U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                           COMMISSION FILE NO. 0-20975

                         TENGASCO, INC. AND SUBSIDIARIES


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


                 603 MAIN AVENUE, SUITE 500, KNOXVILLE, TN 37902
                 -----------------------------------------------
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


                                 (865-523-1124)
                                 --------------
                (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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


STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICABLE DATE: 11,444,779 COMMON SHARES AT OCTOBER
31, 2002.

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


                                       1
<PAGE>

                         TENGASCO, INC. AND SUBSIDIARIES

                                TABLE OF CONTENTS

PART I.         FINANCIAL INFORMATION                                       PAGE

        ITEM 1. FINANCIAL STATEMENTS
                *     CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
                      SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31,
                      2001................................................   3-4

                *     CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
                      THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER
                      30, 2002 AND 2001 (UNAUDITED).......................     5

                *     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                      FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
                      (UNAUDITED).........................................     6

                *     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
                      MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                      (UNAUDITED).........................................     7

                *     NOTES TO CONDENSED CONSOLIDATED FINANCIAL
                      STATEMENTS..........................................  8-12

                ITEM 2.      MANAGEMENT'S DISCUSSION AND
                               ANALYSIS OF FINANCIAL CONDITION
                                 AND RESULTS OF OPERATIONS................ 13-19

                ITEM 3.      QUANTITATIVE AND QUALITATIVE
                               DISCLOSURE ABOUT MARKET RISK............... 20-21

                ITEM 4.      CONTROLS AND PROCEDURES......................    22

PART II.                     OTHER INFORMATION

                ITEM 1.      LEGAL PROCEEDINGS............................ 23-24

                ITEM 2.      CHANGES IN SECURITIES AND USE OF
                               PROCEEDS...................................    24

                *            SIGNATURES...................................    25

                *            CERTIFICATIONS............................... 26-31


                                       2
<PAGE>

                         TENGASCO, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 September 30, 2002     December 31, 2001

                                                                   (UNAUDITED)
                                                              ---------------
<S>                                                           <C>                      <C>
Current Assets:
  Cash and cash equivalents                                   $       322,539          $      393,451
  Investments                                                          75,000                 150,000
  Accounts receivable, net                                            717,290                 661,475
  Participant receivable                                               69,622                  84,097
  Inventory                                                           159,364                 159,364
                                                              ---------------          --------------

Total current assets                                                1,343,815               1,448,387

Oil and gas properties, net (on the basis of full cost
  accounting)                                                      14,047,392              13,269,930

Completed pipeline facilities, net                                 15,397,420              15,039,762
Property and equipment, net                                         1,783,630               1,680,104
Restricted cash                                                             -                 120,872
Loan fees, net                                                        420,579                 496,577
Other                                                                  53,181                  72,613
                                                              ---------------          --------------

                                                              $    33,046,017          $   32,128,245
                                                              ===============          ==============
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       3
<PAGE>

                         TENGASCO, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                  September 30, 2002           December 31, 2001
                                                                      (Unaudited)
                                                                  ------------------
<S>                                                                   <C>                       <C>
Current liabilities
  Current maturities of long-term debt                                $     5,345,417           $      6,399,831
  Accounts payable-trade                                                    1,203,143                  1,208,164
  Accrued interest payable                                                     44,557                     54,138
  Accrued dividends payable                                                   134,194                    112,458
                                                                      ---------------           ----------------
Total current liabilities                                                   6,727,311                  7,774,591

Long term debt, less current maturities                                     4,464,560                  3,902,757
                                                                      ---------------           ----------------
Total long term debt                                                        4,464,560                  3,902,757
                                                                      ---------------           ----------------
Total liabilities                                                          11,191,871                 11,677,348
                                                                      ---------------           ----------------
Preferred Stock
   Cumulative convertible redeemable preferred; redemption
     value $7,072,000 and $5,622,900;
     70,720 and 56,229 shares outstanding; respectively                     6,762,218                  5,459,050
                                                                      ---------------           ----------------
Stockholders' Equity
  Common stock, $.001 par value, 50,000,000 shares
    authorized                                                                 11,460                     10,561
  Additional paid-in capital                                               42,237,276                 39,242,555
  Accumulated deficit                                                     (26,935,921)               (24,115,382)
  Accumulated other
      comprehensive loss                                                      (75,000)                         -
  Treasury stock, at cost                                                    (145,887)                  (145,887)
                                                                      ---------------           ----------------
Total stockholders' equity                                                 15,091,928                 14,991,847
                                                                      ---------------           ----------------
                                                                      $    33,046,017           $     32,128,245
                                                                      ===============           ================
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       4
<PAGE>

                         TENGASCO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                          For the Three Months Ended            For the Nine Months Ended
                                                                  September 30,                        September 30,
                                                        --------------------------------      -------------------------------
                                                             2002               2001              2002               2001
                                                        --------------     -------------      -------------    --------------
<S>                                                     <C>                <C>                <C>              <C>
Revenues and other income
       Oil and gas revenues                             $    1,450,133     $   2,306,279      $   3,859,050    $    5,550,640
       Pipeline transportation revenues                         56,088           127,479            197,333           194,504
       Interest income                                           1,087                 -              2,782                 -
       Equipment sales                                               -           150,000                  -           150,000

Total revenues and other income                              1,507,308         2,583,758          4,059,165         5,895,144

Costs and other deductions
        Production costs and taxes                             815,293         1,112,471          2,084,597         2,463,401
        Depletion, depreciation and amortization               756,486           779,551          1,731,182         1,048,008
        Interest expense                                       146,382           248,328            448,046           577,342
        General and administrative costs                       417,688           763,569          1,704,086         2,567,876
        Professional fees                                       93,388            58,436            539,198           321,916
                                                        --------------     -------------      -------------    --------------
Total costs and other deductions                             2,229,187         2,962,355          6,507,109         6,978,543
                                                        --------------     -------------      -------------    --------------

Net loss                                                      (721,879)         (378,597)        (2,447,944)       (1,083,399)
                                                        --------------     -------------      -------------    --------------

Dividends on preferred stock                                   134,195           112,458            372,595           278,725
                                                        --------------     -------------      -------------    --------------

Net loss attributable to common shareholders            $     (856,074)    $    (491,055)     $  (2,820,539)   $   (1,362,124)
                                                        --------------     -------------      -------------    --------------

Net loss attributable to common shareholders
     Per share basic and diluted                        $        (0.08)    $       (0.05)     $       (0.26)   $        (0.13)
                                                        --------------     -------------      -------------    --------------

Weighted average shares outstanding                         11,365,431        10,393,140         10,933,588        10,303,126
                                                        --------------     -------------      -------------    --------------
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       5

<PAGE>

                         TENGASCO, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                            Common Stock
                                            ------------        Additional    Accumulated Other
                                                                 Paid in        Comprehensive      Accumulated    Comprehensive
                                         Shares      Amount     In Capital         Loss              Deficit           Loss
                                         ------      ------     ----------         ----              -------           ----
<S>                                    <C>          <C>        <C>               <C>              <C>             <C>
Balance December 31, 2001              10,560,605   $ 10,561   $ 39,242,555                       $(24,115,382)

Net Loss                                        0          0              0                         (2,447,944)

Comprehensive Loss

     Net Loss                                                                                                     $(2,447,944)

          Other Comprehensive
            Loss


          Net Market Valuation
            Adjustment on Securities
              Available for Sale                                                 $(75,000)                            (75,000)

     Comprehensive Loss                                                                                            (2,522,944)

Common Stock Issued in Private
Placements                                850,000        850      2,676,150                                   0

