909        351,567
  Accrued liabilities                                    193,595        281,360
-------------------------------------------------------------------------------

Total current liabilities                              2,620,589      3,089,757

Due to AFG Energy, Inc. (Note 2)                               -        976,207

Long term debt, less current maturities (Note 8)       3,119,293      2,214,723
-------------------------------------------------------------------------------

Total liabilities                                      5,739,882      6,280,687
-------------------------------------------------------------------------------

Preferred stock, $.0001 par value; authorized
25,000,000 shares:
  Series A 8% cumulative, convertible, mandatorily
redeemable; 19,889 and 8,000 shares outstanding;       1,988,900        800,000
redemption value $1,988,900 and $800,000
  Series B 8% cumulative, convertible, mandatorily
redeemable;                                                    -              -
   no shares outstanding
-------------------------------------------------------------------------------

Stockholders' equity (Notes 7 and 10)
  Common stock, $.001 par value; authorized
50,000,000 shares,                                         8,533          7,644
   issued and outstanding 8,532,882 and 7,644,212
  Common stock to be issued (Note 11)                          -        700,000
  Additional paid-in capital                          20,732,759     16,796,038
  Unamortized stock option awards                              -       (162,500)
  Deficit                                            (13,287,362)   (10,496,092)
-------------------------------------------------------------------------------
                                                       7,453,930      6,845,090
  Due from stockholder (Note 11)                               -       (400,000)
-------------------------------------------------------------------------------

Total stockholders' equity                             7,453,930      6,445,090
-------------------------------------------------------------------------------


                                                                             F-4
<PAGE>


                                                                  Tengasco, Inc.

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

                                                    $ 15,182,712    $ 13,525,777
--------------------------------------------------------------------------------
                    See accompanying notes to consolidated financial statements.


                                                                             F-5
<PAGE>


                                                                  Tengasco, Inc.

                                                Consolidated Statements of Loss
--------------------------------------------------------------------------------


Years ended December 31,                                    1999           1998
-------------------------------------------------------------------------------


Oil and gas revenues                                 $ 3,017,252    $ 2,078,101
-------------------------------------------------------------------------------

Costs and expenses
  Production costs and taxes                           2,564,932      1,943,944
  Depletion, depreciation and amortization               233,807        290,030
  General and administrative costs                     1,942,254      1,372,132
  Interest expense                                       417,497        574,906
  Public relations                                        86,061        342,803
  Legal and accounting                                   444,624        656,104
  Realized (gain) on sale of investments                       -        (18,180)
-------------------------------------------------------------------------------

Total costs and expenses                               5,689,175      5,161,739
-------------------------------------------------------------------------------

Net loss                                              (2,671,923)    (3,083,638)

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

Net loss available to common stockholders            $(2,791,270)   $(3,083,638)
-------------------------------------------------------------------------------

Net loss available to common stockholders per share
  Basis and diluted                                  $             $
                                                           (0.34)         (0.42)
-------------------------------------------------------------------------------

Weighted average shares outstanding                    8,149,900      7,348,632
-------------------------------------------------------------------------------
                    See accompanying notes to consolidated financial statements.


                                                                             F-6
<PAGE>


                                                                  Tengasco, Inc.

                                Consolidated Statements of Stockholders' Equity
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                    Unamortized
                                                 Common Stock               Common     Additional         stock
                                          ----------------------------       stock        paid-in        option
                                              Shares        Amount        issuable        capital        awards         Deficit
---------------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>             <C>           <C>           <C>              <C>         <C>
Balance, December 31, 1997                  7,029,835         $7,029    $             $13,470,446      $(63,540)   $ (7,412,454)
                                                                                -

   Net loss                                         -              -            -               -             -      (3,083,638)

   Common stock issued for exercised
              options                           2,250              2            -          15,748             -               -

   Stock  option awards and
       amortization, net                            -              -            -         325,000       (98,960)              -
                                                                                -
   Common stock issued for loan fee            25,000             25            -         127,975             -               -

   Common stock issued in private
      placements, net of related expense      578,111            579            -       2,860,518             -

   Common stock to be issued in
      private placement                             -              -      700,000               -             -               -

   Common stock issued for                      6,000              6            -          39,714             -               -
      compensation

   Stock issued for services                    3,016              3            -          20,637             -

   Other                                            -              -            -         (64,000)            -               -
---------------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                  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            -          41,214             -

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

   Other                                            -              -            -         (95,112)            -               -
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                             F-7
<PAGE>


                                                                  Tengasco, Inc.

