<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
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 0-18691
NORTH COAST ENERGY, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1594000
(State of Incorporation) I.R.S. (Employer
Identification No.)
1993 CASE PARKWAY
TWINSBURG, OHIO 44087-2343
Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (330) 425-2330
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
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 February 9, 1999
----- -------------------------------
Common Stock, $.01 par value 22,782,518
<PAGE> 2
NORTH COAST ENERGY, INC.
<TABLE>
<CAPTION>
Page No.
--------
PART I - FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets -
March 31, 1998 (Audited) and December 31, 1998 (Unaudited) 2
Unaudited Consolidated Statements of Operations -
For the Three and Nine Months Ended December 31, 1997 and 1998 4
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended December 31, 1997 and 1998 6
Unaudited Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
PART II - OTHER INFORMATION 20
</TABLE>
<PAGE> 3
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1998
(Unaudited)
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 1,578,984 $ 3,317,579
Accounts receivable-
Trade, net 1,311,714 2,635,164
Affiliates 96,011 96,124
Inventories 189,223 176,669
Deferred income taxes 26,000 26,000
Refundable income taxes 38,000 38,000
Other, net 8,057 100,283
------------ ------------
Total current assets 3,247,989 6,389,819
------------ ------------
PROPERTY AND EQUIPMENT, at cost:
Land 93,437 93,437
Oil and gas properties (successful efforts) 25,754,748 41,328,141
Pipelines 4,380,772 6,446,056
Vehicles 420,026 1,301,983
Furniture and fixtures 508,417 600,385
Buildings and improvements 786,689 796,037
------------ ------------
31,944,089 50,566,039
Less- Accumulated depreciation, depletion, amortization
and impairment (13,155,288) (14,698,782)
------------ ------------
18,788,801 35,867,257
OTHER ASSETS, net 274,726 1,736,866
------------ ------------
$ 22,311,516 $ 43,993,942
============ ============
</TABLE>
The accompanying notes are an integral part of these Balance Sheets
2
<PAGE> 4
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 88,300 $ 66,700
Accounts payable 1,824,740 1,996,188
Accrued expenses 250,073 443,466
Billings in excess of costs on uncompleted contracts 302,881 2,211,713
------------ ------------
Total current liabilities 2,465,994 4,718,067
------------ ------------
LONG-TERM DEBT, net of current portion 7,171,035 20,733,859
DEFERRED INCOME TAXES AND OTHER LIABILITIES 335,200 1,235,200
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A, 6% Noncumulative Convertible Preferred stock,
par value $.01 per share; 563,270 shares authorized;
75,481 and 74,491 issued and outstanding
(aggregate liquidation value of $754,810
and $744,910, respectively) 755 745
Series B, Cumulative Convertible Preferred stock, par value $.01 per
share; 625,000 shares authorized, 268,264 and 232,864 issued and
outstanding (aggregate liquidation value $2,682,640 and $2,328,640,
respectively) 2,683 2,329
Undesignated Serial Preferred stock, par value $.01 per share;
811,730 shares authorized; none issued and outstanding -- --
Common stock, par value $.01 per share; 60,000,000 shares
authorized; 16,612,931 and 22,782,518 issued and outstanding 166,129 227,825
Additional paid-in capital 16,859,237 21,732,674
Retained deficit (4,689,517) (4,656,757)
------------ ------------
Total stockholders' equity 12,339,287 17,306,816
------------ ------------
$ 22,311,516 $ 43,993,942
============ ============
</TABLE>
The accompanying notes are an integral part of these Balance Sheets
3
<PAGE> 5
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Periods Ended December 31, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas production $ 731,789 $ 2,202,823 $ 2,146,913 $ 5,630,426
Drilling revenues 518,997 -- 1,257,551 326,958
Well operating, transportation and other 383,772 493,262 1,206,824 1,427,673
Administrative and agency fees 332,979 360,792 759,404 779,200
----------- ----------- ----------- -----------
1,967,537 3,056,877 5,370,692 8,164,257
COSTS AND EXPENSES:
Oil and gas production expenses 192,563 1,072,629 625,445 2,269,790
Drilling costs 518,417 151,351 1,148,220 723,139
Oil and gas operations 59,171 62,285 364,832 507,682
General and administrative expenses 638,628 522,936 1,686,508 1,534,075
Depreciation, depletion, amortization,
impairment and other 319,406 568,572 871,648 1,581,044
Abandonment of oil and gas properties 30,851 -- 33,890 --
----------- ----------- ----------- -----------
1,759,036 2,377,773 4,730,543 6,615,730
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 208,501 679,104 640,149 1,548,527
----------- ----------- ----------- -----------
OTHER INCOME
Interest 17,067 20,482 43,360 66,158
Other 3,029 (817) 3,091 1,537
Gain (loss) on sale of property and equipment 671 (125) 2,568 (2,597)
----------- ----------- ----------- -----------
20,767 19,540 49,019 65,098
----------- ----------- ----------- -----------
OTHER EXPENSE
Interest 165,948 437,836 670,539 1,437,355
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 63,320 260,808 18,629 176,270
PROVISION FOR TAXES ON INCOME
Current -- -- -- --
Deferred -- -- -- --
----------- ----------- ----------- -----------
-- -- -- --
----------- ----------- ----------- -----------
NET INCOME $ 63,320 $ 260,808 $ 18,629 $ 176,270
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Financial Statements
4
<PAGE> 6
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For The Periods Ended December 31, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME (LOSS), applicable to common
stock (after preferred stock dividends
paid or in arrears of $67,066 and
$58,216 for the three months ended
December 31, 1997 and 1998; and $201,198
and $183,748 for the nine months ended
December 31, 1997 and 1998) $(3,746) $202,592 $(182,569) $(7,478)
======= ======== ========= =======
NET INCOME (LOSS) PER SHARE
(basic and diluted) $ (.00) $ .01 $ (.01) $ (.00)
======= ======== ========= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 16,577,098 22,762,243 13,286,233 18,756,224
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Financial Statements
5
<PAGE> 7
