UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 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 Number: 001-9872
-------------------------------------
COLUMBUS ENERGY CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0891713
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1660 Lincoln St., Denver, CO 80264
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 861-5252
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has 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 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 9, 1999
- --------------------------- ---------------------------
Common stock, $.20 par value 3,873,058
<PAGE>
COLUMBUS ENERGY CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
May 31, 1999 and
November 30, 1998 3
Consolidated Statements of Operations -
Three Months and Six Months
Ended May 31, 1999 and 1998 5
Consolidated Statement of
Stockholders' Equity -
Six Months Ended May 31, 1999 6
Consolidated Statements of Cash Flows -
Six Months Ended May 31, 1999
and 1998 7
Notes to the Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Items 2-3. Not Applicable
Item 4. Submission of Matters to a Vote
of Security Holders 24
Item 5. Not Applicable
Item 6. Exhibits and Reports
on Form 8-K 24
Signatures 25
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, November 30,
1999 1998
----------- -----------
(unaudited)
(in thousands)
Current assets:
Cash and cash equivalents $ 948 $ 2,003
Accounts receivable:
Joint interest partners 966 1,570
Oil and gas sales 1,217 1,239
Allowance for doubtful accounts (116) (116)
Deferred income taxes (Note 3) 149 327
Inventory of oil field equipment,
at lower of average cost or market 105 95
Other 137 106
------- -------
Total current assets 3,406 5,224
------- -------
Deferred income taxes (Note 3) 241 -
Property and equipment:
Oil and gas assets, successful efforts
method (Note 2) 37,437 36,039
Other property and equipment 1,802 1,804
------- -------
39,239 37,843
Less: Accumulated depreciation,
depletion and amortization
and valuation allowance (20,831) (19,118)
------- -------
Net property and equipment 18,408 18,725
------- -------
$ 22,055 $ 23,949
======== ========
(continued)
3
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS - (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, November 30,
1999 1998
----------- -----------
(unaudited)
(in thousands)
Current liabilities:
Accounts payable $ 1,502 $ 1,846
Undistributed oil and gas
production receipts 258 317
Accrued production and property taxes 406 677
Prepayments from joint interest owners 112 374
Accrued expenses 350 415
Income taxes payable (Note 3) 22 2
Other 36 37
------ ------
Total current liabilities 2,686 3,668
------ ------
Long-term bank debt (Note 2) 5,500 4,900
Deferred income taxes (Note 3) - 117
Commitments and contingent liabilities
(Notes 4 and 5)
Stockholders' equity:
Preferred stock authorized 5,000,000
shares, no par value, none issued - -
Common stock authorized 20,000,000
shares of $.20 par value; shares issued
4,639,625 in 1999, and 4,611,001 in 1998
(outstanding 3,865,955 in 1999 and
4,046,552 in 1998) 928 922
Additional paid-in capital 19,727 19,656
Retained earnings (accumulated deficit) (1,647) (1,440)
------ ------
19,008 19,138
Less: Treasury stock at cost
773,670 shares in 1999 and
564,449 shares in 1998 (5,139) (3,874)
------ ------
Total stockholders' equity 13,869 15,264
------ ------
$ 22,055 $ 23,949
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
May 31, May 31,
-------------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 4,304 $ 5,618 $ 2,271 $ 2,781
Operating and management
services 672 626 336 318
Interest and other income 47 77 20 35
------- -------- -------- -------
Total revenues 5,023 6,321 2,627 3,134
------- -------- -------- -------
Costs and expenses:
Lease operating expenses 843 1,217 421 657
Property and production taxes 499 541 255 281
Operating and management
services 473 496 222 225
General and administrative 776 898 440 611
Depreciation, depletion and
amortization 1,724 1,890 834 885
Impairments 503 2,816 503 -
Exploration expense 344 428 225 165
Litigation expense (Note 4) 17 - 13 -
-------- -------- -------- -------
Total costs and expenses 5,179 8,286 2,913 2,824
-------- -------- -------- -------
Operating income (loss) (156) (1,965) (286) 310
-------- -------- -------- -------
Other expenses (income):
Interest 175 114 91 71
Other 3 34 2 2
------- -------- ------- -------
178 148 93 73
------- -------- -------- -------
Earnings (loss) before
income taxes (334) (2,113) (379) 237
Provision (benefit) for income
taxes (Note 3) (127) (803) (144) 90
------- -------- ------- -------
Net earnings (loss) $ (207) $(1,310) $ (235) $ 147
======= ======== ======= =======
Earnings (loss) per share (Note 7):
Basic $ (.05) $ (.31) $ (.06) $ .03
======= ======== ======= =======
Diluted $ (.05) $ (.31) $ (.06) $ .03
======= ======== ======= =======
Average number of common shares and common
equivalent shares outstanding:
Basic 3,946 4,244 3,883 4,230
======= ======== ======= =======
Diluted 3,946 4,244 3,883 4,294
======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended May 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Treasury Stock
-------------------- Paid-in (Accumulated ---------------------
Shares Amount Capital deficit) Shares Amount
--------- ------- ---------- ------------ -------- --------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances,
December 1, 1998 4,611,001 $ 922 $19,656 $(1,440) 564,449 $(3,874)
Exercise of employee
stock options 23,320 5 63 - 855 25
Purchase of shares - - - - 228,040 (1,421)
Shares issued for Stock
Purchase Plan 5,304 1 34 - (1,334) 9
Shares issued for
Incentive Bonus Plan
and directors' fees - - (38) - (18,340) 122
Tax benefit of stock
option exercises - - 12 - - -
Net loss - - - (207) - -
--------- ------- ------- ------- ------ -------
Balances,
May 31, 1999 4,639,625 $ 928 $19,727 $(1,647) 773,670 $(5,139)
========== ======= ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended May 31,
----------------------------
1999 1998
-------- --------
(in thousands)
Net earnings (loss) $ (207) $(1,310)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation, depletion, and
amortization 1,724 1,890
Impairments 503 2,816
Deferred income tax provision (benefit) (168) (845)
Exploration expense, noncash portion 80 -
Other 84 221
Net change in operating assets and
liabilities (726) 948
-------- -------
Net cash provided by
operating activities 1,290 3,720
-------- -------
Cash flows from investing activities:
Additions to oil and gas properties (1,641) (4,540)
Additions to other assets (11) (15)
-------- -------
Net cash used in
investing activities (1,652) (4,555)
-------- -------
Cash flows from financing activities:
Proceeds from long-term debt 900 1,800
Reduction in long-term debt (300) (600)
Proceeds from issuance of
common stock 128 258
Purchase of treasury stock (1,421) (1,093)
Other - (2)
------ -------
Net cash provided by (used in)
financing activities (693) 363
Net decrease in cash and
cash equivalents (1,055) (472)
Cash and cash equivalents at
beginning of period 2,003 1,857
------ -------
Cash and cash equivalents at
end of period $ 948 $ 1,385
====== =======
(continued)
7
<PAGE>
COLUMBUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(Unaudited)
Six Months Ended May 31,
----------------------------
1999 1998
-------- --------
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 174 $ 111
====== =======
Income taxes, net of refunds $ 21 $ 66
====== =======
Supplemental disclosure of non-cash investing
and financing activities:
Non-cash compensation expense
related to common stock $ 81 $ 142
====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
8
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Columbus Energy Corp. ("Columbus") and its wholly-owned subsidiaries,
Columbus Gas Services, Inc. ("CGSI") and Columbus Texas, Inc. ("Texas"). All
significant intercompany balances have been eliminated in consolidation. The
term "Company" as used herein includes Columbus and its subsidiaries.