                                Consolidated Statements of Stockholders' Equity
--------------------------------------------------------------------------------

<TABLE>
<S>                                       <C>             <C>           <C>           <C>              <C>         <C>
Balance, December 31, 1999                  8,532,882         $8,533    $       -     $20,732,759      $      -    $(13,287,362)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                    See accompanying notes to consolidated financial statements.

                                                                             F-8
<PAGE>


                                                                  Tengasco, Inc.

                                          Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------


Years ended December 31,                                     1999          1998
-------------------------------------------------------------------------------

Operating activities
  Net loss                                            $(2,671,923)  $(3,083,638)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Depletion, depreciation and amortization             233,807       290,030
     Compensation and services paid in stock options
and warrants and common stock                             204,500       286,400
     Interest expense paid by issuance of
      payable to affiliate                                      -       163,800
     Amortization of loan fees paid by issuance of
      common stock                                         32,000             -
     Amortization of deferred publicity costs                   -       240,000
     Changes in assets and liabilities:
      Accounts receivable                                (386,933)     (147,050)
      Inventory                                          (159,455)       39,955
      Accounts payable                                    300,342      (175,831)
      Accrued liabilities                                (107,341)       24,771
      Other                                                     -        32,238
-------------------------------------------------------------------------------

Net cash used in operating activities                  (2,555,003)   (2,329,325)
-------------------------------------------------------------------------------

Investing activities
  Additions to property and equipment                    (256,045)     (203,507)
  Net additions to oil and gas properties              (1,413,029)   (1,721,770)
  Proceeds on sale of oil and gas interests               625,000       205,000
  Additions to pipeline facilities under construction    (193,633)   (1,422,242)
  (Increase) decrease in restricted cash                 (625,000)            -
  Acquisition of certain assets of AFG Energy, Inc.             -    (2,990,253)
  Other                                                    (6,251)            -
-------------------------------------------------------------------------------

Net cash used in investing activities                  (1,868,958)   (6,132,772)
-------------------------------------------------------------------------------


                                                                             F-9
<PAGE>


                                                                  Tengasco, Inc.

                                          Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------

Years ended December 31,                                    1999           1998
--------------------------------------------------------------------------------

Financing activities
  Proceeds from exercise of options                       10,000         15,751
  Proceeds from borrowings                             2,119,023      3,021,555
  Repayments of borrowings                            (2,383,605)    (1,831,685)
  Net proceeds from issuance of common stock           2,771,722      3,557,396
  Proceeds from private placements of convertible
   redeemable preferred stock                          1,188,900        225,000
  Collection of due from stockholder                     400,000              -
  Payment of commissions on issuance of redeemable
   convertible preferred stock                           (95,112)       (64,000)
  Dividends on convertible redeemable preferred stock    (79,571)             -
--------------------------------------------------------------------------------

Net cash provided by financing activities              3,931,357      4,924,017
--------------------------------------------------------------------------------

Net change in cash and cash equivalents                 (492,604)    (3,538,080)

Cash and cash equivalents, beginning of year             913,194      4,451,274
--------------------------------------------------------------------------------

Cash and cash equivalents, end of year               $   420,590    $   913,194
================================================================================
                    See accompanying notes to consolidated financial statements.


                                                                            F-10
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

1.   Summary of             Organization
     Significant
     Accounting             Tengasco, Inc. (the "Company"), a publicly held
     Policies               corporation, was organized under the laws of the
                            State of Utah on April 18, 1916, as Gold Deposit
                            Mining and Milling Company. The Company subsequently
                            changed its name to Onasco Companies, Inc.

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

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

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

                            During 1996, the Company formed Tengasco Pipeline
                            Corporation, 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


                                                                            F-11
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            and Tennessee Land and Mineral, Inc. All significant
                            intercompany balances and transactions have been
                            eliminated.



                                                                            F-12
<PAGE>


                                                                  Tengasco, Inc.