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Nine Months Ended December 31, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,629 $ 176,270
Adjustments to reconcile net income to cash provided by
operating activities-
Depreciation, depletion, amortization and other 871,648 1,581,044
Abandonment of oil and gas properties 33,890 --
(Gain) loss on sale of property and equipment (2,568) 2,597
Change in:
Accounts receivable (287,115) (1,323,563)
Other current assets -- (79,672)
Other assets 86,932 (15,243)
Accounts payable 342,081 171,448
Accrued expenses (114,624) 193,393
Billings in excess of costs on uncompleted contracts 1,605,255 1,908,832
------------ ------------
Total adjustments 2,535,499 2,438,836
------------ ------------
Net cash provided by operating activities 2,554,128 2,615,106
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,179,221) (19,058,995)
Proceeds on sale of property and equipment 2,000 --
------------ ------------
Net cash used for investing activities (1,177,221) (19,058,995)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of accounts payable used to finance property and
equipment additions (87,161) --
Borrowings under revolving credit facility 200,000 17,962,370
Repayments of borrowings under revolving credit facility (2,840,000) (4,500,000)
Net proceeds from the issuance of Common Stock 4,726,008 4,934,768
Payments on long-term debt (1,536,386) (79,177)
Cash paid for deferred financing cost -- (150,000)
Proceeds from issuance of long-term debt -- 158,031
Distributions and dividends (67,066) (143,508)
------------ ------------
Net cash provided by financing activities 395,395 18,182,484
INCREASE IN CASH AND EQUIVALENTS $ 1,772,302 $ 1,738,595
============ ============
</TABLE>
The accompanying notes are an integral part of these Financial Statements
6
<PAGE> 8
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For The Nine Months Ended December 31, 1997 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD $1,503,278 $1,578,984
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $3,275,580 $3,317,579
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 583,137 $1,372,861
Income taxes $ 11,049 $ 68,711
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Long-term debt incurred for the purchase of property and equipment $ -- $ 158,031
Accounts payable incurred for the purchase of property and equipment $ -- $ --
Accounts payable from interest incurred on long term debt $ -- $ 106,872
Stock bonus given to employees $ 10,270 $ 9,759
Common stock issued for Director fees $ 59,719 $ --
</TABLE>
The accompanying notes are an integral part of these Financial Statements
7
<PAGE> 9
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Summary of Accounting Policies
A. General
The consolidated financial statements included herein, have been
prepared by North Coast Energy, Inc. without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position have
been made.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto which are incorporated in the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1998.
The results of the operations for the interim periods may not
necessarily be indicative of the results to be expected for the full
year. In addition, the preparation of these financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
B. Principles of Consolidation
The consolidated financial statements include the accounts of North
Coast Energy, Inc. and its wholly owned subsidiaries (the Company),
North Coast Operating Company (NCOC), and NCE Securities, Inc. (NCE
Securities). In addition, the Company's investments in oil and gas
drilling partnerships, which are accounted for under the proportional
consolidation method, are reflected in the accompanying financial
statements. The Company's ownership of revenues in these drilling
partnerships are as follows:
<TABLE>
<S> <C>
Capital Drilling Fund 1986-1 Limited Partnership 13.2%
North Coast Energy/Capital 1987-1 Appalachian Drilling Program Limited Partnership 51.2%
North Coast Energy/Capital 1987-2 Appalachian Drilling Program Limited Partnership 43.3%
North Coast Energy/Capital 1988-1 Appalachian Drilling Program Limited Partnership 44.4%
North Coast Energy/Capital 1988-2 Appalachian Drilling Program Limited Partnership 48.6%
North Coast Energy 1989 Appalachian Drilling Program Limited Partnership 36.0%
North Coast Energy 1990-1 Appalachian Drilling Program Limited Partnership 44.4%
North Coast Energy 1990-2 Appalachian Drilling Program Limited Partnership 36.2%
North Coast Energy 1990-3 Appalachian Drilling Program Limited Partnership 38.5%
North Coast Energy 1991-1 Appalachian Drilling Program Limited Partnership 37.0%
North Coast Energy 1991-2 Appalachian Drilling Program Limited Partnership 32.9%
North Coast Energy 1991-3 Appalachian Drilling Program Limited Partnership 38.2%
North Coast Energy 1992-1 Appalachian Drilling Program Limited Partnership 28.3%
North Coast Energy 1992-2 Appalachian Drilling Program Limited Partnership 37.4%
North Coast Energy 1992-3 Appalachian Drilling Program Limited Partnership 54.0%
</TABLE>
8
<PAGE> 10
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 1. Summary of Accounting Policies (Continued)
<TABLE>
<S> <C>
North Coast Energy 1993-1 Appalachian Drilling Program Limited Partnership 42.0%
North Coast Energy 1993-2 Appalachian Drilling Program Limited Partnership 38.7%
North Coast Energy 1993-3 Appalachian Drilling Program Limited Partnership 36.7%
North Coast Energy 1994-1 Appalachian Drilling Program Limited Partnership 37.6%
North Coast Energy 1994-2 Appalachian Drilling Program Limited Partnership 29.4%
North Coast Energy 1994-3 Appalachian Drilling Program Limited Partnership 32.9%
North Coast Energy 1995-1 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1995-2 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1996-1 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1996-2 Appalachian Drilling Program Limited Partnership 20.0%
North Coast Energy 1997-1 Appalachian Drilling Program Limited Partnership 38.2%
North Coast Energy 1997-2 Appalachian Drilling Program Limited Partnership 22.1%
North Coast Energy 1998-1 Appalachian Drilling Program Limited Partnership 20.1%
</TABLE>
All significant intercompany accounts and transactions have been
eliminated.