The consolidated financial statements of the Company have been
prepared in accordance with generally accepted accounting principles and require
the use of management's estimates. The financial statements contain all
adjustments (consisting only of normal recurring accruals) which, in the opinion
of management, are necessary to present fairly the financial position of the
Company as of May 31, 1999 and November 30, 1998, and the results of its
operations and cash flows for the periods presented. The results of operations
for such interim periods are not necessarily indicative of results to be
expected for the full year.
The accounting policies followed by the Company are set forth in Note
2 to the Company's consolidated financial statements in the Annual Report on
Form 10-K for the year ended November 30, 1998. These accounting policies and
other footnote disclosures previously made have been omitted in this report so
long as the interim information presented is not misleading. The effective date
for the Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," has been postponed to fiscal
years beginning after June 15, 2000. The Company must apply this standard no
later than its fiscal year ending November 30, 2001. These quarterly financial
statements should be read in conjunction with the consolidated financial
statements and notes included in the 1998 Form 10-K.
(2) LONG-TERM DEBT
The Company has a credit agreement with Norwest Bank Denver, N.A. ("Bank")
that was amended on May 12, 1999 to extend the revolving period to July 1, 2001
when it entirely converts to an amortizing term loan which matures July 1, 2005.
The credit is collateralized by a first lien on oil and gas properties. The
interest rate options are the Bank's prime rate or LIBOR plus 1.50%.
9
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
The borrowing base is limited to $10,000,000 and subject to semi-annual
redetermination for any increase or decrease. At May 31, 1999 outstanding
borrowings on the revolving line of credit were $5,500,000 and the unused
borrowing base available was $4,500,000. A commitment fee of 1/4 of 1% for any
unused portion of the amount which is the difference between the borrowing base
and the outstanding borrowings is payable quarterly.
(3) INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
Six Months Ended May 31,
------------------------
1999 1998
--------- ----------
Current:
Federal $ 17 $ 4
State 24 38
----- -----
41 42
----- -----
Deferred:
Federal (165) (814)
Use of loss carryforwards 4 3
State (7) (34)
----- -----
(168) (845)
Total income tax (benefit) expense $ (127) $ (803)
====== ======
10
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
During the six months of fiscal 1999, certain tax assets (shown in the
table below) were utilized. The tax effect of significant temporary differences
representing deferred tax assets and liabilities and changes were estimated as
follows (in thousands):
<TABLE>
<CAPTION>
Current Year
--------------------------------------------------
Stock-
Dec. 1, holders' Operations/ May 31,
1998 Equity Other 1999
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Deferred tax assets:
Pre-1987 loss carryforwards $1,124 $ - $ - $1,124
Post-1987 loss carryforwards 540 - - 540
Percentage depletion
carryforwards 1,478 - - 1,478
State income tax loss
carryforwards 118 - (4) 114
Other 329 - (3) 326
------- ------ ------ ------
Total 3,589 - (7) 3,582
Valuation allowance
(long-term) (1,408) - - (1,408)
-------- ------ ------ ------
Deferred tax assets 2,181 - (7) 2,174
-------- ------ ------ ------
Tax benefit of stock option
exercises - 12(a) (12) -
-------- ---- ------ ------
Deferred tax liabilities-
Depreciation, depletion and
amortization and other (1,971) - 187 (1,784)
-------- ---- ------ ------
Net tax asset (liability) $ 210 $ 12 $ 168 $ 390
======== ==== ======= =======
- ------------------
(a)Credited to additional paid-in capital.
</TABLE>
(4) LITIGATION
On October 7, 1998, Columbus was served with a complaint in a lawsuit
styled Maris E. Penn, Michael Mattalino, Bruce Davis, and Benjamin T. Willey,
Jr. vs. Columbus Energy Corp., Cause No. 98-44940 in the District Court of
Harris County, Texas. The plaintiffs claim that Columbus breached the settlement
agreement of their previous lawsuit reached in September 1994 by failing to
develop properties located within the area of mutual interests and to act as a
reasonably prudent operator in the development of the property. Plaintiffs
allege damages under the contract but no amount is specified. Columbus denied
claims and has responded with a First Set of Interrogatories, First Request for
Production of Documents and Request for Disclosure to Plaintiffs. Columbus filed
Special Exceptions to Plaintiffs' Original Petition which were sustained by the
Judge who concurred that those portions of the complaint were not in accordance
with Texas law. The Plaintiffs were given a limited time frame in which to amend
11
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
their petition with respect to those key paragraphs for which Columbus'
exceptions were sustained or the case would be dismissed. Plaintiffs did refile
their petition but included those same paragraphs and added a section entitled
"Breach of Implied Covenant to Develop the Area of Mutual Interest" as an
alternative to their original Pleadings. Columbus has subsequently filed its
Motion for Summary Judgment and a ruling thereon is expected sometime in July.