                                     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 operating history as it endeavors to
                            expand its operations through the continuation of
                            its drilling program in the Swan Creek Field and the
                            extension of Phase II of its pipeline (see Note 5).
                            The Company anticipates that it will require
                            $6,000,000 to fund the completion of Phase II of the
                            pipeline and another $6,000,000 to fund the
                            development of the Swan Creek Field and other
                            working capital requirements. The Company plans to
                            fund these amounts from the proceeds from its
                            offering of equity securities, from the sale of oil
                            and gas interests and from other debt financing from
                            lenders.

                            Management believes that the Company will be able to
                            obtain the necessary financing to meet its
                            operational requirements during 2000, 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 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 generally accepted accounting
                            principles 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-13
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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



                                                                            F-14
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            Significant Risks and Uncertainties

                            The Company's operations are subject to all of the
                            environmental and operational risks normally
                            associated with the oil and gas industry. The
                            Company maintains insurance that is customary in the
                            industry; however, there are certain risks for which
                            the Company does not maintain full insurance
                            coverage. The occurrence of a significant event that
                            is not fully covered by insurance could have a
                            significant adverse effect on the Company's
                            financial position.

                            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.

                            Inventory

                            Inventory consists primarily of crude oil in tanks
                            and is carried at the lower of current market value
                            or cost.

                            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



                                                                            F-15
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            reserves. Proceeds from all other sales or
                            dispositions are treated as reductions to
                            capitalized costs.



                                                                            F-16
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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 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.

                            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 1999
                            or 1998.

                            Pipeline Facilities Under Construction

                            Pipeline facilities under construction are carried
                            at cost. The Company will provide for depreciation
                            of Phase II of the pipeline facilities using the
                            straight-line method over the estimated useful life
                            of the asset once this section of the pipeline is
                            completed and placed in service. Phase II is
                            expected to be completed by December 31, 2000.



                                                                            F-17
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            Accordingly, no depreciation expense has been
                            recorded for 1999 and 1998 relating to Phase II of
                            the pipeline facilities.



                                                                            F-18
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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


                            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 seven years.

                            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 exceeds the federally insured limit by
                            approximately $1 million.

                            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.

                            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



                                                                            F-19
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            dilutive potential common shares that were
                            outstanding during the period. Basic and diluted
                            loss per share are based upon 8,149,900 shares for
                            the year ended December 31, 1999 and 7,348,632
                            shares for the year ended December 31, 1998. There
                            were 732,967 and 475,827 potential weighted common
                            shares outstanding during 1999 and 1998 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.

                            Derivatives

                            In 1998, the Company traded in derivative financial
                            instruments for speculative purposes. Derivative
                            financial instrument contracts entered into are
                            comprised of natural gas future and option
                            contracts. No trades occurred during 1999, and at
                            December 31, 1999, there were no open positions in
                            any derivative contracts. Net trading gains of $0
                            and $18,180 are included in the accompanying
                            Statements of Loss for the years ended December 31,
                            1999 and 1998, respectively.

                            New Accounting Pronouncements

                            SOP 98-5, "Reporting on the Costs of Start-Up
                            Activities" requires that the costs of start-up
                            activities, including organization costs, be
                            expensed as incurred. This statement is effective
                            for financial statements issued for fiscal years
                            beginning after December 15, 1998. The adoption of
                            SOP 98-5 had no material effect on the Company's
                            financial statements.

                            SFAS No. 133, "Accounting for Derivative Instruments



                                                                            F-20
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            and Hedging Activities," as amended, 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 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.

                            Reclassifications

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

2.   Business               On December 18, 1997, the Company entered into an
     Acquisition            asset purchase  agreement in which certain producing
                            oil and gas properties and inventory located in the
                            state of Kansas ("the Kansas Properties") were
                            acquired from AFG Energy, Inc. ("AFG"). The
                            agreement, which was effective as of December 31,
                            1997, closed on March 5, 1998, whereby the Company
                            paid $2,990,253 in cash and entered into a note
                            payable agreement with AFG in the amount of
                            $2,500,000. The note accrued interest at 9.5% per
                            annum for the period December 1998 to May 1999.
                            After May 1999, the interest rate became 9.0% per
                            annum. Monthly interest-only payments were due from
                            December 1998 to May 1999. Monthly installments of
                            principal and interest of $138,349 were due from
                            June 1999 to December 1999 with a balloon payment of
                            $983,773 due in January 2000. On December 1, 1999,
                            this note was paid in full from the proceeds of a
                            new payable (See Note 8). The acquisition has been
                            accounted for as a purchase and, accordingly, the



                                                                            F-21
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            purchase price of $5,490,253 has been allocated to
                            the assets acquired.