Common Stock Issued in Conversion
of Debt                                    20,592         20        119,980                                   0

Common Stock Issued on Purchase of
Equipment                                  19,582         20        149,980                                   0

Common Stock Issued for Services            8,500          9         48,611

Dividends on Convertible Redeemable
Preferred Stock                                 0          0              0                            (372,595)

Net loss for the nine months ended
September 30, 2002                     11,459,279    $11,460    $42,237,276      $(75,000)         $(26,935,921)
                                     =============================================================================================
</TABLE>


                                           Treasury Stock
                                           --------------

                                         Shares      Amount            Total
                                         ------      ------            -----
Balance December 31, 2001                14,500   $ (145,887)       $14,991,847

Net Loss                                      0            0         (2,447,944)

Comprehensive Loss

     Net Loss

          Other Comprehensive
            Loss


          Net Market Valuation
            Adjustment on Securities
              Available for Sale                                        (75,000)

     Comprehensive Loss

Common Stock Issued in Private
Placements                                    0             0         2,677,000

Common Stock Issued in Conversion
of Debt                                       0             0           120,000

Common Stock Issued on Purchase of
Equipment                                     0             0           150,000

Common Stock Issued for Services                                         48,620

Dividends on Convertible Redeemable
Preferred Stock                               0             0          (372,595)

Net loss for the nine months ended
September 30, 2002                       14,500     $(145,887)   $   15,091,928
===============================================================================



           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       6
<PAGE>



                         TENGASCO, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    For the Nine             For the Nine
                                                                    Months Ended              Months Ended
                                                                  September 30, 2002       September 30, 2001
                                                                     (Unaudited)               (Unaudited)
                                                                     -----------               -----------
<S>                                                                <C>                     <C>
Operating activities
     Net loss                                                      $    (2,447,944)        $     (1,083,399)
     Adjustments to reconcile net loss to net cash
     provided by (used in) operating activities:
     Depletion, depreciation and amortization                            1,731,182                1,048,008
     Compensation paid in stock options and common stock                    48,620                   55,200
     Changes in assets and liabilities
          Accounts receivable                                              (41,340)                (528,015)
          Other current assets                                                   0                  (50,000)
          Accounts payable                                                  (5,021)                 (63,626)
          Accrued liabilities                                                    0                    7,948
          Accrued interest payable                                          (9,581)                 157,199
          Accrued dividends payable                                         21,736                        -
                                                                   ---------------         ----------------
Net cash used in operating activities                                     (702,348)                (456,685)
                                                                   ---------------         ----------------
Investing activities
          Additions to property and equipment                             (154,526)                       -
          Net additions to oil and gas properties                       (1,796,600)              (3,871,362)
          Net additions to pipeline facilities                            (739,162)              (3,800,325)
          Decrease in restricted cash                                      120,872                        0
          Other assets                                                      19,432                   49,888
                                                                   ---------------         ----------------
Net cash used in investing activities                                   (2,549,984)              (7,621,799)
                                                                   ---------------         ----------------
Financing activities
          Repayments of borrowings                                      (2,129,256)              (1,120,304)
          Proceeds from borrowings                                       1,703,103                1,000,000
          Dividends on convertible redeemable preferred stock             (372,595)                (245,045)
          Proceeds from private placements of common stock               2,677,000                6,003,805
          Proceeds from private placements of preferred stock            1,303,168                1,755,000
                                                                   ---------------         ----------------
Net cash provided by financing activities                                3,181,420                7,393,456
                                                                   ---------------         ----------------

Net change in cash and cash
          equivalents                                                      (70,912)                (685,028)

Cash and cash equivalents, beginning of period                             393,451                1,603,975
                                                                   ---------------         ----------------
Cash and cash equivalents, end of period                           $       322,539         $        918,947
                                                                   ===============         ================
</TABLE>

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       7
<PAGE>


                         TENGASCO, INC. AND SUBSIDIARIES
              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


(1)    BASIS OF PRESENTATION

       The accompanying  unaudited  consolidated  financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and with the  instructions  to Form 10-Q and Item 210 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of only normal recurring accruals)  considered necessary for a fair presentation
have been  included.  Operating  results for the three months or the nine months
ended September 30, 2002 are not necessarily  indicative of the results that may
be expected for the year ended December 31, 2002. For further information, refer
to the Company's consolidated financial statements and footnotes thereto for the
year ended  December 31, 2001  included in the  Company's  annual report on Form
10-K.

       The accompanying comparative financial statements for the three month and
nine month  periods  ended  September  30, 2001 have been  amended to reflect an
increase in depletion expense recorded in error totaling  $562,000.  The Form 10
Q/A as of September 30, 2001 has been filed concurrently with this Form 10-Q.

       (2) GOING CONCERN UNCERTAINTY

       The accompanying  condensed  consolidated  financial statements have been
prepared in conformity  with  accounting  principles  generally  accepted in the
United States of America,  which  contemplate  continuation  of the Company as a
going  concern  which  assumes  realization  of assets and the  satisfaction  of
liabilities in the normal course of business. The Company continues to be in the
early  stages of its oil and gas related  operating  history as it  endeavors to
expand its operations  through the  continuation of its drilling  program in the
Tennessee  Swan Creek Field.  Accordingly,  the Company has incurred  continuous
losses and has an  accumulated  deficit  of  $26,935,921  and a working  capital
deficit of $5,383,496  as of September  30, 2002. On April 5, 2002,  the Company
was informed by its primary  lender that  $6,000,000 of its  outstanding  credit
facility  was due and  payable  within 30 days,  as  provided  for in the Credit
Agreement between the Company and its lender.  The Company's  auditors indicated
in their report on the audit of the Company's  consolidated financial statements
for the year ended December 31, 2001 that these  circumstances raise substantial
doubt about the Company's ability to continue as a going concern.

       The Company has disputed its  obligation  to make this payment  under the
terms of the Credit Agreement. On May 2, 2002, the Company filed suit in Federal
Court to restrain  Bank One from taking  further  action  under the terms of the
Credit Agreement.  The Company is attempting to obtain alternative  financing to
replace Bank One.  There can be no assurance that the Company will be successful
in its  plans to  obtain  the  financing  necessary  to  satisfy  their  current
obligations. The Company has deferred loan costs relative to the Bank One credit
facility  which it is  amortizing  over the 36 month  term of the loan.  If this
credit facility is terminated,  the unamortized balance of

                                        8
<PAGE>


deferred  loan fees of  $367,036  at  September  30,  2002 would be  immediately
expensed.

       The Company is reducing  this loan by  $200,000  per month plus  interest
which the Company contends is its correct obligation to Bank One pursuant to the
Credit Agreement.

       On  November  5,  2002  the  Company  announced  that  it had  reached  a
preliminary  agreement with Bank One. N.A. that outlines a settlement that would
amicably  resolve  all  issues.  The  preliminary  agreement  is  subject to the
execution of formal  settlement  documents and provides that Bank One will enter
into an Amended and  Restated  Credit  Agreement  with the  Company  maturing in
April, 2004 to replace the current credit facility.  The principal amount of the
amended  credit  agreement will be the existing  indebtedness  as of November 1,
2002 which is $7,701,776.66. The Company has maintained strongly that the Bank's
action was  unwarranted.  The Company has reserved the right to approve the form
of settlement  documents and in  considering  the form of final  documents  will
maintain a strong posture based on this position.  The parties  contemplate that
the settlement is to be documented and closed on or before November 29, 2002.