Note 2. Long-term Debt
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1998
-------------- -----------------
<S> <C> <C>
Long-term debt consists of the following:
Revolving credit notes payable - bank $ 6,565,265 $20,027,635
Mortgage note payable to a bank, secured by land and
a building, requiring monthly payments of approximately
$1,019 (including interest at 8%) through July 2003. 52,571 46,436
Mortgage note payable to a bank, secured by land and
a building, requiring monthly payments of approximately
$5,248 (including interest at 8.58%). 507,404 492,913
Various installment notes payable, in aggregate monthly
installments (including interest) of $6,860 at March 31,
1998, and $9,800 at December 31, 1998. 134,095 233,575
----------- -----------
7,259,335 20,800,559
Less current portion 88,300 66,700
----------- -----------
$ 7,171,035 $20,733,859
=========== ===========
</TABLE>
9
<PAGE> 11
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 2. Long-Term Debt (Continued)
On February 9, 1998, the Company entered into an agreement with ING
(US) Capital Corporation to replace the $20,000,000 revolving credit
facility with its previous lender. On May 29, 1998, the Company entered
into an amended Credit Agreement with its lender increasing the Credit
Facility from $20,000,000 to $25,000,000. The Agreement provides for a
borrowing base which is determined semi-annually by the lender based
upon the Company's financial position, oil and gas reserves, as well as
outstanding letters of credit ($150,000 at December 31, 1998), as
defined. At December 31, 1998, the Company's borrowing base was
$25,000,000 subject to reduction for the outstanding letters of credit.
Available borrowings under the facility at December 31, 1998 were
$4,822,365 and may subsequently change based upon the semiannual
reserve study and borrowing base determination.
The revolving line of credit is reviewed semi-annually and may be
extended by an amendment to the current facility or converted to a term
loan on July 1, 1999. The lender has performed its semi-annual
borrowing base review and discussions indicate that the Company's
Credit Facility will be continued without payment of principal until
September 30, 2001. It is expected that an amendment to the Credit
Facility will be finalized during the Company's fiscal fourth quarter,
therefore, this debt has been reflected in the financial statements as
long-term.
Amounts outstanding under the reducing revolving line of credit bear
interest at the lending bank's prime rate plus .75% or LIBOR plus
2.50%, or approximately 10% and 7.85% at December 31, 1997 and December
31, 1998, respectively. The agreement requires the Company to pay a
commitment fee of .5% on the unused amount of available borrowings. The
agreement contains certain restrictive covenants, including working
capital, current ratio, tangible net worth, and EBITDA calculations, as
defined. The Company was in compliance with all covenants and
restrictions at December 31, 1998.
The revolving credit facility and the notes are collateralized by
substantially all of the Company's assets including receivables,
inventory, equipment and a first mortgage on certain of the Company's
interests in oil and gas wells and reserves.
Note 3. Billings in Excess of Costs on Uncompleted Contracts
Billings in excess of costs on uncompleted contracts consist of:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1998
---- ----
<S> <C> <C>
Billings on uncompleted contracts $ 335,920 $ 3,359,213
Costs incurred on uncompleted contracts 33,039 1,147,500
--------- -----------
$ 302,881 $ 2,211,713
========= ===========
</TABLE>
Note 4. Commitment and Contingencies
The Company and a commercial bank have issued standby letters of credit
which provide a guaranteed total amount of $150,000 in lieu of coverage
provided by insurance for road bond deposits against damage.
At December 31, 1998, the Company has committed to fund certain costs
of the North Coast Energy Appalachian Drilling Programs estimated to be
approximately $800,000 for tangible well equipment and pipeline
construction.
10
<PAGE> 12
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 5. Preferred Dividends
On December 31, 1998, the Company paid a dividend of $58,216 on the
cumulative convertible Series B Preferred Stock. For purposes of
computing earnings per share for the nine months ended December 31,
1998, dividends paid and in arrears on the cumulative convertible
Series B Preferred Stock were $183,748. Cumulative dividends in arrears
on the cumulative convertible Series B Preferred Stock are $375,570 at
December 31, 1998.