3.   Related Party          In December 1999, the Company sold for aggregate
     Transactions           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 for a loan
                            made to the Company into 54,000 shares of common
                            stock. In addition, the Company converted $163,800
                            of non-interest bearing accounts payable to this
                            office/stockholder into 16,800 shares of common
                            stock.



                                                                            F-22
<PAGE>


                                                                  Tengasco, Inc.

                                     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.

                            During 1998, the Company sold for aggregate
                            consideration of $500,000 (consisting of $205,000
                            cash and $295,000 in reduction in commissions
                            payable) a 25% working interest in four wells,
                            located in the Swan Creek Field, to a related party
                            company affiliated with a member of the Board of
                            Directors.

                            During 1998, the Company incurred an aggregate of
                            approximately $141,000 of commissions on private
                            placements payable to two members of the Board of
                            Directors.

4.   Oil and Gas            The following table sets forth information
     Properties             Properties concerning the Company's oil and gas
                            properties:

                            December 31,                      1999         1998
                            ----------------------------------------------------

                            Evaluated                   $8,752,327   $7,846,793
                            Unevaluated                          -      117,508
                            ----------------------------------------------------
                                                         8,752,327    7,964,301

                            Accumulation depreciation,    (308,291)    (216,646)
                               depletion and
                               amortization

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

                                                        $8,444,036   $7,747,655
                            ====================================================

5.   Pipeline Facilities    In 1996, the Company began construction of a 51-mile
     Under Construction     gas pipeline which will (1) connect the Swan Creek
                            development project to a gas purchaser and (2)
                            enable the Company to develop gas transmission
                            business opportunities in the future. Phase I, a 23
                            mile portion of the pipeline, was completed in 1998.



                                                                            F-23
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            As of December 31, 1999, management estimates the
                            costs to complete Phase II of the pipeline are
                            approximately $6.0 million.



                                                                            F-24
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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 plus 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.

6.   Other Property         Other  property  and  equipment   consisted  of  the
     and Equipment          following:

                            December 31,                       1999        1998
                            ----------------------------------------------------

                            Machinery and equipment        $605,069    $337,070
                            Vehicles                        377,208     356,336
                            Other                            63,735     118,593
                            ----------------------------------------------------

                                                          1,046,012     811,999

                            Less accumulated depreciation  (471,117)   (350,990)
                            ----------------------------------------------------

                            Other property and equipment   $574,895     461,009
                            - net
                            ====================================================

7.   Notes Payable          Notes payable consisted of the following:

                            December 31,                    1999          1998
                            ----------------------------------------------------

                            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    $500,000     $ 500,000
                            the Company (A), (C).

                            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 (A),
                            (C).                          250,000       250,000

                            Note payable, in default,
                            to an



                                                                            F-25
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            individual due April 1997
                            with interest payable
                            monthly at 10% per annum;
                            collateralized by all
                            assets of the Company (A),
                            (B).                                -       250,000
                            ----------------------------------------------------

                                                         $750,000    $1,000,000
                            ====================================================
                            In conjunction with the issuance of each of the
                            notes payable listed above, the Company granted the
                            lenders detachable stock warrants which enable the
                            holder to obtain up to 200,000 shares of the
                            Company's common stock at a price of $5 per share.

                            (A) 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 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 in (B)
                            and (C) below.

                            (B) In March 1997, the individual note holder filed
                            a lawsuit asserting the Company was in default of
                            the $250,000 note. This action sought the principal
                            amount, interest, and costs of collection. In March
                            1999, the parties agreed to a settlement whereby the
                            Company paid the individual lender approximately
                            $286,000 of principal and accrued interest as
                            payment in full for this note. As part of the
                            settlement, 50,000 warrants to purchase common stock
                            of the Company that this individual lender held were
                            deemed null and void and unenforceable.