Trial date has been set for November 15, 1999 should Columbus' Motion for
Summary Judgment not be granted. Management believes the Plaintiffs' claims are
without merit and an implausible construction of what was agreed upon in
settlement of the previous lawsuit.
(5) COMMITMENTS AND CONTINGENT LIABILITIES
When the Company uses natural gas and crude oil swaps they are
considered financial instruments with off-balance sheet risk which are entered
into in the normal course of business to partially reduce its exposure to
fluctuations in the price of crude oil and natural gas. Those instruments do
involve, to varying degrees, elements of market and credit risk in excess of the
amount recognized in the balance sheets. The Company had no natural gas or crude
oil swaps outstanding as of May 31, 1999.
The Company is not aware of any events of noncompliance in its
operations with environmental laws and regulations nor of any potentially
material contingencies related thereto. There is no way management can predict
what future environmental control problems may arise. The continually changing
character of environmental regulations and requirements that might be enacted in
future by jurisdictional authorities in various operational areas defies
forecasting.
(6) RELATED PARTY TRANSACTIONS
CEC Resources Ltd. ("Resources") was a wholly-owned subsidiary of
Columbus prior to its divestiture on February 24, 1995. Reimbursement has been
made by Resources to Columbus for services provided by Columbus officers and
employees for managing Resources in the past which reduced general and
administrative expense. This reimbursement totaled $32,000 and $123,000 for the
six months of 1999 and 1998, respectively. Effective on March 31, 1999, the
agreement to continue furnishing those services was terminated by Columbus
following the 90 day prior notice period as provided.
12
<PAGE>
COLUMBUS ENERGY CORP.
NOTES TO THE FINANCIAL STATEMENTS - (continued)
(Unaudited)
(7) EARNINGS PER SHARE
The following table provides a reconciliation of basic and diluted
earnings per share (EPS):
<TABLE>
<CAPTION>
Six Months Three Months
Ended May 31, Ended May 31,
--------------- ---------------
1999 1998 1999 1998
------ ------ ----- -----
(in thousands,except per share data)
<S> <C> <C> <C> <C>
Reconciliation of basic and diluted
EPS share computations:
Income (loss) available to common
shareholders - basic and
diluted EPS (numerator) $ (207) $(1,310) $ (235) $ 147
====== ===== ===== =====
Shares (denominator):
Basic EPS 3,946 4,244 3,883 4,230
Effect of dilutive option
shares - - - 64
------ ----- ----- -----
Diluted EPS 3,946 4,244 3,883 4,294
====== ===== ===== =====
Per share amount:
Basic EPS $ (.05) $ (.31) $ (.06) $ .03
====== ===== ===== =====
Diluted EPS $ (.05) $ (.31) $ (.06) $ .03
====== ===== ===== =====
Number of shares (in thousands)
not included in basic EPS that would
have been antidilutive because exercise
price of options was greater than the
average market price of the common shares 460 138 532 138
====== ===== ===== =====
</TABLE>
Historical average number of shares outstanding and earnings per share
have been adjusted for the 10% stock dividend distributed March 9, 1998 to
shareholders of record as of February 23, 1998.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following summarizes the Company's financial condition and results
of operations and should be read in conjunction with the consolidated financial
statements and related notes.
Liquidity and Capital Resources
Second quarter 1999 oil and gas sales improved over recent periods
when dismal crude oil prices prevailed and natural gas prices were weaker.
Average worldwide and domestic crude oil prices improved significantly as the
latest quarter progressed which led to the recent resumption of operations for
several shut-in oil wells which had adversely affected crude oil production
since latter 1998. Also, limited improvement in the Company's average natural
gas prices appeared late in the quarter but were still lower than 1998's second
quarter. This fact, coupled with lower production, was primarily responsible for
the current quarter's cash flow being lower than last year's similar period. The
net loss for second quarter 1999 was $235,000, or $0.06 per share because of
lower oil and gas sales and a non-cash impairment expense of $503,000 ($312,000
after income taxes, or $0.08 per share). This compares with 1998's second
quarter net earnings of $147,000, or $0.03 per share,
Stockholders' equity as of the end of 1999's first six months
decreased to $13,869,000 from $15,264,000 at November 30, 1998 while working
capital was down to $720,000 from $1,556,000. The latter resulted from a
combination of additional purchases of treasury shares and additions to
properties which exceeded cash provided by operating activities by an amount
greater than the $600,000 increase in long term bank debt since fiscal year end.
Management expects that cash flow for the whole year will provide more
than sufficient funds for fiscal 1999's planned capital expenditure program of
approximately $4,000,000. This program will be concentrated on developing proved
undeveloped natural gas reserves and funding an onshore exploratory drilling
program in the lower Texas Gulf Coast area while concentrating on our existing
El Squared prospect leaseholds. The unused portion of the $10,000,000 bank
credit facility has primarily in the past been earmarked for acquisitions of oil
and gas properties, but could be used for any corporate purpose. We expect some
unused portion of the bank line to be available if unforeseen additional capital
expenditure requirements arise during the last half of 1999 because exploratory
drilling activities yield outstanding successes necessitating an accelerated
development drilling program in order to retain leaseholds.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Net cash provided by operating activities was $1,290,000 for the first
six months of 1999, which compares with $3,720,000 for the same period last
year. This cash flow, coupled with use of the Company's credit facility, has
provided liquidity to fund all drilling capital expenditures as well as treasury
share repurchases thus far in 1999.
As disclosed in the past, management places greater reliance upon an
important alternative method of computing cash flow which is generally known as
Discretionary Cash Flow ("DCF"). DCF is not in accordance with generally
accepted accounting principles ("GAAP") but is commonly used in the industry as
this method calculates cash flow before considering working capital changes or
deduction of exploration expenses since the latter can be increased or decreased
at management's discretion. DCF is often used by successful efforts companies to
compare their cash flow results with those independent energy companies using
the full cost accounting method where exploration expenses are capitalized and
do not immediately adversely affect either operating cash flow or net earnings.