Note 6. Sale of Common Stock
On September 29, 1998 the Company sold 5,747,127 shares of its Common
Stock for $5 million to NUON International bv, a limited liability
company organized under the laws of the Netherlands ("NUON"), pursuant
to the terms of a stock purchase agreement ("Agreement") by and between
the Company and NUON dated August 1, 1997. Pursuant to the terms of the
Agreement and subject to the satisfaction of certain conditions,
including the development of a plan of complementary business, NUON may
purchase an additional 5,747,127 shares of Common Stock by September
30, 1999. Be exercising their option to purchase additional shares by
September 30, 1998, NUON's stock ownership increased to 51% of the
Company's outstanding Common Stock. NUON also exercised the right to
appoint two directors at the Company's December 1998 Annual Meeting.
A portion of the proceeds from the sale of Common Stock was utilized to
reduce the amount outstanding under the Company's Credit Facility with
the remaining proceeds being used for working capital purposes.
Note 7. Acquisition of Kelt Ohio, Inc.
In May 1998, the Company acquired oil and gas properties from Kelt Ohio
(the Kelt Ohio Acquisition") for a purchase price of approximately $16
million. The acquisition was accounted for as a purchase. The acquired
assets include approximately 900 natural gas and oil wells, brine
disposal facilities, drilling and service rigs, and natural gas
compressors and gas gathering systems.
The Company funded the acquisition primarily with borrowings under its
revolving credit facility which was amended in May 1998 to increase the
borrowing base to $25 million, as defined.
The accompanying unaudited pro forma financial information gives effect
to the Kelt Ohio Acquisition and the related financing in May 1998 for
approximately $16 million. The unaudited pro forma operating results
were prepared as if both the Kelt Ohio Acquisition and the sale of
Common Stock to NUON had occurred at April 1, 1997.
<TABLE>
<CAPTION>
December 31, 1997
Pro Forma
(unaudited)
-----------------
<S> <C>
TOTAL REVENUES $ 8,928,962
COSTS AND EXPENSES 7,141,587
INCOME FROM OPERATIONS 1,787,375
OTHER EXPENSES 1,877,103
-----------
NET LOSS $ (89,728)
===========
</TABLE>
11
<PAGE> 13
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Note 7. Acquisition of Kelt Ohio, Inc. (continued)
NET LOSS, applicable to Common Stock (after
Preferred Stock dividends paid or in arrears
of $201,198) $ (290,926)
=============
BASIC AND DILUTED EARNINGS, per Common Share $ (0.02)
=============
WEIGHTED AVERAGE SHARES, outstanding 16,546,422
=============
The pro forma operating results do not purport to present actual
operating results that would have been achieved had the acquisition and
financing been made at the beginning of the period presented or to
necessarily be indicative of future results of operations.
12
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
North Coast Energy, Inc., ("North Coast", the "Company") a Delaware
corporation, is an independent natural gas and oil company engaged in
exploration, development and production activities primarily in the Appalachian
Basin. The Company's strategy focuses primarily on the acquisition of proved
developed and proved undeveloped natural gas and oil properties and on the
enhancement or development of such properties by the Company or in conjunction
with drilling partnerships which the Company sponsors and manages (the "Drilling
Programs"). The Drilling Programs are funded through the sale of partnership
interests to non-industry investors and by contributions from the Company.
The following table is a review of the results of operations of the
Company for the nine months ended December 31, 1997 and 1998. All items in the
table are calculated as a percentage of total revenues.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Oil and gas production 37% 71% 40% 68%
Drilling revenues 26 0 23 4
Well operating, transportation and other 19 16 22 17
Administrative and agency fees 17 12 14 10
Other 1 1 1 1
--- --- --- ---
Total Revenues 100% 100% 100% 100%
--- --- --- ---
Expenses:
Oil and gas production expenses 10% 35% 12% 28%
Drilling costs 26 5 21 9
Oil and gas operations 3 2 7 6
General and administrative expenses 32 17 31 19
Depreciation, depletion, amortization and other 16 18 16 19
Abandonment of oil and gas properties 2 0 1 0
Provision for taxes on income 0 0 0 0
Other 8 14 12 17
--- --- --- ---
Total Expenses 97% 91% 100% 98%
--- --- --- ---
Net Income 3% 9% 0% 2%
= = = =
</TABLE>
The following discussion and analysis reviews the results of operations
and the financial condition for the Company for the three and nine months ended
December 31, 1997 and 1998. The review should be read in conjunction with the
financial information presented elsewhere herein.
COMPARISON OF NINE MONTHS ENDED DECEMBER 31, 1998 TO NINE MONTHS ENDED DECEMBER
31, 1997.
REVENUES
Oil and gas production revenues increased $3,483,513 (162%) to
$5,630,426 for the nine months ended December 31, 1998 compared to $2,146,913
for the prior corresponding period. This increase in oil and gas revenue is
primarily due to the increase of natural gas production related to approximately
760 producing oil and gas properties acquired from Kelt Ohio, Inc. ("Kelt"). The
sale of natural gas from the Kelt wells was contracted on
13
<PAGE> 15
June 15, 1998 for a period of one year at a price of approximately $2.85 per
Mcf. Management believes that the value of this contract will compose
approximately 50% of the Company's oil and gas revenue during the contract
period. Approximately 60% of the Company's oil and gas revenues are derived from
sales to a natural gas marketing firm. The increase in oil and gas production
revenues also reflects approximately $200,000 in production revenues resulting
from the Company's third quarter purchase of interests in prior Drilling
Programs for approximately $435,000. The Company received an average price of
$11.35 and $17.03 per barrel of oil for the nine months ended December 31, 1998
and 1997, respectively, and $2.62 and $2.45 per Mcf for natural gas for the nine
months ended December 31, 1998 and 1997, respectively.