                            (C) In January 2000, the respective partners agreed
                            to settle the disputes. As part of settlement
                            agreements signed in January 2000, the Company
                            agreed to pay an aggregate of approximately $865,000
                            of principal and accrued interest as payment in full
                            for the remaining notes outstanding as of December
                            31, 1999. The above-mentioned warrants were deemed
                            null and void and unenforceable



                                                                            F-26
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

8.   Long Term Debt         Long-term debt consisted of the following:

                            December 31,                      1999          1998
                            ----------------------------------------------------

                            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% (9.5% at December
                            31, 1999) per annum. The
                            note is guaranteed by a
                            major share-holder and is
                            collatalized by
                            substantially all of the     $1,828,327  $        -
                            Company's assets.

                            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    1,425,000   1,500,000
                            per share of common stock.

                            Note payable to an
                            individual; 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      500,000     500,000
                            common stock.



                                                                            F-27
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            Thirteen individual
                            vehicle and equipment
                            notes having interest at
                            the rate of 8% to 12% per
                            annum collateralized by
                            vehicles and equipment
                            with monthly payments
                            including interest of $385
                            to $2,941 due 2000 to          391,051      303,858
                            2003, collateralized by
                            vehicles and equipment.
                            ----------------------------------------------------

                            Total long term debt         4,144,378    2,303,858
                            Less current maturities     (1,025,085)     (89,135)
                            ----------------------------------------------------

                            Long term debt, less
                              current maturities       $ 3,119,293   $2,214,723
                            ====================================================

                            The aggregate maturities of long term debt as of
                            January 1, 2000, are as follows:

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

                                  2000                               $1,025,085
                                  2001                                1,561,105
                                  2002                                  926,848
                                  2003                                  620,280
                                  2004                                   11,060
                            ----------------------------------------------------

                                                                     $4,144,378
                            ====================================================


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



                                                                            F-28
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            As of December 31, 1999, the approximate future
                            minimum payments to be made under noncancellable
                            operating leases were:

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

                                  2000                                 $  98,000
                                  2001                                    17,000
                                  2002                                    15,000
                                  2003                                    10,000
                                  2004                                     3,000
                            ----------------------------------------------------

                                                                        $143,000
                            ====================================================

                            Rent expense was approximately $35,000 and $50,000
                            for the years ended December 31, 1999 and 1998,
                            respectively.

10.  Convertible            In October 1998, the Company's Board of Directors
     Redeemable             authorized the issuance of 250,000 shares of its
     Preferred Stock        Series A Convertible Redeemable Preferred Stock
                            ("Series A Preferred Stock") and subsequently the
                            Company completed the issuance of 5,750 shares of
                            its Series A Preferred Stock to extinguish $575,000
                            of notes payable. The Company paid $46,000 on
                            commissions on the placement of the 5,750 shares of
                            Series A Preferred Stock. The Company issued an
                            additional 2,250 shares of Series A Preferred Stock
                            in December 1998 for approximately $225,000 which
                            netted the Company $207,000 after commissions.

                            In 1999 the Company issued 11,889 shares of Series A
                            Preferred Stock for $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.

                            The holders of both the Series A and Series B
                            Preferred



                                                                            F-29
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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.

                            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.

11.  Common Stock to be     In 1998, an institution  purchased 140,000 shares of
     Issued and Due from    common stock for $700,000. As of December 31, 1998,
     Stockholder            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 is 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.



                                                                            F-30
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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



                                                                            F-31
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

12.  Stock Options       Stock option activity in 1999 and 1998 is summarized
                         below:

                                                1999                1998
                                          -----------------   -----------------
                                                    Average             Average
                                                   Exercise            Exercise
                                           Shares     Price    Shares     Price
                         -------------------------------------------------------

                         Outstanding,
                           beginning
                            of year        375,000     $5.80   460,000     $5.31
                         Granted           475,000      6.90   150,000      6.50
                         Exercised         (20,000)     5.00    (2,250)     7.00
                         Expired/canceled (325,000)     5.66  (232,750)     5.00

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

                         Outstanding,
                           end of year    505,000      6.91   375,000      5.80

                         Exercisable,
                           end of year    252,083      5.50   325,000      5.62
                         ======================================================

                         The following table summarizes information about stock
                         options outstanding at December 31, 1999:

                                                Options              Options
                                              Outstanding            Exercisable
                                      ------------------------------ ----------
                                                             Average
                                                           Remaining
                                      Exercise           Contractual
                                         Price    Shares        Life   Shares
                                                             (years)
                         ------------------------------------------- ----------

                                         $6.25    50,000      1.50     12,500
                                          7.00   455,000      0.67    239,583
                                                ----------           ----------

                         Total                   505,000              252,083
                         ======================================================

                         The amount of compensation expense included in general
                         and administrative costs in the accompanying
                         consolidated statements of loss was approximately



                                                                            F-32
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            $162,500 and $226,000 for the years ended December
                            31, 1999 and 1998, respectively.