(3)    SALES OF EQUIPMENT

       During the third quarter of 2001, the Company sold two fully  depreciated
compressors  to Miller  Petroleum,  Inc.  ("Miller"),  a joint venturer with the
Company,  for $150,000.  In exchange for this  equipment,  the Company agreed to
accept 150,000  shares of Miller's stock which had an approximate  fair value of
$1 per share.

       These  investment  securities are considered  available-for-sale  and are
reported at their fair value,  with  unrealized  gains and losses  reported as a
separate  component of stockholders'  equity. At December 31, 2001, the cost and
fair value of available-for-sale securities was $150,000. At September 30, 2002,
the approximate fair value of these  available-for-sale  securities was $75,000.
The related  unrealized  loss of $75,000 during the nine months ended  September
30, 2002, has been  reflected as Other  Comprehensive  Loss in the  accompanying
Statement of Stockholders' Equity.

(4)    EARNINGS PER SHARE

       In accordance with Statement of Financial Accounting  Standards(SFAS) No.
128,  "Earnings  Per  Share",  basic  and  diluted  loss per  share are based on
11,365,431 and 10,393,140  weighted average shares  outstanding for the quarters
ended  September  30, 2002 and 2001,  respectively.  Basic and diluted  loss per
share are based on 10,933,588 and 10,303,126 weighted average shares outstanding
for the nine months ended September 30, 2002 and 2001, respectively.  During the
three month and nine month periods ended September 30, 2002,  potential weighted
average stock equivalents  outstanding were approximately  1,102,000 during both
periods.  Potential weighted average stock equivalents outstanding for the three
month and nine  month  periods  ended  September  30,  2001 were  1,084,000  and
1,230,000, respectively. These shares are not included in the computation of the
diluted loss per share amount because the Company was in a net loss position and
their effect would have been antidilutive.

(5)    NEW ACCOUNTING PRONOUNCEMENTS:

       In July 2001, the Financial  Accounting  Standards  Board issued SFAS No.
141,

                                       9
<PAGE>


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

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

       SFAS No. 144,  Accounting  for the  Impairment  or Disposal of Long-Lived
Assets,  addresses  accounting  and reporting for the  impairment or disposal of
long-lived  assets.  SFAS No. 144 supersedes  SFAS No 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of".
SFAS No. 144 establishes a single  accounting model for long-lived  assets to be
disposed  of by sale and expands on the  guidance  provided by SFAS No. 121 with
respect  to cash  flow  estimations.  SFAS No.  144  becomes  effective  for the
Company's fiscal year beginning  January 1, 2002. The adoption of this statement
is not expected to have a material impact on the Company's financial position or
results of operations.

       In  April  2002,  the  FASB  issued  Statement  of  Financial  Accounting
Standards  No. 145,  "Recision  of No. 4, 44, 64,  Amendment of SFAS No. 13, and
Technical  Correction." SFAS No. 4 which was amended by SFAS No. 64 required all
gains  and  losses  from  the  extinguishment  of debt to be  aggregated  and if
material  classified in an extraordinary  item net of related income tax effect.
As a result, the criteria in Opinion 30 will now be used to classify those gains
and losses.  SFAS No. 13 was amended to eliminate an  inconsistency  between the
required accounting for sale-leaseback  transactions and the required accounting
for certain lease  modifications  that have economic effects that are similar to
sale-leaseback  transactions.  The  adoption  of SFAS  No.  145  will not have a
current impact on the Company's consolidated financial statements.

       In July 2002, The Financial  Accounting Standards Board (FASB) issued No.
146,  Accounting  for Costs  Associated  with Exit or Disposal  Activities.  The
standard requires  companies to recognize costs associated with exit or disposal
activities  when they are incurred  rather than at the date of  commitment to an
exit or disposal plan.  Examples of costs covered by the standard  include lease
termination costs and certain employee  severance costs that are associated with
restructuring,  discontinued operation, plant closing, or other exit or disposal
activity.  Previous  accounting  guidance  was  provided by EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a

                                       10
<PAGE>


Restructuring)." Statement 146 replaces Issue 94-3.

       Statement  146  is  to be  applied  prospectively  to  exit  or  disposal
activities  initiated  after  December 31, 2002.  The Company does not currently
have any plans for exit or disposal  activities,  and therefore  does not expect
this standard to have a material effect on the Company's  consolidated financial
statements upon adoption.

(6)    STOCK OPTIONS

       For the nine months ended  September 30, 2002 the Company granted options
to purchase 160,742 shares of the Company's common stock at a price of $2.86 per
share for a term of three years from August 5, 2002, to employees and directors.
None of the stock options granted have been exercised.

       During the nine months ended September 30, 2002, the Company extended the
exercise  period of one  employee's  stock option who was retiring  resulting in
recorded compensation of $55,200.

(7)    LETTER OF CREDIT AGREEMENT

       On November 8, 2001, the Company signed a credit facility with the Energy
Finance  Division of Bank One, N.A. in Houston,  Texas whereby Bank One extended
to the  Company a  revolving  line of credit of up to $35  million.  The initial
borrowing base under the facility was $10 million. The interest rate is the Bank
One base rate plus one-quarter percent, which at the present time is 5.25%.

       On  November  9,  2001,  funds  from  this  credit  line were used to (1)
refinance   existing   indebtedness   on   the   Company's   Kansas   properties
($1,427,309.25);  (2) to repay the internal  financing provided by directors and
shareholders on the Company's  recently  completed 65-mile Tennessee  intrastate
pipeline system ($3,895,490.83);  (3) to repay a note payable to Spoonbill, Inc.
($1,080,833.34);  (4) to repay a purchase  money note due to M.E.  Ratliff,  the
Company's chief executive officer, for purchase by the Company of a drilling rig
and related equipment in the amount of ($1,003,844.44); and (5) to repay in full
the  remaining  principal  of the working  capital loan due December 31, 2001 to
Edward W.T.  Gray III,  who at that time was a director of the  Company,  in the
amount  $304,444.44.  All  of  these  obligations  incurred  interest  at a rate
substantially  greater than the rate being  charged by Bank One under the credit
facility.

       On April 5, 2002,  the  Company  received a notice  from Bank One stating
that it had  redetermined  and  reduced  the  borrowing  base  under the  Credit
Agreement by  $6,000,000 to  $3,101,766.  Bank One demanded that the Company pay
the $6,000,000 within thirty days of the notice. The Company has filed a lawsuit
in Federal Court to prevent Bank One from exercising any rights under the Credit
Agreement. See, Part II, Item 1, Legal Proceedings.

(8)    SALES OF PREFERRED STOCK:

       During the nine months ended  September 30, 2002, the Company sold 14,491
shares of its Series C 6% Cumulative Convertible Preferred Stock, $100 Par Value
("Series C Shares")

                                       11
<PAGE>


pursuant to a private placement  offering which terminated on July 15, 2002. Net
proceeds of the offering, after issuance costs, totaled $1,328,168.

(9)    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

       During the nine months ended  September 30, 2002,  the Company  converted
$120,000  of debt owed to holders  of Series A  convertible  notes  into  20,592
shares of common  stock.  Additionally,  during the three  months ended June 30,
2002,  the  Company  acquired  equipment  with a fair  market  value of $150,000
through an exchange of 19,582 shares of common stock.

       Cash paid for interest  during the nine months ended  September  30, 2002
and 2001 was approximately $403,489 and $523,204 respectively.

       The Company  issued  8,500  shares of common  stock for payment of public
relations work performed in the amount of $48,620.

(10)   LOAN PAYABLE TO RELATED PARTY

       During the second quarter of 2002, the Company received a short term loan
from an officer of the Company to fund operating cash deficiencies.  No interest
was charged on the loan, and the balance of $110,000 was repaid in July 2002.