Drilling revenues for the period decreased by $930,593 (74%) to
$326,958 for the nine months ended December 31, 1998 compared to $1,257,551 for
the nine months ended December 31, 1997 due to the decrease in the number of
wells recognized in revenue for the period. Drilling revenues were recognized on
2 wells for the nine months ended December 31, 1998 compared to 9 wells for the
nine months ended December 31, 1997. The Company raised $3,515,000 for its
fiscal 1999 Drilling Program compared to $2,718,000 for its fiscal 1998 Drilling
Programs. It is anticipated that the majority of the twenty-one 1999 Drilling
Program wells will be drilled and completed in the Company's fourth quarter and
that the associated revenue will be recognized at the end of the fiscal year.
For the nine months ended December 31, 1998, well operating,
transportation and other revenues increased $220,849 (18%) compared to the nine
months ended December 31, 1997. The increase was a result of increased well
operating, third party gas sales, and revenue from oilfield services and
transportation fees.
EXPENSES
Oil and gas production expenses increased to $2,269,790 for the nine
months ended December 31, 1998 from $625,445 for the nine months ended December
31, 1997 primarily due to the Kelt acquisition coupled with an increase
resulting from the fiscal third quarter purchase of interests in prior Drilling
Programs.
Drilling costs for the nine months ended December 31, 1998 compared to
the nine months ended December 31, 1997 decreased $425,081 (37%). This decrease
between comparable periods was due to the fewer number of wells drilled during
the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997. However, the overall decrease was offset by a higher per well
overhead allocation the Company experienced during the nine months ended
December 31, 1998 compared to the nine months ended December 31, 1997. The
Company continues to increase drilling expense by allocating overhead to this
activity although the wells which will be recognized in income will not be
drilled and completed until the fourth quarter. In September, the Company
initiated an enhancement and development program focused on completing wells
acquired from Kelt and the development of selective proved undeveloped reserves.
The Company does not recognize revenue on these drilling development activities.
At December 31, 1998, the Company had expended approximately $1 million on these
activities.
Oil and gas operations expenses increased $142,850 (39%) for the nine
months ended December 31, 1998 compared to the nine months ended December 31,
1997. This increase was primarily due to increased costs associated with
utilization of oilfield equipment acquired from the Kelt acquisition as well as
an increase in gas purchases related to unaffiliated third party gas sales for
the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997.
General and administrative expense decreased $152,433 (9%) primarily as
a result of a reallocation of overhead expenses related to integration of the
assets acquired from Kelt.
Interest expense increased to $1,437,355 for the nine months ended
December 31, 1998 from $670,539 for the prior corresponding period. This
increase reflects the increase in the average outstanding borrowings for the
comparable periods due to the increase in debt associated with the Kelt
acquisition.
Income from operations for the nine months ended December 31, 1998
increased to $1,548,527 from $640,149 for the nine months ended December 31,
1997. The increase in income from operations was primarily due
14
<PAGE> 16
to higher production volumes and an increased price of natural gas resulting
from the Kelt acquisition. The Company's net income increased $157,641 (846%)
from $18,629 for the nine months ended December 31, 1997 to $176,270 for the
nine months ended December 31, 1998.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1998 TO THREE MONTHS ENDED
DECEMBER 31, 1997.
REVENUE
Oil and gas production revenues for the three months ended December 31,
1998 increased $1,471,034 (201%) to $2,202,823 compared to $731,789 for the
prior corresponding period. The primary reason for the increase in oil and gas
production revenues was the acquisition of approximately 760 producing wells
acquired from Kelt on April 8, 1998 coupled with the acquisition of interests
from prior Drilling Programs. The Company received an average price of $11.40
and $16.02 per barrel of oil for the three months ended December 31, 1998 and
1997, respectively, and $2.65 and $2.81 per Mcf for natural gas for the three
months ended December 31, 1998 and 1997, respectively.
The Company did not complete nor did it recognize revenue on the
drilling of any wells for the three months ended December 31, 1998, compared to
4 wells for the three months ended December 31, 1997. In September, the Company
initiated an enhancement and development program focused on completing wells
acquired from Kelt and the development of selective proved undeveloped. The
Company does not recognize revenue on these drilling development activities.
Revenues generated from well operating, transportation and other
increased $109,490 (29%) for the three months ended December 31, 1998 as
compared to the three months ended December 31, 1997. This increase was due to
an increase in transportation revenue associated with the Kelt acquisition
coupled with a slight increase in revenue from well operating.
EXPENSES
Oil and gas production expenses increased to $1,072,629 for the three
months ended December 31, 1998 from $192,563 at December 31, 1997 primarily due
to the Kelt acquisition.
Drilling costs for the three months ended December 31, 1998 compared to
the three months ended December 31, 1997 decreased $367,066 (71%). This decrease
between comparable periods was due to the fewer number of wells drilled during
the period. Drilling costs were incurred during the period even though there was
no income recognized because of overhead allocated to drilling costs. The
Company formed a fiscal 1999 Drilling Program to drill 21 wells and, therefore,
the Company continued to allocate overhead to drilling costs.
