RESULTS OF OPERATIONS

Potomac (Bermuda) was formed on April 7, 1997. Prior to the Merger, the Company was inactive and did not have any assets or liabilities. Effective June 17, 1998, Potomac (Bermuda) merged with and into Potomac Acquisition and became a wholly-owned subsidiary of the Company. The Merger was accounted for as a reverse acquisition of the Company by Potomac (Bermuda) under the purchase method of accounting. The following discussion and analysis of results of operations discussed below are full the full fiscal year including Potomac (Bermuda) prior to the Merger and the Company since the merger. Also See "Business and Properties--General" and "Certain Transactions."

The Company is a development stage company that during the period ending December 31, 1998, did not have any revenue and incurred a net loss of $803,762. There is no assurance that the Company will have revenues from oil, gas or coal sales in the future. The only revenue received by Potomac during 1998 was from interest income of $7,747 earned or accrued on cash and cash equivalents and marketable securities. During 1998, Potomac obtained interests in the Guaduas Association Contract and continued to fulfill it's work commitments on the Rosablanca and Montecristo Association Contracts and in connection therewith incurred $413,488 in professional fees and consulting expenses and incurred miscellaneous expenses of $398,851. Other than the activities associated with obtaining the Guaduas Association Contract and fulfilling the required work commitments of the Rosablanca and Montecristo Association Contracts, Potomac did not conduct any operating activities during 1998.