(11)   CONVERTIBLE NOTES

       On August 21, 2002, the Company executed a series of unsecured promissory
notes bearing 8% interest,  with payments of interest on a quarterly basis, with
principal due and payable January 4, 2004. The principal  amount of the notes is
convertible  into  common  stock of the  Company at the rate of $3.00 per common
share at the option of the holders of the notes.  The total principal  amount of
the  Convertible  Notes is  $650,000.  The Company  paid a finder's fee of eight
percent of the principal amount of the notes to Kenny Securities Corporation and
agreed to issue five year warrants to Kenny  Securities  Corporation to purchase
that number of shares equal to 5% of the amount raised, $650,000,  calculated at
$3.00 per share.

       Subsequent to the end of the third  quarter,  an  additional  convertible
note in the  principal  amount of  $500,000  was  executed  by Dolphin  Offshore
Partners, LP, which owns more then 10% of the Company's outstanding common stock
and whose  general  partner is Peter E. Salas,  a director of the  Company.  The
remaining  holders  of  these  notes  are  individuals  that  are not  officers,
directors, or affiliates of the Company. The proceeds of the sale of these notes
have been used to provide working capital for the Company's operations.

(12)   RECLASSIFICATIONS

       Certain  prior period  amounts have been  reclassified  to conform to the
current period's presentation.

                                       12
<PAGE>

ITEM 2          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                 RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS

       KANSAS

       During the third  quarter of 2002,  the Company  produced and sold 34,559
barrels  of oil and  73,867  Mcf of  natural  gas  from  its  Kansas  Properties
comprised of 149 producing oil wells and 59 producing gas wells. July production
was 11,736  barrels of oil and 23,931 Mcf of gas.  August  production was 11,134
barrels and 24,722 Mcf. of gas.  September  production was 11,689 barrels of oil
and 25,214 Mcf of gas. The third  quarter  production  of 34,559  barrels of oil
compares to 36,318  barrels  produced in the second  quarter of 2002.  The third
quarter  production  of 73,867 Mcf of gas compares to 69,884 Mcf produced in the
second quarter.  In summary,  the third quarter  production  reflected  expected
continued stable production levels from the Kansas Properties which have been in
production for many years.

       TENNESSEE

       During the third quarter of 2002, the Company  produced gas from 25 wells
in the  Swan  Creek  field  which  it sold to its two  industrial  customers  in
Kingsport,  Tennessee,  BAE  SYSTEMS  Ordnance  Systems  Inc. as operator of the
Holston Army Ammunition Plant ("BAE") and Eastman Chemical Company ("Eastman").

       Natural  gas  production  from the Swan Creek  field for the first  three
quarters of 2002 was an average of 2.567 million cubic feet per day in the first
quarter;  2.553  million  cubic  feet per day in the second  quarter;  and 2.224
million cubic feet per day in the third  quarter.  The third quarter  production
reflected  expected  natural  decline in production from the existing Swan Creek
gas wells which were first brought into  production in mid-2001 upon  completion
of the  Company's  pipeline.  This natural  decline is normal for any  producing
well,  and this decline as  experienced  on existing wells in Swan Creek was not
unexpected;  however,  volumes  were not  replaced  as  expected  as a result of
additional  drilling.  In order for overall field production to remain steady or
grow,  new wells must be  brought  online.  Any of the new wells  drilled by the
Company would also experience the same harmonic (i.e. a relatively steep initial
decline  curve  followed  by  longer  periods  of  relatively   flat  or  stable
production)  decline as does every  natural  well in a formation  similar to the
Knox  formation,  so continuous  drilling is vital to  maintaining or increasing
earlier  levels of  production.  Only two gas wells  have  been  drilled  by the
Company to date in 2002 due to the destabilized  lending  arrangements caused by
the  actions of Bank One and  ongoing  litigation  regarding  that  matter.  The
Company anticipates that the natural decline

                                       13
<PAGE>


of production  from existing wells is now  predictable  in Swan Creek,  that the
total volume of the Company's  reserves  remains largely intact,  and that these
reserves can be extracted  through existing wells and also by steady  additional
drilling brought on by reliable  financial  arrangements to fund drilling.  Upon
conclusion of the Bank One  litigation,  the Company  expects that additional or
replacement  financing  may more  easily  be  obtainable  to allow  drilling  to
increase;  however,  no  assurances  can be made  that  such  financing  will be
obtained. See, Liquidity and Capital Resources discussion below.

       Due to natural and  expected  declines  that occur in ongoing  production
from any oil and gas well,  including the Company's existing wells, some decline
will continue to occur in production  from the Company's  existing wells in Swan
Creek.  The Company  expects  this  natural  decline to be less than the decline
experienced to date, and ongoing production from existing wells to level off, in
view of two factors:  first,  additional work,  repairs,  and recompletions have
been performed on many of the existing wells; and second,  the fact that natural
production  decline  from any well is  greatest  during  the  initial  producing
periods,  which periods as to the Company's existing wells are now coming to the
point where future production is expected to remain  relatively level.  Declines
in  production in the Swan Creek Field  experienced  in the last quarter of 2001
and the first quarter of 2002 began to stabilize in March 2002 at  approximately
2.5 million cubic feet per day as these factors came into play.

       Although  the Company was  capable of  continuing  to produce and deliver
slightly  decreased  quantity of approximately 2.2 million cubic feet per day in
the third  quarter on a daily  basis,  volumes of gas sold to BAE and Eastman in
the third  quarter  declined in the first part of the quarter  primarily  due to
factors beyond the Company's control.

       During the period  from June 28,  2002  through  July 29,  2002,  Eastman
temporarily  ceased its  purchases  from the  Company  because  the  Company was
delivering  most of its then available  volumes to supply BAE's newly  increased
requirements  resulting from BAE connecting additional gas burning facilities to
its  operations.  The Company  was unable to sell all  volumes of gas  exceeding
BAE's  increased  requirements  to  Eastman,  although  the  Company was able to
produce these volumes,  because  Eastman  requires a minimum for its meters that
available  volumes did not exceed,  and a uniform  rate of delivery  that taking
short term volumes would  interrupt.  During the time Eastman was not purchasing
gas from the Company,  BAE purchased  additional volumes until BAE experienced a
partial equipment outage on July 15, 2002 and reduced its purchased volumes.  As
a result of these occurrences, which were not within the control of the Company,
the  Company's  sales volume to BAE and Eastman in July 2002  declined to 42,382
Mcf or an average of 1,367 Mcf per day. Eastman recommenced its purchases of gas
from the  Company  on July  29,  2002.  The  Company  is  presently  capable  of
delivering   gas  to  both  BAE  and  Eastman  from  the  Swan  Creek  field  of
approximately  2.2 million  cubic feet per day and expects  daily  deliveries to
continue with minor, if any, future  interruptions as a result of fluctuation in
one customer's usage requirements.

       During the third quarter,  the Company drilled and completed two wells in
the Swan Creek field,  the Paul Reed No. 8 and the Paul Reed No. 9, to offset in
part the normal and expected  natural  decline in production  from the Company's
existing wells, and

                                       14
<PAGE>


to thereby increase overall oil and gas production capability and deliverability
to BAE and Eastman.

       On July 1, 2002, the Paul Reed No. 8 well was drilled to a total depth of
4,600 feet and although gas was present,  based on information  acquired  during
drilling, the Company determined that it was economically more beneficial to the
Company in view of current oil prices and the  anticipated  levels of  potential
gas  production,  to complete this well as an oil well in the  Murfreesboro  and
Stone River  formations at a depth of 2500-3200  feet.  The Paul Reed No. 8 well
was successfully  completed as an oil well and came in producing 100 barrels per
day. This well is currently producing approximately 65 barrels per day.