Columbus' DCF for the first six months of 1999 was $2,280,000 down 29% from
1998's similar period which was $3,200,000. Second quarter DCF was $1,216,000 in
1999 compared to $1,466,000 in 1998. As previously indicated, this decrease was
primarily attributable to lower crude oil and natural gas prices but daily
production stated in Mcf equivalent was also down 11% compared with last year's
similar period. DCF is calculated without any debt retirement being considered
but in Columbus' case this does not matter as current bank debt requires no
principal payments before August 1, 2001 and interest expense has been deducted
before arriving at DCF.
Management notes in each of its public filings and reports its strong
exception to the Statement of Financial Accounting Standards No. 95 as it
applies to Columbus. Because it directs that operating cash flow must only be
determined after consideration of working capital changes, management believes
such a requirement by GAAP ignores entirely the significant impact that the
timing of income received for, and expenses incurred on behalf of, third party
owners in properties may have on working capital. This is particularly
significant where Columbus owns only a small working interest but is the
operator.
Neither DCF nor operating cash flow before working capital changes may
be substituted for net income or for cash available from operations as defined
by GAAP. Furthermore, currently reported cash flows, however defined, are not
necessarily indicative that there will be sufficient funds for all future cash
requirements. For the first six months of 1999, GAAP cash flow was lower than
DCF but just the opposite has been true in several prior quarters.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
At the present time, the Company has no hedges of either crude oil or
natural gas prices similar to those swaps it negotiated in prior years.
Therefore, the Company's current oil and gas revenues are fully exposed to the
risk of declining prices such as occurred during most of fiscal 1998 and first
four months of fiscal 1999. However, the Company has been able to realize the
full benefit of price increases that began to occur later in the second quarter
1999 because no swaps were in place. Subsequent to the end of the quarter, both
crude oil and natural gas prices have continued their improvement.
Columbus had outstanding borrowings of $5,500,000 as of May 31, 1999
against its $10,000,000 line of credit with Norwest Bank Denver, N.A. which is
collateralized by oil and gas properties. On that same date the ratio of net
long-term debt (debt less working capital) to shareholders' equity was 0.34 and
to total assets was 0.22. Outstanding long term debt utilized a LIBOR option
with an average interest rate of 6.4%. Subsequent to the end of the second
quarter, Columbus has drawn down an additional $200,000 to pay for its 1999
capital expenditure program. The net increase (or decrease) of long-term debt
directly affects cash flows from financing activities as do the purchase of
treasury shares or the proceeds from the exercise of stock options.
Working capital at May 31, 1999 declined to $720,000 from $1,556,000
at November 30, 1998 for reasons discussed earlier. Actual six month's capital
expenditures related to 1999 were $1,964,000 for additions to oil and gas
properties and $1,421,000 for the purchase of 228,040 treasury shares
($6.21/share) both of which affected working capital. However, the
aforementioned 1999 actual capital expenditures differ from the amount shown in
the consolidated Statement of Cash Flows because the capital expenditures
include costs which had been incurred during 1999 but had not yet been paid by
the end of the second quarter.
Management has for several years been authorized from time to time by
the Board of Directors to repurchase its common shares from the market in blocks
subject to price limitations. During February and May 1999, authorizations to
purchase 100,000 and 50,000 shares at prices not to exceed $6.00 per share were
added to previous unfilled approvals. During June and to date in July 1999, no
additional shares have been acquired which leaves approximately 46,000 shares of
the May 1999 authorization yet to be purchased.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
RESULTS OF OPERATIONS
During 1999's second quarter, lower oil and gas sales were responsible
for gross revenues decreasing by 16% and for operating income being reduced to
$217,000 (before impairment charges) from $310,000 in 1998. Other comparisons
for the 1999 quarter and six month periods versus 1998 related to prices,
production and oil and gas sales appear in tabular form below.
During 1999's second quarter three gross wells (1.47 net WI) drilled
were dry holes and were plugged. These included one (.09 net WI) development
well in Harris County, Texas, one (.385 net WI) exploratory well in Bee County,
Texas and a second (1.00 net WI) exploratory well which was an attempt to
recomplete a potential shallow gas zone above 3,000 feet in an abandoned cased
well in Richland County, Montana. Three wells were in progress at quarter end
including one upper Wilcox wildcat, the Long #3, located in the El Squared
prospect in Bee County, Texas and two development gas wells in the Laredo, Texas
operational area.
Oil and Gas Revenues and Operating Costs
The following table shows comparative crude oil and natural gas
revenues, sales volumes, average prices and percentage changes between the
periods presented as follows:
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------------------- -------------------------------
1999 1998 Change 1999 1998 Change
------ ------ ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Natural gas revenues M$ $1,678 2,017 (17)% $ 3,318* $ 3,932* (16)%
Oil revenue M$ $ 593 $ 764 (22)% $ 986 $ 1,686 (42)%
Natural gas sales volumes:
Millions of cubic feet (MMCF) 810 856 (5)% 1,686* 1,717* (2)%
MCF/day 8,803 9,303 9,266 9,436
Oil sales volumes:
Barrels 39,402 57,570 (32)% 77,347 117,239 (34)%
Barrels/day 428 626 425 644
Average price received:
Natural gas - $/MCF $ 2.07 $ 2.36 (12)% $ 1.97 $ 2.29 (14)%
Oil - $/BBL $15.05 $13.27 13 % $12.75 $14.38 (11)%
</TABLE>
*These sales volumes should not be confused with actual production for the
period. Six month's sales volumes and revenues include adjustments consisting of
a reduction of 15 MMCF and $33,000 for 1999 and an increase of 38 MMCF and
$68,000 for 1998.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Natural gas revenues decreased 17% in the second quarter of 1999
versus 1998 because prices and sales volumes were both lower. Average gas prices
were depressed due to a warm winter and a high level inventory of storage gas
available. Similarly, comparable quarters showed 5% lower sales volumes in 1999
due to production declines and down time for additional completion efforts at
the Long #1 and #2 wells in Bee County, Texas. A reversionary interest
settlement was reached during 1999's first quarter and created a retroactive
adjustment to both sales and production at the Syphrett Heirs #1 in Chambers
County, Texas of 15,000 MCF of gas and $33,000 in revenues which also affected
the six month's results adversely. The opposite situation occurred in 1998's
first quarter when there was an upward adjustment of 38,000 MCF of gas and
$68,000 that increased first quarter and first half results because of a
reversion in a well which benefited Columbus so that actual production for the
1999 first half exceeded that of 1998 despite the contrary sales results. For
the 1999 six month period, natural gas revenues declined 16% which was mostly
the result of a 14% decrease in average prices for reasons previously described.