                                                                            F-33
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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:

                                                            1999           1998
                            ----------------------------------------------------

                            Net loss

                               As reported           $(2,671,923)   $(3,083,638)
                               Pro forma              (3,410,048)    (3,356,411)
                            ----------------------------------------------------

                            Basic and diluted loss
                            per share
                               As reported                $(0.32)        $(0.42)
                               Pro forma                   (0.41)         (0.46)
                            ----------------------------------------------------

                            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
                            1999 and 1998: Expected volatility of 106% for 1999
                            and 87% for 1998; a risk free interest rate of 6.17%
                            in 1999 and 6.50% in 1998; and an expected option
                            life of 1.1 year in 1999 and 1.50 years in 1998.

13.  Income Taxes           The Company had no taxable  income  during the years
                            ended December 31, 1999 and 1998.



                                                                            F-34
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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:

                            Year ended December 31,          1999          1998
                            ----------------------------------------------------

                            Statutory rate                     34%           34%
                            Tax benefit at statutory
                              rate                      $(945,000)  $(1,048,000)
                            State income tax benefit     (167,000)     (185,000)
                            Nondeductible interest              -       100,000
                              expense
                            Nondeductible travel and
                              entertainment                19,000        10,000
                            Nondeductible compensation
                              expense                      62,000             -
                            Other                         199,000        18,000
                            Increase in deferred tax
                              asset valuation allowance   832,000     1,105,000
                            ----------------------------------------------------

                            Total income tax provision  $       -   $          -
                            ====================================================

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

                            Year ended December 31,            1999        1998
                            ----------------------------------------------------

                            Net operating loss          $ 4,344,000  $ 3,546,000
                            carryforward
                            Capital loss carryforward       263,000     263,000
                            Employee stock option tax
                              benefits                      124,000           -
                            Accrued expenses                      -      90,000
                            ----------------------------------------------------

                                                          4,731,000   3,899,000

                            Valuation allowance          (4,731,000) (3,899,000)
                            ----------------------------------------------------

                            Net deferred taxes          $         - $         -
                            ====================================================

                            The Company recorded a valuation allowance at
                            December 31, 1999 and 1998 equal to the excess of
                            deferred tax assets over deferred tax liabilities as



                                                                            F-35
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            management is unable to determine that these tax
                            benefits are more likely than not to be realized.

                            As of December 31, 1999, the Company had net
                            operating loss carryforwards of approximately
                            $11,433,000, which will expire between 2010 and
                            2014, if not utilized.
                            Additionally, at December 31, 1999, 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.

14.  Supplemental Cash      The  Company paid approximately $479,000 and
     Flow Information       $328,000 for interest in 1999 and 1998,
                            respectively. The Company paid $0 for income taxes
                            in 1999 and 1998.

                            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 1999, the Company issued 9,768 shares of common
                            stock as consideration for approximately $41,000 of
                            services, which approximated the fair value of the
                            common stock.

                            In 1999, the lender of the original balance
                            $1,500,000 note payable sold $75,000 of this note to
                            other holders. These holder then converted the notes
                            into common stock at the rate of $6.25 per share.

                            In 1998, the Company paid for commissions on certain
                            private placements of common stock by granting to a
                            Board member oil and gas properties recorded at an
                            aggregate historical cost of $295,000.

                            In 1998, the Company issued 25,000 shares of common
                            stock with a fair value of approximately $128,000 to
                            an institutional lender as a loan fee.

                            In 1998, the Company issued 5,750 shares of



                                                                            F-36
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            redeemable, convertible preferred stock to
                            extinguish approximately $575,000 of debt, which
                            approximated the fair value of the shares.

                            In 1998, the Company issued a payable to the major
                            stockholder in the amount of $163,800 as payment for
                            that stockholder's payment of interest expense in
                            the same amount on behalf of the Company. The
                            Company converted the payable into common stock in
                            1999 at an amount that approximated the fair value
                            of the shares.