       The  Company  drilled  the Paul Reed No. 9 well to a total depth of 4,860
feet and  completed it as a gas well.  The well was  connected to the  Company's
pipeline in early August 2002 and is currently producing  approximately  300,000
cubic feet of gas per day.

       The completion  stimulation  techniques  used on the Paul Reed No. 8 well
were also used on two existing oil wells with  moderate  success.  The Paul Reed
No. 5 which had stopped  production  in March 2002 due to paraffin  build-up was
re-stimulated  with a similar  technique to enhance  flow and limit  build-up of
paraffin.  Additional production was achieved, with 828 barrels produced in July
and  1,036  barrels  in  August  2002,   and   production   continues  to  date.
Subsequently,  the  R.D.  Helton  No.  3 was  completed  in late  September  and
responded by also regaining  production  which had been halted since March 2002.
Altogether,  in September 2002,  Swan Creek oil production  achieved its highest
monthly total to date of 2,423 barrels, which increased again in October 2002 to
3,012 barrels of oil.

       The Company has not been able to drill a substantial number of additional
gas or oil wells at Swan Creek in 2002 because it has not had  sufficient  funds
to do so.  Although  the Company  had  expected to  commence  and  continue  its
drilling  program in 2002,  the Company now  anticipates  that  drilling will be
postponed until  additional  funds become  available and the dispute between the
Company and its primary lender Bank One are resolved.  The Company is attempting
to obtain  financing to complete  its  drilling  program and believes it will be
able  to do so,  however,  there  is no  guarantee  that  the  Company  will  be
successful.

       Because the Knox formation has been well defined by the  accumulation  of
data from previously drilled wells, new locations and new wells when drilled are
expected to contribute to achieving  net  increases to  production  totals.  The
Company  plans to continue to drill new wells  within the Knox  formation in the
Swan Creek field.  The Company is hopeful that  production  from these new wells
will be in line with the  production  from its best  existing  wells in the Swan
Creek Field and will have a noticeable effect on increasing the total production
from the Field.  Although no assurances can be made, the Company  believes that,
once this work is completed and the new wells are drilled,  production  from the
Swan Creek Field will increase.  However,  even if such production increase does
occur,  the  ultimate  deliverability  from the  Swan  Creek  Field  will not be
sufficient to meet the Company's maximum daily  requirements under its contracts
with BAE and Eastman.  While the Swan Creek Field has proved reserves of natural
gas in excess of 34 Bcf, a valuable reserve base, the natural  reduction decline
rates of  production  evidenced  during  the  initial  startup  year,  have been
adversely  affected  by the  lower  than  expected  matrix  permeability  of the
formation,  (the ability of the gas to flow out of the well), and the occurrence
of more  gas  condensate  occupying  some of the  pore  space,  than  originally
expected.  Consequently,  achieving the production totals solely from Swan Creek
sufficient to supply the maximum  daily  volumes  under the  Company's  existing
contracts  does not appear  likely.  However,  production  rates from Swan Creek
while lower will last for a substantially  longer period of time,  giving a good
stable foundation for long term production.


                                       15
<PAGE>


       The Company also intends to commence  drilling in other formations in its
Swan Creek  Field.  To date,  drilling  in the Swan Creek  Field has  focused on
production of gas primarily from the Knox formation.  This is a lower Ordovician
Dolomite,  and the heart of the  anticline  structure  at Swan  Creek.  However,
immediately  adjacent to this formation and shallower over these  formations are
other  formations  which the Company believes have potential for gas production.
The Stones River and Trenton  formations  hold the  possibility for both oil and
gas and have produced some gas to date. These Upper  Ordovician  formations have
not been a primary target for gas  production,  but the shallower  depths needed
for drilling and the  moderate  gas  production  per well might make a potential
cumulative significant source for additional gas production. With the completion
of only one well in the Trenton  formation which is producing  approximately 100
Mcf per day, the impact of these targets is has not yet been defined.

          COMPARISON OF THE QUARTERS ENDING SEPTEMBER 30, 2002 AND 2001

       The Company recognized $1,450,133 in oil and gas revenues from its Kansas
Properties and the Swan Creek Field during the third quarter of 2002 compared to
$2,306,279 in the third  quarter of 2001.  The decrease in revenues was due to a
decline in gas production in the Swan Creek Field. The Swan Creek Field produced
434,557 Mcf and 162,290 Mcf in the third quarter of 2001 and 2002, respectively.
The  decrease in  pipeline  transportation  revenues is directly  related to the
decrease in gas sales. See Results of Operations and Financial Condition section
of this Item 2.

       As a result of the decrease in oil and gas revenues, the Company realized
a net loss  attributable to common  shareholders of $856,074 ($0.08 per share of
common  stock)  during the third  quarter of 2002  compared to a net loss in the
third quarter of 2001 to common  shareholders of ($491,055)  ($0.05 per share of
common stock).

       Production  costs and taxes in the third quarter of 2002 of $815,293 were
lower than  production  costs and taxes of  $1,112,471  in the third  quarter of
2001,  due primarily to lower  maintenance  costs in Swan Creek as the field had
just begun operation in 2001 and several maintenance procedures were required.

       Depreciation,  Depletion,  and Amortization expense for the third quarter
of 2002 was  $756,486  compared to $779,551  in the third  quarter of 2001.  The
December 31, 2001 and the June

                                       16
<PAGE>


30,  2002,  Ryder  Scott  reserve  reports  were  used as a basis  for the  2002
estimate.  The Company  reviews its depletion  analysis and industry oil and gas
prices on a quarterly basis to ensure that the depletion estimate is reasonable.
Additionally, the Company took depreciation on its pipeline in the third quarter
of 2002 of $127,168,  while in the third  quarter of 2001 the  depreciation  was
only $63,584 as the Company only used one-half year  depreciation  in 2001,  the
first year the pipeline was in service.  The Company also  amortized  $43,180 of
loan fees relating to the Bank One note.

       Interest  expense for the third  quarter of 2002 was $146,382 as compared
to  $248,328  in the third  quarter  of 2001.  This  decrease  is due to reduced
interest  rates  on the Bank One debt  compared  to the  interest  rates on debt
associated  with  financing  for the  completion  of Phase  II of the  Company's
65-mile pipeline in 2001.

       During  the  third   quarter   the   Company   reduced  its  general  and
administrative  costs significantly from 2001.  Management has made an effort to
control costs in every aspect of its  operations.  Some of these cost reductions
included  the  closing  of the  Company's  New York  office and a  reduction  in
personnel  from  2001  levels,  as  well as  significant  reductions  in  public
relations costs.

       Professional  fees have  increased  dramatically  primarily  due to costs
incurred for legal and accounting services as a result of the Bank One lawsuit.

       Dividends  on preferred  stock have  increased  from  $112,458 in 2001 to
$134,195 in 2002 as a result of the  increase in the amount of  preferred  stock
outstanding from new private  placements  occurring during the second quarter of
2002.