Oil revenues for 1999's second quarter were lower by 22% than the 1998
quarter because sales volumes were 32% lower and prices rose only by 13%. Oil
production declined due to shut-in wells plus no drilling activity. Crude oil
prices, which had been depressed for over a year, began to move upwards as the
second quarter progressed but arrived too late and too little to help much.
Similar reasons apply to comparative six month's results for both revenues and
volumes which were lower by 42% and 34%, respectively, while crude oil prices
were 11% lower during 1999's first half.
Columbus' 1999 second quarter sales volumes of natural gas averaged
8,803 Mcfd while oil and liquids production were 434 barrels per day. These
equate to an average daily sales volumes of 11,407 MCF equivalent (Mcfe)
compared to 1998's second quarter rate of 13,101 Mcfe. This was attributable to
the aforementioned curtailment and decline of oil production coupled with normal
decline and downtime due to fracture stimulation of the Long #2. Also, the Long
#1 experienced a reduction in flow rate caused inexplicably by merely a shut-in
of the well for fairly short periods on three separate occasions. A special
treatment designed to alleviate swelling clays in the sand was apparently not
very successful. For the six month's periods, average daily sales volumes were
11,849 Mcfe in 1999 versus 13,345 Mcfe in 1998. These period rates were affected
by the aforementioned downward and upward retroactive adjustments in the first
quarters of each year in addition to the reasons described for the second
quarters.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Lease operating expenses for the second quarter and first half were
much lower than in 1998. Expensive workovers and replacements of downhole and
surface equipment on older wells had occurred during the second quarter of
fiscal 1998 while several of those older wells were shut-in this year. Lease
operating costs on a Mcfe basis were $0.40 in the second quarter of 1999
compared to $0.55 in the same period of 1998. Second quarter operating costs as
a percentage of revenues were down to 19% in 1999 as a result of those reduced
costs versus 24% in 1998 when better prices and higher oil production generated
higher revenues. For the six month's periods lease operating costs were $0.39
per Mcfe in 1999 and $0.50 in 1998. Six month lease operating costs as a
percentage of revenues were 20% in 1999 and 22% in 1998.
Production and property taxes approximated 12% of revenues in 1999 and
10% in 1998. These vary based on Texas' percentage share of the total production
where oil tax rates are lower than gas tax rates. The relationship of taxes and
revenue is not always directly proportional since most of the local
jurisdiction's property taxes in Texas are based upon reserve evaluations as
opposed to revenues received or production rates for a given tax period.
Operating and Management Services
This segment of the Company's business is comprised of operations and
services conducted on behalf of third parties which includes compressor
operations and salt water disposal facilities.
Operating and management services gross profit was as follows:
1999 1998
---- ----
Second quarter $114,000 $ 93,000
Six months $199,000 $130,000
First half of 1998's operations included unusually high workover expenses
required to clean out sand from the well bore of a salt water disposal well in
Texas while 1999's costs included sizable compressor repairs. Revenues improved
during 1999 as the number of operated wells increased along with an increase
from 50% to 100% ownership interest in four compressors operating in South
Texas.
Interest Income
Interest income is earned primarily from short-term investments whose
rates fluctuate with changes in the commercial paper rates and the prime rate.
Interest income decreased in the second quarter of 1999 to $19,000 from $35,000
in 1998's second quarter primarily as a result of a lower amount of investments
and lower short-term interest rates.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
General and Administrative Expenses
General and administrative expenses are considered to be those which
relate to the direct costs of the Company which do not originate from operation
of properties or providing of services. Corporate expense represents a major
part of this category.
The Company's general and administrative expenses were as follows:
1999 1998
--------- ---------
Second quarter $440,000 $611,000
Six months $776,000 $898,000
Second quarter of 1999's expenses were less than last year due to a material
reduction in incentive bonuses, which are discretionary and related to Company's
performance during the prior year. These totaled $80,000 ($58,000 non-cash) in
May 1999 compared to $273,000 ($153,000 non-cash) in May 1998. The previously
disclosed total phase out of reimbursement for services provided for the
management of Resources occurred during the second quarter of 1999 which
effectively increased costs by that amount. Reimbursement of $10,000 for 1999
compares with $64,000 during 1998's second quarter while six month's comparisons
were $32,000 for 1999 and $123,000 for 1998. Also, 1999 expenses were up due to
salary increases which were granted effective December 1, 1998 for non-officer
employees and May 1, 1998 for officers. Higher medical claims under the
Company's self-insured plan plus increased office rent raised costs for 1999's
second quarter and first half.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization of oil and gas assets are
calculated based upon the units of production for the period compared to proved
reserves of each successful efforts property pool. This expense is not only
directly related to the level of production, but is also dependent upon past
costs to find, develop, and recover related reserves in each of the cost pools
or fields. Depreciation and amortization of office equipment and computer
software is also included in the total charge.