General and administrative expense decreased $115,692 (18%) primarily
as a result of a reallocation of overhead expenses related to integration of the
assets acquired from Kelt.
Interest expense increased to $437,836 for the three months ended
December 31, 1998 compared to $165,948 for the three months ended December 31,
1997. This increase reflects the increase in the average outstanding borrowings
for the comparable periods due to the increase in debt associated with the Kelt
acquisition.
For the three months ended December 31, 1998 income from operations
increased $470,603 (226%) to $679,104 compared to $208,501 for the three months
ended December 31, 1997. Net income for the three months ended December 31, 1998
increased $197,488 (312%) to $260,808 from $63,320 for the three months ended
December 31, 1997.
15
<PAGE> 17
INFLATION AND CHANGES IN PRICES
The Company received an average price of $11.35 and $17.03 per barrel
for the nine months ended December 31, 1998 and 1997, respectively, and $2.62
and $2.45 per Mcf for natural gas for the nine months ended December 31, 1998
and 1997, respectively. On average, natural gas prices decreased $0.397/Mcf for
the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997 based on major price indices used in the Appalachian Basin
(TCO and CNG indices). However, the Company experienced a $0.17/Mcf increase for
its natural gas during this period. The increase can be attributed to the
Company continuing its marketing strategy of targeting small to medium sized
commercial end users and balancing the remainder of its gas between spot
Appalachian prices, Nymex based contracts and fixed price contracts. This
strategy allows the Company the greatest opportunity to exceed the average
regional prices, while minimizing the effects of a negative fluctuation. In
addition, the Company committed just over 50% of its natural gas production for
one year for the price of $2.855. This further minimizes the Company's exposure
to negative fluctuations in the spot market which have recently experienced an
industry-wide decline due to a surplus in storage and above normal temperatures
during the current winter months. Storage figures reached record levels by the
end of the summer and continue to be well above the four year average. The
Company received an average price of $11.40 and $16.02 per barrel for the three
months ended December 31, 1998 and 1997, respectively, and $2.65 and $2.81 per
Mcf for natural gas for the three months ended December 31, 1998 and 1997,
respectively. While the costs of operations have been and may continue to be
affected by inflation, oil and gas prices have fluctuated during recent years
and generally have not followed the same pattern as inflation. With today's
global economy, especially in the area of oil and natural gas, management
believes that other forces of the economy and world events, such as OPEC, the
weather, economic factors, and the effects of supply of natural gas in the
United States and regionally have a more immediate effect on current pricing
than inflation.
Currently, the Company sells natural gas under both fixed price
contracts and on the spot market. The spot market price the Company receives for
gas production is related to several variables, including the weather and the
effects of gas storage. The Company anticipates that spot market prices will
continue to fluctuate in response to various factors, primarily weather and
market conditions.
In an effort to position itself to take advantage of future increases
in demand for natural gas, the Company continues to construct new pipeline
systems in the Appalachian Basin and to contract with other pipeline systems in
the region to transport natural gas production from Company wells.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $1,672,000 at December 31, 1998
compared to $782,000 at March 31, 1998. The increase of $890,000 in working
capital from December 31, 1998 reflects the funds received from NUON when it
exercised its option to purchase $5 million of the Company's Common Stock on
September 29, 1998 and the formation of the fiscal 1998 Drilling Program. The
Company intends to invest in both 100% corporately owned wells and in wells
owned by Drilling Programs it sponsors. As of December 31, 1998, the Company had
$20,027,635 outstanding under its Credit Facility. North Coast's current ratio
was 1.35 to 1.0 at December 31, 1998 and 1.32 to 1.0 at March 31, 1998.
The following table summarizes the Company's financial position at
March 31, 1998 and December 31, 1998:
<TABLE>
<CAPTION>
(Amounts in Thousands) March 31, 1998 December 31, 1998
-------------- -----------------
Amount % Amount %
------- ------- ------- -------
<S> <C> <C> <C> <C>
Working capital $ 782 4% $ 1,672 4%
Property and equipment (net) 18,789 95% 35,867 91%
Other 275 1% 1,737 5%
------- ------- ------- -------
Total $19,846 100% $39,276 100%
======= ======= ======= =======
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
Amount % Amount %
------- ------- ------- -------
<S> <C> <C> <C> <C>
Long-term debt $ 7,171 36% $20,734 53%
Deferred income taxes and other liabilities 336 2% 1,235 3%
Stockholders' equity 12,339 62% 17,307 44%
------- ------- ------- -------
Total $19,846 100% $39,276 100%
======= ======= ======= =======
</TABLE>
CAPITAL RESOURCES AND REQUIREMENTS
The oil and gas exploration and development activities of North Coast
historically have been financed through the Drilling Programs, through
internally generated funds, and from bank and equity financings.
The following table summarizes the Company's Statements of Cash Flows
for the nine months ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
(Amounts in Thousands) 1997 1998
---- ----
Amount % Amount %
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net cash provided by operating activities $ 2,554 86% $ 2,615 13%
Net cash used for investing activities (1,177) (40)% (19,059) (92)%
Net cash provided by financing activities 395 13% 18,183 87%
-------- -------- -------- -------
Increase in cash and equivalents $ 1,772 59% $ 1,739 8%
======== ======== ======== =======
</TABLE>
Note: All items in the previous table are calculated as a percentage of
total cash sources. Total cash sources include the following items
if positive: cash flow from operations before working capital
changes, changes in working capital, net cash provided by investing
activities and net cash provided by financing activities, plus any
decrease in cash and cash equivalents.