     COMPARISON OF THE NINE MONTH PERIODS ENDING SEPTEMBER 30, 2002 AND 2001

       The Company recognized $3,859,050 in oil and gas revenues from the Kansas
and Swan Creek oil and gas fields  during the nine months  ended  September  30,
2002 compared to $5,550,640 for the nine months ended  September 30, 2001.  This
$1,691,590  decrease in revenues was due to the  following  reasons:  Kansas gas
sales decreased  approximately  $490,000 due to price decreases in the first six
months of 2002. Gas production volumes in Kansas remained  constant,  as 220,650
Mcf were produced in 2002 compared to 241,892 Mcf in 2001. Also, oil revenues in
Kansas decreased by approximately  $170,000 due to price decreases,  whereas the
volumes remained fairly  consistent.  The Kansas oil field produced 115,472 Bbls
of oil in 2001 as compared to 106,683 in 2002.  Another  primary  reason for the
decrease in revenues  was a decrease in oil  production  in the Swan Creek field
from 26,165 Bbls in 2001 to 10,788 Bbls in 2002. This resulted in  approximately
a $290,000 decrease in oil sales. Production of gas in Swan Creek also decreased
during the first six months of 2002  because  the  Company was in the process of
performing  well  work-overs  on its best wells in Swan Creek and because of the
inability of the Company to finance the  continuation  of its drilling  program.
However,  oil  production in the Swan Creek field was back to 2001 levels in the
third  quarter  of 2002.  During  the first  nine  months of 2002,  the  Company
produced 570,883 Mcf of gas from its Swan Creek Field as compared to 646,958 Mcf
in 2001. Revenues were also affected by losses on hedging activities  previously
required  by the  Company's  agreement  with  Bank  One  totaling  approximately
$160,000 during the six month period ended June 30, 2002.  There were no hedging
activities  in the third  quarter of 2002 because that hedging  requirement  was
eliminated.


                                       17
<PAGE>


       As a result of the decrease in revenues,  the Company incurred a net loss
attributable  to holders of common stock of $2,820,539  ($0.26 per share) in the
first nine months of 2002 compared to a net loss of $1,362,124 ($0.13 per share)
in 2001.

       Depletion,   Depreciation  and  Amortization   costs  have   dramatically
increased  during  the first  nine  months in 2002  from  $1,048,008  in 2001 to
$1,731,182  in 2002  due to  depreciation  on the  pipeline.  The  Company  also
amortized $129,540 of loan fees relating to the Bank One credit agreement.

       Interest  costs for 2002  decreased  from  2001  levels,  due to  reduced
interest rates with Bank One. However,  interest costs of approximately $148,000
were  capitalized in the first three months of 2001 during  construction  of the
pipeline which resulted in lower interest expenses during that period.

       General and  Administrative  Costs have been reduced  significantly  from
2001 levels as the Company has made an effort to control  levels as explained in
the three month comparison.

       Professional  fees have increased  dramatically due to costs incurred for
legal and accounting services as a result of the Bank One lawsuit.

       Dividends  on  preferred  stock has  increased  from  $278,725 in 2001 to
$372,595 in 2002 as a result of the  increase in the amount of  preferred  stock
outstanding.

                         LIQUIDITY AND CAPITAL RESOURCES

       On November 8, 2001, the Company signed a credit facility  agreement (the
"Credit  Agreement")  with the Energy  Finance  Division  of Bank One,  N.A.  in
Houston  Texas ("Bank One") whereby Bank One extended to the Company a revolving
line of credit of up to $35 million. The initial borrowing base under the Credit
Agreement  was $10  million.  As of April 1, 2002 the  outstanding  balance  was
$9,101,776.66.  On or about April 5, 2002,  the  Company  received a notice from
Bank One stating that it had  redetermined  and reduced the borrowing base under
the Credit Agreement to $3,101,776.66 and required a $6 million reduction of the
outstanding loan.

       The schedule of reserve  reports  required by the Credit  Agreement  upon
which  such  re-determinations  are to be  based  also  specifically  sets  up a
procedure   involving  an  automatic   monthly  principal  payment  of  $200,000
commencing  February 1, 2002.  The Company has  remained  current in payments of
this monthly  reduction  through  November 1, 2002. As of November 1, 2002,  the
outstanding balance was $7,701,776.66.

       As a result of Bank One's unexpected  reduction of the borrowing base and
the

                                       18
<PAGE>


corresponding demand for payment of $6 million,  combined with the fact that the
Company is still in the early stages of its oil and gas operating history during
which time it has had a history of losses from operations and had an accumulated
deficit of $25,095,708  and a working  capital deficit of $6,507,649 as of March
31, 2002, the Company's  independent  auditors  indicated in their report on the
audit of the  Company's  consolidated  financial  statements  for the year ended
December 31, 2001 that the  Company's  ability to continue as a going concern is
uncertain. The Company's ability to continue as a going concern depends upon its
ability to obtain  long-term  debt or raise  capital  and  satisfy its cash flow
requirements.

       On May 2, 2002,  the Company filed suit against Bank One in Federal Court
in the Eastern  District of  Tennessee,  Northeastern  Division at  Greeneville,
Tennessee  to  restrain  Bank One from  taking any steps  pursuant to its Credit
Agreement  with the Company to enforce  its demand  that the Company  reduce its
loan obligation or else be deemed in default and for damages  resulting from the
wrongful demand.

       On July 1, 2002,  Bank One filed its answer  and  counterclaim,  alleging
that its actions were proper under the terms of the Credit Agreement, and in the
counterclaim,  seeking  to recover  all  amounts it alleges to be owed under the
Credit Agreement, including principal, accrued interest, expenses and attorney's
fees in the approximate amount of $9 million.

       On  November  5, 2002,  the  Company  and Bank One  concluded a series of
meetings and  correspondence  by reaching  preliminary  agreement upon the basic
terms of a potential settlement. Any settlement is conditioned upon execution of
final  settlement  documents,  and the  parties  agreed to  attempt to close the
settlement  by  November  29,  2002.  The  principal  element of the  settlement
proposal is for the Bank and the  Company to enter into an amended and  restated
agreement for a new term loan to replace the prior  revolving  credit  facility,
which new loan will not be due until  April,  2004.  The  amount of the new loan
will be  $7,701,776.66  to be repaid  at the rate of  $200,000  per  month  plus
interest  with the  balance of  $4,500,000  payable on  maturity.  The  proposed
settlement  agreement  would  place  specific  limits and  requirement  upon any
ability of Bank One to require a reduction of the loan balance. Such a reduction
could  only  occur in the  event the  value of the oil and gas  reserves  of the
Company  falls below an  agreed-upon  figure in  relation  to the loan  balance,
pursuant to a formula which  management is satisfied  provides ample  protection
against any future  reasonable  likelihood of a similar  problem  arising in the
manner causing  initiation of the  litigation  between the Company and Bank One.
Further detail of the settlement  will be announced upon conclusion of the final
settlement documents.



                                       19
<PAGE>



ITEM 3           QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

       COMMODITY RISK

       The Company's major market risk exposure is in the pricing  applicable to
its oil  and  gas  production.  Realized  pricing  is  primarily  driven  by the
prevailing  worldwide price for crude oil and spot prices  applicable to natural
gas  production.  Historically,  prices received for oil and gas production have
been volatile and  unpredictable  and price  volatility is expected to continue.
Monthly oil price  realizations  for the first nine months of 2002 ranged from a
low of $15.20 per barrel to high of $27.49 per  barrel.  Gas price  realizations
ranged  from a monthly  low of $1.91 per Mcf to a monthly  high of $3.40 per Mcf
during the same period.

       As required by its Credit  Agreement  with Bank One, the Company  entered
into hedge  agreements  on  December  28,  2001 on  notional  volumes of oil and
natural gas  production for the first six months of 2002 in order to manage some
exposure to oil and gas price  fluctuations.  Realized  gains or losses from the
Company's  price  risk  management  activities  are  recognized  in oil  and gas
production revenues when earned since the Company's positions are not considered
hedges for financial  reporting  purposes.  Notional volumes associated with the
Company's derivative contracts


                                       20
<PAGE>


are 27,000 barrels and 630,000 MMBtu's f or oil and natural gas, respectively.
The Company does not generally hold or issue derivative instruments for trading
purposes. These hedge agreements expired in June 2002 and have not been renewed.
Hedging activities resulted in a loss to the Company of approximately $160,000
during the nine months ended September 30, 2002.