Charges for this expense item decreased from 1998's second quarter as
a result of decreased production and despite additional development expenditures
in the intervening period. Impairment writedowns in 1998 contributed to a small
reduction in the depletion rate per Mcfe for 1999's first quarter of $.76 per
Mcfe. The 1999 second quarter depletion rate of $.77 per Mcfe compares with $.71
per Mcfe for the like period of fiscal 1998 and $.77 per Mcfe for all of 1998.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Exploration Expense
In general, the exploration expense category includes the cost of
Company-wide efforts to acquire and explore new prospective areas. The
successful efforts method of accounting for oil and gas properties requires
expensing the costs of unsuccessful exploratory wells including associated
leaseholds. Other exploratory charges such as seismic and geologic costs must
also be immediately expensed regardless of whether a prospect is ultimately
proved to be successful. Exploration charges of $225,000 for 1999's second
quarter were up from 1998's $165,000. In 1999 a total of $160,000 was expensed
for participation in two shallow exploratory dry holes during the second
quarter. During 1998's quarter and six month periods, expenses of $165,000 and
$428,000 included charges for 3-D seismic and an exploratory dry hole drilled in
Montana.
Whenever a company reporting under the successful efforts method of
accounting is involved in an exploratory program that represents a significant
part of its budget, it subjects itself to the risks that net earnings for a
given quarter or a year may be severely negatively impacted by those exploratory
costs. With the numerous exploratory well bores involved at Columbus' El Squared
Prospect that are required to properly evaluate the various fault blocks and/or
potential producing horizons, shareholders should be forewarned that net
earnings and GAAP cash flow may not be indicative of the success of the
Company's operational activity. Management believes shareholders should continue
to place more emphasis on Discretionary Cash Flows for the year and not try to
compare our results with other company's net earnings or cash flows who use the
full cost accounting method and capitalize their exploratory costs.
Impairments
At the end of 1999's second quarter, a pre-tax, non-cash impairment
loss of $503,000 was recorded. The improvement in crude oil prices previously
discussed was insufficient to justify restoration of proved undeveloped reserves
in one of the Williston Basin's cost pools because the return on investment
would be unsatisfactory. When crude oil prices in that area may reach and
maintain $20 per barrel cannot be forecasted with any accuracy, so it was
determined to defer restoration of undeveloped reserves and recognize the
shortfall of $253,000 between remaining book value of the pool and the current
fair market value of its reserves as a charge. Elsewhere, an unexpected influx
of water in natural gas wells in the shallow Heidi property in Jim Wells County,
Texas brought on premature abandonment of producing zones and associated natural
gas reserves which generated a pre-tax, non-cash impairment of $250,000.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
A non-cash impairment loss of $2,816,000 in the first quarter 1998 was
primarily generated by low crude oil prices and to a Louisiana well's poor
performance. Those low prices caused a write down in both developed and
undeveloped oil reserve quantities as well as a reduction in the remaining
carrying value of several of the successful efforts pools when the unamortized
costs suddenly exceeded a newly calculated undiscounted future net cash flows.
Certain of the property pools were written down to an estimated fair value based
on an assumption that the average future crude oil price would be $18.75 per
barrel over the remaining life of those pools. An additional $400,000 of
impairments were also provided for probable loss in value of undeveloped acreage
holdings (unproved properties) located primarily in Louisiana plus $56,000 was
expensed for an expired lease. No impairment was necessary for the second
quarter of 1998.
Interest Expense
Interest expense varies in direct proportion to the amount of bank debt
and the level of bank interest rates. The average amount of bank debt
outstanding has been higher during 1999's first and second quarters than in
1998. The average bank interest rate paid this latest quarter was 6.4% which
compares to 7.2% in 1998. For the six month periods average interest rates were
6.6% in 1999 and 7.2% in 1998.
Income Taxes
During the six months quarter of 1999, the net deferred tax asset
increased to $390,000. The asset is comprised of a $149,000 current asset and a
$241,000 long-term asset. A tax deduction of $12,000 from the benefit of stock
option exercises has been added to additional paid-in capital during 1999. The
estimated increase in deferred tax assets was $168,000 during the six months.
The valuation allowance has remained unchanged thus far in 1999. The effective
tax rate for 1999 is 38%. See Note 3 to the consolidated financial statements
for further explanation of income taxes.
Impact of the Year 2000 issue.
The Year 2000 issue is the result of computer programs being written
using two digits rather than four, or other methods, to define the applicable
year. Computer programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000 and could result in a
system failure or miscalculations causing disruptions of operations such as a
temporary inability to process transactions, transmit invoices or engage in
similar normal business activities.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
The Company upgraded its major system computer software in 1997 to a
new release of a major software vendor that the vendor represents is compliant
with the year 2000. Columbus has started its review of other less important
systems as well as its significant suppliers, purchasers, and transporters of
oil and gas to determine the extent to which the Company might still be
vulnerable to other failures and what the impact might be on its operations.
The Company's interest in wells operated by other companies is not
considered to be as important but management is attempting to determine if those
companies are ready for the year 2000. The Company uses outside services for
payroll and medical benefits processing and those companies have provided
updates to their software that they represent is year 2000 compliant. The
Company is also somewhat dependent upon personal computers as well as certain
spreadsheet and word processing software programs which may not be year 2000
compliant at present. Evaluations will be made to establish which of those
systems are critical and need to be remedied by September 30, 1999.
The Company also relies on non-information technology systems, such as
office telephones, facsimile machines, air conditioning, heating and elevators
in its leased office space, which may have embedded technology such as micro
controllers and are generally outside of its control to assess or remedy. These
might adversely impact the Company's business but in management's opinion would
not create a material disruption.
As previously disclosed, the major system computer software upgrade
performed in 1997 cost $16,000. Management expects that this represents the
majority of the costs, including replacement of any non-compliant information
technology system, required to meet its goal of being year 2000 ready for
mission-critical systems. The Company does not believe that any loss of revenue
will occur as a result of the year 2000 problem but regardless of efforts to
identify and remedy such problems, there could be year 2000 related failures
that cause some disruption to the Company's operations or temporary delays in
processing certain data. The Company has not established a contingency plan
should year 2000 failures occur and has not determined if it will in fact create
a contingency plan.