                                                                            F-37
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

15.  Supplemental Oil and  Information with respect to the Company's oil and
     Gas Information       gas producing activities is presented in the
                           following tables. Estimates of reserve quantities,
                           as well as future production and discounted cash
                           flows before income taxes, were determined by both
                           Coburn Petroleum Engineering and Columbia
                           Engineering, independent petroleum engineers, as of
                           December 31, 1999 and 1998.

                           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, 1999 and 1998:

                                                              1999         1998
                           -----------------------------------------------------

                           Property acquisition
                             Proved                    $    13,921  $    74,613
                             Unproved                       17,265       46,631
                           Less - proceeds from sales
                             of properties                (625,000)    (565,000)
                           Development costs             1,110,288    1,935,509
                           -----------------------------------------------------
                                                       $   516,474  $ 1,491,753
                           =====================================================

                           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:

                           December 31,                       1999         1998
                           -----------------------------------------------------

                           Revenues                    $ 3,017,252  $ 2,078,101
                           Production costs and taxes   (2,564,932)  (1,943,944)
                           Depreciation, depletion and
                              amortization                 (92,000)    (189,227)
                           -----------------------------------------------------

                           Income (loss) before income     360,320      (55,070)



                                                                            F-38
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            taxes
                            Income taxes                           -          -
                            ----------------------------------------------------

                            Income (loss) from oil and
                               gas producing activities    $ 360,320  $ (55,070)
                            ====================================================



                                                                            F-39
<PAGE>


                                                                  Tengasco, Inc.

                                     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, 1999 and
                            1998 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.

                                                           Oil (bbls)  Gas (Mcf)
                            ----------------------------------------------------

                            Proved reserves

                              Balance, December 31, 1997  2,082,513  20,617,621
                               Discoveries and extensions   480,168  23,046,923
                               Revisions of previous
                                 estimates                 (787,982)  2,930,005
                               Production                  (150,077)   (418,524)
                            ----------------------------------------------------

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

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

                            Proved developed producing
                              reserves at, December 31,
                              1998 (as restated)            715,680   2,647,198
                            ====================================================



                                                                            F-40
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            Of the Company's total proved reserves as of
                            December 31, 1999 and 1998, approximately 13% and
                            12%, respectively, were classified as proved
                            developed producing, 35% and 38%, respectively, were
                            classified as proved developed non-producing and 52%
                            and 50%, respectively, were classified as proved
                            undeveloped. All of the Company's reserves are
                            located in the continental United States.

                            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:

                                                            amounts in thousands
                            December 31,                       1999        1998
                            ----------------------------------------------------

                            Future cash inflows            $252,270    $101,351
                            Future production costs and
                            taxes                           (30,598)    (13,625)
                            Future development costs         (5,634)     (5,024)
                            Future income tax expenses      (55,090)    (17,495)
                            ----------------------------------------------------

                            Net future cash flows           160,948      65,207

                            Discount at 10% for timing      (60,066)    (22,231)
                            of cash flows
                            ----------------------------------------------------

                            Discounted future net cash
                            flows from proved reserves     $100,882   $  42,976
                            ====================================================



                                                                            F-41
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            The following table sets forth the changes in the
                            standardized measure of discounted future net cash
                            flows from proved reserves during 1999 and 1998:

                                                            amounts in thousands
                                                               1999        1998
                            ----------------------------------------------------

                            Balance, beginning of year    $  42,976    $ 32,024
                            Sales, net of production
                              costs and taxes                  (452)       (134)
                            Discoveries and extensions       27,394      24,300
                            Changes in prices and
                              production costs               27,919     (10,136)
                            Revisions of quantity
                              estimates                      21,799      (1,793)
                            Changes in development costs      1,603      (2,411)
                            Interest factor - accretion       5,329       3,954
                            of discount
                            Net change in income taxes      (22,869)     (2,799)
                            Changes in future development
                              costs                          (2,817)          -
                            Changes in production rates
                              and other                           -         (29)
                            ----------------------------------------------------

                            Balance, end of year           $100,882    $ 42,976
                            ====================================================

                            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,
                            1999 and 1998 were $23.01 and $8.32 per barrel of
                            oil and $2.38 and $1.90 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



                                                                            F-42
<PAGE>


                                                                  Tengasco, Inc.

                                     Notes to Consolidated Financial Statements

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

                            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-43