       At December 31, 2001,  the Company's open natural gas and crude oil price
swap  positions  are not  considered  to have a material  fair  value.  Assuming
natural gas production and sales volumes remain  consistent  with levels for the
month of  December  2001  during  the  entire  year of fiscal  2002,  management
believes that a 10 percent  decrease in natural gas prices from  September  2002
price levels would reduce the  Company's  natural gas revenues by  approximately
$483,000 on an annual basis.  Assuming  crude oil  production  and sales volumes
remain  consistent  with levels for the month of December 2001 during the entire
year of fiscal 2002, management believes that a 10 percent decrease in crude oil
prices from  September  2002 price levels would reduce the  Company's  crude oil
revenues by approximately $450,000 on an annual basis.

       INTEREST RATE RISK

       At September 30, 2002, the Company had debt  outstanding of approximately
$9.8 million. The interest rate on the revolving credit facility of $8.1 million
is variable  based on the  financial  institution's  prime rate plus 0.25%.  The
remaining  debt of $1.7  million has fixed  interest  rates  ranging  from 6% to
11.95%. As a result, the Company's annual interest costs in 2002 would fluctuate
based on  short-term  interest  rates on  approximately  83% of its  total  debt
outstanding at September 30, 2002. The impact on annual interest expense and the
Company's  cash flows of a 10 percent  increase in the  financial  institution's
prime rate  (approximately  .5 basis  points)  would be  approximately  $41,000,
assuming borrowed amounts under the credit facility remain at $8.1 million.  The
Company did not have any open derivative contracts relating to interest rates at
September 30, 2002.

       FORWARD-LOOKING STATEMENTS AND RISK

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

       There are numerous  uncertainties  inherent in  estimating  quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures.  The total amount or timing of actual future
production may vary significantly from reserves and production estimates.

       The  drilling  of  exploratory  wells  can  involve   significant  risks,
including  those related to timing,  success rates and cost overruns.  Lease and
rig availability, complex geology and other factors can also affect these risks.
Additionally,  fluctuations in oil and gas prices,  or a prolonged period of low
prices,  may substantially  adversely affect the Company's  financial  position,
results of operations and cash flows.

                                       21
<PAGE>


ITEM   4 CONTROLS AND PROCEDURES

       EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

       The Company's Chief Executive Officer,  President and our Chief Financial
Officer, with the participation of other members of senior management,  reviewed
and  evaluated  the  effectiveness  of the design and operation of the Company's
disclosure controls and procedures as of a date within 90 days before the filing
of this quarterly report on Form 10-Q.  Based on this evaluation,  the Company's
Chief Executive Officer, President and Chief Financial Officer believe:

       The Company's  disclosure  controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports it files
or submits  under the  Securities  Exchange Act of 1934 is recorded,  processed,
summarized and reported within the time periods specified in the SEC's rules and
forms; and

       The Company's disclosure controls and procedures were effective to ensure
that material  information  was  accumulated  and  communicated  to  management,
including the Chief Executive Officer, President and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

       CHANGES IN INTERNAL CONTROLS

       There were no significant  changes in the Company's internal controls or,
to their  knowledge,  in other  factors  that could  significantly  affect these
controls  subsequent  to the  date of  their  evaluation,  nor  were  there  any
significant  deficiencies  or material  weaknesses  in internal  controls.  As a
result, no corrective actions were required or undertaken.




                                       22
<PAGE>


PART II    OTHER INFORMATION

ITEM   1 LEGAL PROCEEDINGS

       On May 2, 2002,  the Company  filed suit in Federal  Court in the Eastern
District of  Tennessee,  Northeastern  Division  at  Greeneville,  Tennessee  to
restrain Bank One from taking any steps  pursuant to its Credit  Agreement  with
the Company to enforce its demand that the Company reduce its loan obligation or
else be deemed in default and for damages resulting from the wrongful demand. It
is the position of the Company  that Bank One's  demand that the Company  reduce
its loan from  $9,101,776.66 to $3,101,776.66  within thirty days,  coming as it
did only four  months  after the loan was made,  in the absence of any change in
the Company's production of oil and gas from the time the loan was closed or the
condition of the Company's assets,  without any warning







                                       23
<PAGE>


and prior to the receipt of the December 2002 reserve report,  without any basis
or explanation,  is a violation of the terms of the Credit  Agreement and an act
of bad faith.  The Company is seeking a jury trial and actual damages  sustained
by it as a  result  of  this  arbitrary,  wrongful  demand,  in  the  amount  of
$51,000,000  plus  punitive  damages in the amount of $100  million.  On July 1,
2002, Bank One filed its answer and counterclaim, alleging that its actions were
proper under the terms of the Credit Agreement, and in the counterclaim, seeking
to recover  all  amounts  it  alleges  to be owed  under the  Credit  Agreement,
including  principal,  accrued  interest,  expenses and  attorney's  fees in the
approximate amount of $9 million. No hearings have occurred or been scheduled in
the court proceeding.  The Company has filed initial written discovery  requests
from Bank One.  No trial  date has been set.  On  November  5, 2002 the  Company
announced  that it had reached a preliminary  agreement with Bank One. N.A. that
outlines a settlement  that would amicably  resolve all issues.  The preliminary
agreement  is  subject  to the  execution  of formal  settlement  documents  and
provides that Bank One will enter into an Amended and Restated Credit  Agreement
with the Company maturing in April, 2004 to replace the current credit facility.
The  principal  amount of the  amended  credit  agreement  will be the  existing
indebtedness  of  $7,701,776.66.  The Company has  maintained  strongly that the
Bank's action was unwarranted. The Company has reserved the right to approve the
form of settlement documents and in considering the form of final documents will
maintain a strong posture based on this position.  The parties  contemplate that
the  settlement is to be documented  and closed on or before  November 29, 2002.
See, Part I, Item 2, Management's Discussion and Analysis of Financial Condition
and Results of Operations, Liquidity and Capital Resources.

       On July 29, 2002,  the Chancery Court of Knox County,  Tennessee  granted
summary  judgment  confirming an  arbitration  award dated October 30, 2001. The
arbitration was between the Company's wholly owned subsidiary  Tengasco Pipeline
Corporation (TPC and King Pipeline & Utility Company (King),  the contractor for
the  construction of Phase II of the Company's  pipeline and concerned  disputes
concerning final billings by King for the pipeline construction. The award found
that King was entitled to recover the sum of $266,390.66  for straw matting work
performed by King;  that King was entitled to retain the $72,500 payment made to
it by TPC for clearing and grubbing work, and that King be awarded its attorneys
fees of  approximately  $14,000 plus interest at the statutory rate from date of
the award.  TPC moved for relief  from the award in the  Chancery  Court in Knox
County,  Tennessee,  and King moved for  confirmation of the award by the Court.
Formal  entry of the  judgment  confirming  the  award to King  was  entered  on
September 8, 2002.  Following  entry of  judgment,  and in lieu of appeal by the
Company,  the parties  reached  settlement by TPC agreeing to pay King an amount
equal to  approximately a ten percent  discount from the amount confirmed in the
judgment of the court confirming the award.  Based on the evidence  presented at
the  arbitration  hearing,  the Company  and TPC intend to seek  recovery of the
payments made to King in satisfaction of this judgment as an additional  element
of damages being sought from Caddum,  Inc., the project engineer,  in the action
now pending in the United  States  District  Court for the  Eastern  District of
Tennessee entitled C.H. FENSTERMAKER & ASSOCIATES, INC. V. TENGASCO, INC., which
is set for trial in February, 2003.