Statement Pursuant to Safe Harbor Provision of the Private
Securities Litigation Reform Act of 1995
This report may contain certain "forward-looking statements" that have
been based on imprecise assumptions with regard to production levels, price
realizations, and expenditures for exploration and development and anticipated
results therefrom.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (Continued)
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially from those expressed herein or implied by such
statements.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Management is unaware of any asserted or unasserted claims or
assessments against the Company which would materially affect the Company's
future financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual meeting held May 6, 1999 in Denver, Colorado for the purpose of
electing members of the board of directors. Proxies for the meeting were
solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and
there was no solicitation in opposition to management's solicitations.
All of management's nominees for three Class II directors as listed in
the proxy statement were elected with the following vote:
Shares
Shares Abstaining
Nominee Shares For Against or Withheld
-------- ---------- ------- -----------
Clarence H. Brown 3,700,195 1,065 4,475
J. Samuel Butler 3,669,411 31,849 4,475
Jerol M. Sonosky 3,669,411 31,849 4,475
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Third Amendment of Credit Agreement dated
May 12, 1999 between Columbus Energy Corp.
and Norwest Bank Colorado, National Association.
27 - Financial data schedule - May 31, 1999.
(b) Reports on Form 8-K
Report dated May 5, 1999 amending Corporate
By-Laws to reduce the number of directors from six
to five, effective May 5, 1999.
<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 thereunto duly authorized.
COLUMBUS ENERGY CORP.
---------------------
(Registrant)
DATE: July 12, 1999 /s/ Harry A. Trueblood, Jr.
----------------------------- ---------------------------
Harry A. Trueblood, Jr.
Chairman, President and
Chief Executive Officer
(a duly authorized officer)
DATE: July 12, 1999 /s/ Ronald H. Beck
----------------------------- ---------------------------
Ronald H. Beck
Vice President
(Chief Accounting Officer)
25
<PAGE>
Commission File No. 1-9872
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 31, 1999
COLUMBUS ENERGY CORP.
(Exact Name of Registrant)
1660 Lincoln Street
Denver, Colorado 80264
(Address of Principal Executive Office)
EXHIBIT 10.1
THIRD AMENDMENT OF CREDIT AGREEMENT
THIS THIRD AMENDMENT OF CREDIT AGREEMENT (this "Amendment"), dated as
of May 12, 1999, is by and between COLUMBUS ENERGY CORP., a Colorado corporation
(herein called "Borrower"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a
national banking association (herein called "Norwest").
RECITALS
A. Borrower and Norwest entered into an Amended and Restated Credit
Agreement dated as of October 23, 1996, as amended by amendments dated as of
September 8, 1998 and October 6, 1998 (the "Credit Agreement"), in order to set
forth the terms upon which Norwest would make available to Borrower a line of
credit and by which the line of credit would be governed. Capitalized terms used
herein without definition shall have the same meanings as set forth in the
Credit Agreement.
B. Borrower and Norwest wish to enter into this Amendment in order to
amend further certain terms and provisions of the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Credit Agreement. The Credit Agreement shall be, and hereby is,
amended as follows as of the date hereof:
(a) The following shall be substituted for the
definition of "Borrowing Base Period" in Section 1.1 on page
2 of the Credit Agreement:
"Borrowing Base Period" means: (a) the period from the
date of this Agreement through March 31, 1997; (b)
thereafter, until April 1, 2001, each twelve-month period
beginning on April 1 of each year; and (c) the period from
April 1, 2001 to July 1, 2001.
(b) The following shall be substituted for the
definition of "Maturity Date" in Section 1.1 on page 7 of the Credit Agreement:
"Maturity Date" means July 1, 2005.
<PAGE>
(c) The following shall be substituted for the
definition of "Principal Payment Date" in Section 1.1 on page
8 of the Credit Agreement:
"Principal Payment Date" means: (a) the first Business
Day of each calendar month, commencing August 1, 2001, and
(b) if all Obligations due and payable on any such date are
not then paid, each succeeding day until all due and payable
Obligations are paid in full.
(d) The following shall be substituted for the
definition of "Revolving Period" in Section 1.1 on page 8 of the Credit
Agreement:
"Revolving Period" means the time period from the date
of this Agreement to July 1, 2001.
2. The Note. The Note shall be amended, such amendment to be effected
by an Allonge (the "Allonge") to be attached to the Note and to be substantially
in the form of Exhibit A attached hereto and made a part hereof.
3. Loan Documents. All references in any document to the Credit
Agreement and the Note shall refer to the Credit Agreement and the Note, as
amended pursuant to this Amendment and the Allonge.
4. Conditions Precedent. The obligations of the parties under
this Amendment and under the foregoing amendments to the Credit Agreement and
the Note are subject, at the option of Norwest, to the prior satisfaction of the
condition that Borrower shall have executed and delivered to Norwest the
following (all documents to be satisfactory in form and substance to Norwest):
(a) This Amendment.
(b) The Allonge.
(c) A Consent of Guarantor executed by CGSI in the form
of Exhibit B attached hereto and made a part
hereof.
5. Representations and Warranties. Borrower hereby certifies to Norwest
that as of the date of this Amendment: (a) all of Borrower's representations and
warranties contained in the Credit Agreement are true, accurate and complete in
all material respects, and (b) no Default or Event of Default has occurred and
is continuing under the Credit Agreement.
2
<PAGE>
6. Continuation of the Credit Agreement. Except as specified in this
Amendment and the Allonge, the provisions of the Credit Agreement and the Note
shall remain in full force and effect, and if there is a conflict between the
terms of this Amendment or the Allonge and those of the Credit Agreement or the
Note, the terms of this Amendment and the Allonge shall control.
7. Expenses. Borrower shall pay all expenses incurred in connection
with the transactions contemplated by this Amendment, including without
limitation all fees and expenses of Norwest's attorney.
8. Miscellaneous. This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns. This
Amendment may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
Executed as of the date first above written.
COLUMBUS ENERGY CORP.