As the above table indicates, the Company's cash provided by operating
activities increased remained relatively constant between the periods presented
and reflects the receipt of funds from the formation of the Drilling Programs.
Net cash used for investing activities increased to approximately
$19,059,000 for the nine months ended December 31, 1998 from approximately
$1,177,000 for the nine months ended December 31, 1997. The increase was
primarily due to the Kelt acquisition. The Kelt acquisition included
approximately 900 natural gas and oil wells and Kelt's brine disposal
facilities, drilling and service rigs, natural gas compressors and gas gathering
systems, and a large inventory of oilfield service equipment and supplies. The
addition of the service rigs and equipment will allow the Company to realize
cost savings and to generate additional revenues by servicing the Company's
wholly owned wells at a reduced cost and by servicing Drilling Program wells.
The Company invested approximately $1 million in drilling and development
activities associated with completing wells acquired from Kelt and the
development of proved undeveloped reserves.
Net cash from financing activities increased approximately $17,788,000
for the nine months ended December 31, 1998 compared to the nine months ended
December 31, 1997. This increase reflects the Company's borrowings under its
credit facility to finance the Kelt acquisition. Also reflected is the receipt
of $5 million from NUON on September 29, 1998 for the issuance of Common Stock
of the Company and the subsequent payment of a portion of the Company's Credit
Facility.
On February 9, 1998, the Company entered into an agreement with ING
(US) Capital Corporation to replace the $20 million revolving credit facility
with its previous lender. An amended credit facility dated May 29, 1998
17
<PAGE> 19
("Credit Agreement") expanded the Company's $20 million revolving credit
facility with ING ("ING") to a $25 million revolving credit facility ("Credit
Facility"). The Credit Agreement also provides for a borrowing base which is
determined semiannually by the lender based upon the Company's financial
position, oil and gas reserves, as well as outstanding letters of credit
($150,000 at December 31, 1998), as defined. The Credit Agreement requires
payment of an agent fee (0.75% for Credit Agreement) on amounts available and
1/2% commitment fee on amounts not borrowed up to the available line. At
December 31, 1998, the Company's borrowing base was $25 million subject to
reduction for the outstanding letters of credit. Available borrowings under the
facility at December 31, 1998 were $4,822,365 and may subsequently change based
upon the semiannual reserve study and borrowing base determination (see Note 4
to the Company's March 31, 1998 financial statements). The Credit Facility
provides that the payment of dividends with respect to the Common Stock of the
Company is prohibited. As of December 31, 1998, the Company had $20,027,635
outstanding under the Credit Facility, and was in compliance with its loan
covenants. Amounts borrowed under the Credit Facility bear interest at the prime
rate of the lending bank plus .75% or LIBOR plus 2.50%. The revolving line of
credit is reviewed semi-annually and extended by an amendment to the current
facility or converted to a term loan on July 1, 1999. The lender has performed
its semi-annual borrowing base review and discussions indicate that the
Company's Credit Facility will be continued without payment of principal until
September 30, 2001. It is expected that an amendment to the Credit Facility will
be finalized during the Company's fiscal fourth quarter, therefore, this debt
has been reflected in the financial statements as long-term.
The amounts borrowed under its reducing revolving line of credit are
secured by the Company's receivables, inventory, equipment and a first mortgage
on certain of the Company's interests in oil and gas wells and reserves. The
mortgage notes are secured by certain land and buildings.
In addition, at December 31, 1998, the Company had approximately
$46,436 outstanding under a mortgage note payable for their facility in
Youngstown. The mortgage note bears interest at the rate of 8% and requires the
Company to make monthly payments of approximately $1,019 through July 2003. The
Company purchased a building for its headquarters and entered a mortgage note on
May 13, 1996 for $540,000 over a 15-year term with an interest rate of 8.58% to
be renegotiated every five years. The amount outstanding under the mortgage note
at December 31, 1998 was $492,913.
On September 29, 1998 the Company sold an additional 5,747,127 shares
of its Common Stock for $5 million to NUON International bv, a limited liability
company organized under the laws of the Netherlands ("NUON"), pursuant to the
terms of a stock purchase agreement ("Agreement") by and between the Company and
NUON dated August 1, 1997. By exercising their option to purchase additional
shares by September 30, 1998, NUON's stock ownership increased to 51% of the
Company's outstanding Common Stock. NUON also exercised the right to appoint two
directors at the Company's December 1998 Annual Meeting. The Company issued
134,000 warrants representing the right of the holder to purchase one share of
Common Stock for $0.875 per share in connection with the sale of Common Stock to
NUON. Pursuant to the terms of the Agreement and subject to the satisfaction of
certain conditions, NUON may purchase an additional 5,747,127 shares of Common
Stock by September 30, 1999. The Company is also obligated to issue 134,000
warrants when NUON purchases an additional 5,747,127 shares. The additional
warrants represent the right to purchase one share of Common Stock for $0.875
per share.