ITEM 2     CHANGES IN SECURITIES AND USE OF PROCEEDS

       On August 21, 2002, the Company executed a series of unsecured promissory
notes bearing 8% interest,  with payments of interest on a quarterly basis, with
principal due and payable January 4, 2004. The principal  amount of the notes is
convertible  into  common  stock of the  Company at the rate of $3.00 per common
share at the option of the holders of the notes.  The total principal  amount of
the  Convertible  Notes is  $650,000.  The Company  paid a finder's fee of eight
percent of the principal amount of the notes to Kenny Securities Corporation and
agreed to issue five year warrants to Kenny  Securities  Corporation to purchase
that number of shares equal to 5% of the amount  raised  calculated at $3.00 per
share.  Subsequent to the end of the third  quarter,  an additional  convertible
note in the  principal  amount of $500,000  was  purchased  by Dolphin  Offshore
Partners, LP, which owns more than 10% of the Company's outstanding common stock
and whose  general  partner is Peter E.  Salas,  a director of the  Company.  No
finder's  fee was paid on this note.  The  remaining  holders of these notes are
individuals that are not officers,  directors, or affiliates of the Company. The
proceeds  of the sale of these notes have been used to provide  working  capital
for the Company's operations.

       Also,  during the third  quarter of 2002,  650,000  shares of  restricted
common stock were sold to Dolphin Offshore Partners, L.P. in a private placement
transaction.

                                       24
<PAGE>

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned hereto duly authorized.



Dated: November 14, 2002
                                                  /s/ Malcolm E. Ratliff
                                                  ------------------------------
                                                  Malcolm E. Ratliff
                                                  Chief Executive Officer


Dated: November 14, 2002

                                                  /s/ Mark A. Ruth
                                                  ------------------------------
                                                  Mark A. Ruth
                                                  Chief Financial Officer





                                       25
<PAGE>


                                  CERTIFICATION

I, Malcolm E. Ratliff,  certify pusuant to Section 302 of the Sarbanes-Oxley Act
of 2002 that:

1. I have reviewed this quarterly report on Form 10-Q of Tengasco, Inc.

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based on my  knowledge,  the  financial  statements,  and other  information
included in this quarterly  report,  fairly present in all material respects the
financial  condition,  results of operations and cash flows of the Registrant as
of, and for, the periods presented in this quarterly report;

4.  The  Registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

       (a)  designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

       (b) evaluated the effectiveness of the Registrant's  disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date'); and

       (c)  presented  in  this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
the  Registrant's  board of  directors  (or persons  performing  the  equivalent
function);

       (a) all  significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weakness in internal controls; and

       (b) any fraud,  whether or not material that  involves the  management or
other  employees  who  have a  significant  role  in the  Registrant's  internal
controls; and

6. The  Registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Dated: November 14, 2002                        /s/ Malcolm E. Ratliff
                                                --------------------------------
                                                Malcolm E. Ratliff
                                                Chief Executive Officer


                                       26
<PAGE>


                                  CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:

       (13)   I have reviewed the Quarterly Report on Form 10Q(i);

       (2)   To the best of my knowledge this Quarterly  Report on Form 10-Q (i)
fully complies with the requirements of section 13(a) or 15(d) of the Securities
and Exchange Act of  1934(U.S.C.  78m(a) or 78o(d));  and, (ii) the  information
contained in this Report fairly present, in all material respects, the financial
condition  and results of  operations  of Tengasco,  Inc.  and its  Subsidiaries
during the period covered by this report.

Dated: November 14, 2002                            /s/ Malcolm E. Ratliff
                                                    ----------------------------
                                                    Malcolm E. Ratliff
                                                    Chief Executive Officer








                                       27
<PAGE>


                                  CERTIFICATION

I, Jeffrey R. Bailey,  certify pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 that:

1. I have reviewed this quarterly report on Form 10-Q of Tengasco, Inc.

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based on my  knowledge,  the  financial  statements,  and other  information
included in this quarterly  report,  fairly present in all material respects the
financial  condition,  results of operations and cash flows of the Registrant as
of, and for, the periods presented in this quarterly report;

4.  The  Registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

       (a)  designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

       (b) evaluated the effectiveness of the Registrant's  disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date'); and

       (c)  presented  in  this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
the  Registrant's  board of  directors  (or persons  performing  the  equivalent
function);

       (a) all  significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weakness in internal controls; and

       (b) any fraud,  whether or not material that  involves the  management or
other  employees  who  have a  significant  role  in the  Registrant's  internal
controls; and

6. The  Registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.



Dated: November 14, 2002                        /s/ Jeffrey R. Bailey
                                                --------------------------------
                                                Jeffrey R. Bailey
                                                President

                                       28
<PAGE>


                                  CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:

       (14) I have reviewed the Quarterly Report on Form 10Q(i);

       (3) To the best of my knowledge  this  Quarterly  Report on Form 10-Q (i)
fully complies with the requirements of section 13(a) or 15(d) of the Securities
and Exchange Act of  1934(U.S.C.  78m(a) or 78o(d));  and, (ii) the  information
contained in this Report fairly present, in all material respects, the financial
condition  and results of  operations  of Tengasco,  Inc.  and its  Subsidiaries
during the period covered by this report.



Dated: November 14, 2002                        /s/ Jeffrey R. Bailey
                                                --------------------------------
                                                Jeffrey R. Bailey
                                                President


                                       29
<PAGE>

                                  CERTIFICATION

I, Mark A. Ruth,  certify pursuant to Section 302 of the  Sarbanes-Oxley  Act of
2002 that:

1. I have reviewed this quarterly report on Form 10-Q of Tengasco, Inc.

2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

3.  Based on my  knowledge,  the  financial  statements,  and other  information
included in this quarterly  report,  fairly present in all material respects the
financial  condition,  results of operations and cash flows of the Registrant as
of, and for, the periods presented in this quarterly report;

4.  The  Registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

       (a)  designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  Registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

       (b) evaluated the effectiveness of the Registrant's  disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date'); and

       (c)  presented  in  this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the Registrant's auditors and the audit committee of
the  Registrant's  board of  directors  (or persons  performing  the  equivalent
function);

       (a) all  significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  Registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
Registrant's auditors any material weakness in internal controls; and

       (b) any fraud,  whether or not material that  involves the  management or
other  employees  who  have a  significant  role  in the  Registrant's  internal
controls; and

6. The  Registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.



Dated: November 14, 2002                        /s/ Mark A. Ruth
                                                --------------------------------
                                                Mark A. Ruth
                                                Chief Financial Officer

                                       30
<PAGE>


                                  CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 I hereby certify that:

       (15) I have reviewed the Quarterly Report on Form 10Q(i);

       (4) To the best of my knowledge  this  Quarterly  Report on Form 10-Q (i)
fully complies with the requirements of section 13(a) or 15(d) of the Securities
and Exchange Act of  1934(U.S.C.  78m(a) or 78o(d));  and, (ii) the  information
contained in this Report fairly present, in all material respects, the financial
condition  and results of  operations  of Tengasco,  Inc.  and its  Subsidiaries
during the period covered by this report.



Dated: November 14, 2002                        /s/ Mark A. Ruth
                                                --------------------------------
                                                Mark A. Ruth
                                                Chief Financial Officer


                                       31