By: /s/ Michael M. Logan
---------------------
Michael M. Logan,
Vice President
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ J. Thomas Reagan
--------------------
J. Thomas Reagan,
Vice President
3
<PAGE>
EXHIBIT A
ALLONGE
FOR VALUE RECEIVED, COLUMBUS ENERGY CORP., a Colorado
corporation ("Columbus"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a
national banking association ("Norwest"), hereby agree to amend the Promissory
Note dated July 1, 1992, as previously amended (the "Note"), in the face amount
of $10,000,000, made by Columbus, payable to the order of Norwest, as follows:
1. By substituting the following for the first sentence of the
third paragraph on page 1 of the Note:
The outstanding principal amount of this Note shall be payable
as provided in the Credit Agreement, in monthly installments
due on the first Business Day of each calendar month,
commencing August 1, 2001, as more fully described in the
Credit Agreement.
2. By substituting the following for the third sentence of the
third paragraph on page 1 of the Note:
The entire outstanding principal balance of this Note shall be
due and payable on July 1, 2005 (unless payable sooner
pursuant to the terms of the Credit Agreement).
3. By substituting the following for the first sentence of the
fifth paragraph on page 1 of the Note:
Interest on Prime Rate Advances shall be due and payable
monthly on the first Business Day of each calendar month, from
the date hereof through July 1, 2005.
4. By substituting the following for the third sentence of the
fifth paragraph on page 1 of the Note:
All accrued and unpaid interest will be due and payable not
later than July 1, 2005.
DATED as of May 12, 1999.
COLUMBUS ENERGY CORP.
By: __________________________
Michael M. Logan,
Vice President
A-1
<PAGE>
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: __________________________
J. Thomas Reagan,
Vice President
A-2
<PAGE>
EXHIBIT B
CONSENT OF GUARANTOR
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Columbus Gas Services, Inc. ("Guarantor"), as
the Guarantor under a Guaranty Agreement dated July 1, 1992, as amended (the
"Guaranty"), given by Guarantor to Norwest Bank Colorado, National Association
(the "Bank"), to guaranty certain obligations of Columbus Energy Corp.
("Borrower"), to the Bank, hereby consents to, and agrees with the Bank that the
Amended and Restated Credit Agreement dated as of October 23, 1996, as
previously amended (the "Credit Agreement"), between Borrower and the Bank,
shall be amended pursuant to a Third Amendment of Credit Agreement dated as of
May 12, 1999, between Borrower and the Bank, including without limitation the
extension of the end of the "Revolving Period" (as defined in the Credit
Agreement) to July 1, 2001 and the extension of the "Maturity Date" (as defined
in the Credit Agreement) to July 1, 2005.
Guarantor hereby ratifies and adopts the Guaranty and agrees
that the Guaranty shall cover any and all indebtedness, whether for principal,
interest, fees or other amounts, incurred by Borrower to the Bank pursuant to
the Amended and Restated Credit Agreement.
Dated as of May 12, 1999.
COLUMBUS GAS SERVICES, INC.
By: __________________________
Michael M. Logan,
Executive Vice President
B-1
<PAGE>
ALLONGE
FOR VALUE RECEIVED, COLUMBUS ENERGY CORP., a Colorado
corporation ("Columbus"), and NORWEST BANK COLORADO, NATIONAL ASSOCIATION, a
national banking association ("Norwest"), hereby agree to amend the Promissory
Note dated July 1, 1992, as previously amended (the "Note"), in the face amount
of $10,000,000, made by Columbus, payable to the order of Norwest, as follows:
1. By substituting the following for the first sentence of the
third paragraph on page 1 of the Note:
The outstanding principal amount of this Note shall be payable
as provided in the Credit Agreement, in monthly installments
due on the first Business Day of each calendar month,
commencing August 1, 2001, as more fully described in the
Credit Agreement.
2. By substituting the following for the third sentence of the
third paragraph on page 1 of the Note:
The entire outstanding principal balance of this Note shall be
due and payable on July 1, 2005 (unless payable sooner
pursuant to the terms of the Credit Agreement).
3. By substituting the following for the first sentence of the
fifth paragraph on page 1 of the Note:
Interest on Prime Rate Advances shall be due and payable
monthly on the first Business Day of each calendar month, from
the date hereof through July 1, 2005.
4. By substituting the following for the third sentence of the
fifth paragraph on page 1 of the Note:
All accrued and unpaid interest will be due and payable not
later than July 1, 2005.
DATED as of May 12, 1999.
COLUMBUS ENERGY CORP.
By: /s/ Michael M. Logan
----------------------
Michael M. Logan,
Vice President
<PAGE>
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION
By: /s/ J. Thomas Reagan
----------------------
J. Thomas Reagan,
Vice President
2
<PAGE>
CONSENT OF GUARANTOR
For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Columbus Gas Services, Inc. ("Guarantor"), as
the Guarantor under a Guaranty Agreement dated July 1, 1992, as amended (the
"Guaranty"), given by Guarantor to Norwest Bank Colorado, National Association
(the "Bank"), to guaranty certain obligations of Columbus Energy Corp.
("Borrower"), to the Bank, hereby consents to, and agrees with the Bank that the
Amended and Restated Credit Agreement dated as of October 23, 1996, as
previously amended (the "Credit Agreement"), between Borrower and the Bank,
shall be amended pursuant to a Third Amendment of Credit Agreement dated as of
May 12, 1999, between Borrower and the Bank, including without limitation the
extension of the end of the "Revolving Period" (as defined in the Credit
Agreement) to July 1, 2001 and the extension of the "Maturity Date" (as defined
in the Credit Agreement) to July 1, 2005.
Guarantor hereby ratifies and adopts the Guaranty and agrees
that the Guaranty shall cover any and all indebtedness, whether for principal,
interest, fees or other amounts, incurred by Borrower to the Bank pursuant to
the Amended and Restated Credit Agreement.
Dated as of May 12, 1999.
COLUMBUS GAS SERVICES, INC.
By: /s/ Michael M. Logan
--------------------------
Michael M. Logan,
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The consolidated balance sheet as of May 31, 1999 and the consolidated
statement of income for the six months ended May 31, 1999.
</LEGEND>
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<NAME> Columbus Energy Corp.
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<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
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<CASH> 948
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0
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<COMMON> 928
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<INCOME-CONTINUING> (207)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (207)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