The Company acquired certain assets and assumed certain obligations of
Kelt Ohio, Inc., ("Kelt") headquartered in Cambridge, Ohio. The Kelt acquisition
was made pursuant to a Purchase and Sale Agreement dated April 8, 1998 as
amended May 12, 1998. The purchase price for the acquired assets was
approximately $16 million. The acquired assets include approximately 900 natural
gas and oil wells and Kelt's brine disposal facilities, drilling and service
rigs, natural gas compressors and gas gathering systems, and a large inventory
of oilfield service equipment and supplies. The Company funded the acquisition
using cash and an increase in its existing line of credit. Approximately $15
million of the total purchase price was financed under an expanded credit
facility with the remaining amount paid in cash.
Management of the Company believes that general economic conditions and
various sources of available capital, including current available borrowings
under the Credit Facility will be sufficient to fund the Company's operations
and meet debt service requirements through fiscal 1999.
18
<PAGE> 20
YEAR 2000 READINESS DISCLOSURE
The Company has developed an action plan and identified the resources
required to convert its computer systems and software applications to achieve
Year 2000 compliance with no anticipated effect on its customers or disruption
of its business operations. The Company has already implemented the first three
phases of its four-phase action plan. In Phase One, the Company assessed its
information technology ("IT") and non-IT systems. The term "computer equipment
and software" includes systems that are commonly thought of as IT systems,
including accounting, data processing, telephone, scanning equipment and other
miscellaneous systems. Those items not considered IT systems include alarms, fax
machines and monitors for field operations. Both IT and non-IT systems may
contain embedded technology which complicates Year 2000 identification and
assessment efforts.
In Phase Two, the Company tested existing systems and determined
whether those systems suspect to Year 2000 compliance problems should be
replaced. In Phase Three, the Company replaced systems and software because of
the Year 2000 issue and because the Kelt acquisition necessitated newer and more
compatible systems. The Company estimates that the cost to complete Phases One,
Two and Three, which primarily includes the purchase of software and hardware
upgrades under normal maintenance agreements with third party vendors, will be
approximately $60,000. To date, the Company has incurred approximately 83.0% of
these anticipated costs.
Phase Four of the Company's action plan involves the implementation of
the Company's Year 2000 compliant software and the reevaluation of all of the
Company's material systems. The Company may engage independent consultants to
assist in completing Phase Four. The additional cost of these independent
consultants has not been determined and has not yet been included in the
Company's Year 2000 compliance cost estimates.
In addition, the Company has discussed Year 2000 compliance issues with
its vendors and customers. Although the Company has no reason to believe that
its vendors and customers will not be Year 2000 compliant, the Company is unable
to determine the extent to which Year 2000 issues will effect its vendors and
customers. The Company continues to discuss procedures necessary to address this
issue with its vendors and customers.
The Company presently does not plan to incur significant operational
problems due to the Year 2000 issue. However, there can be no assurance that the
Year 2000 issue will not materially impact the Company's financial condition or
results of operations, or adversely effect its relationship with customers,
vendors and others. Additionally, there can be no assurance that the Year 2000
issues of other entities will not have a material impact on the Company's
systems or results of operations.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
which may require the Company to report certain information about operating
segments including product, services and geographical areas. SFAS No. 131 is
required to be adopted for financial statements with fiscal years beginning
after December 15, 1997. The Company has not determined the impact, if any, of
this standard.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, the
competition within the oil and gas industry, the price of oil and gas in the
Appalachian Basin area, the weather in the Company's geographic region, possible
acquisitions by the Company, the cost of the locating and drilling oil and gas
wells in the Appalachian Basin area, the amount of funds raised in Drilling
Programs, and the ability to locate productive oil and gas prospects for
development by the Company.
19
<PAGE> 21
NORTH COAST ENERGY, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable
Item 2. CHANGES IN SECURITIES
Not applicable
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
27.1 Financial Data Schedule*
b). Reports on Form 8-K:
No reports on Form 8-K have been filed during the quarter for
which this report was filed.
*Exhibit 27.1 furnished for Security and Exchange purposes only.
20
<PAGE> 22
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.
NORTH COAST ENERGY, INC.
February 16, 1999 /s/ Charles M. Lombardy, Jr.
-----------------------------------------
Charles M. Lombardy, Jr.
Chief Executive Officer and Director
February 16, 1999 /s/ Tim Wagers
------------------------------------------
Tim Wagers
Principal Accounting and Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000839950
<NAME> NORTH COAST ENERGY, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,317,579
<SECURITIES> 0
<RECEIVABLES> 2,731,288
<ALLOWANCES> 0
<INVENTORY> 176,669
<CURRENT-ASSETS> 6,389,819
<PP&E> 50,566,039
<DEPRECIATION> 14,698,782
<TOTAL-ASSETS> 43,993,942
<CURRENT-LIABILITIES> 4,718,067
<BONDS> 0
0
3,074
<COMMON> 227,825
<OTHER-SE> 17,075,917
<TOTAL-LIABILITY-AND-EQUITY> 43,993,942
<SALES> 8,164,257
<TOTAL-REVENUES> 8,164,257
<CGS> 6,615,730
<TOTAL-COSTS> 6,615,730
<OTHER-EXPENSES> (65,098)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,437,355
<INCOME-PRETAX> 176,270
<INCOME-TAX> 0
<INCOME-CONTINUING> 176,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,270
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
</TABLE>
